Drug makers face sweeping distribution overhaul

The Chinese government has announced a new policy to fundamentally reduce marked-up prices and corruption in multi-tier distribution chains. The policy effectively requires, under most circumstances, at most only two invoices to be issued throughout the distribution chain, with one from the manufacturer to a distributor, and another from the distributor to the end hospital. Though this applies only to drugs, some provinces reportedly have been implementing similar policies for medical devices.

Eight central ministries, including the National Health and Family Planning Commission, China Food and Drug Administration, National Development and Reform Commission and the Medical Reform Office of the State Council, released the new policy, described in the Circular on Issuance of the Implementing Opinions on the Launch of the “Two-Invoice System” in Pharmaceutical Procurement by Public Medical Institutions (Trial Implementation) (Circular). The Circular takes effect from the issuance date of December 26, 2016.

Drug manufacturers using complex, multilayer distribution chains will likely be required to revamp their distribution models to comply with this change. Drug makers and distributors must prepare for the implementation of the Two-Invoice System in the drug procurement by public medical institutions.