McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai. This China Law Alert was authored by MWE China Law Offices lawyer Henry (Litong) Chen.
On 17 January 2009, several government agencies jointly issued the Opinions on Strengthening the Centralised Procurement of Drugs by Medical Institutions for the purpose of regulating the centralised procurement by medical institutions of drugs, controlling unreasonably high drug prices, regulating purchase and sales orders, restricting and prohibiting commercial bribery, and reducing the general public’s burden resulting from high expenses for pharmaceuticals. The government agencies that jointly issued the Opinions include the Ministry of Health, the State Council Office for Rectifying Business Misconducts, the National Development and Reform Commission, the State Administration for Industry and Commerce, the State Food and Drug Administration, and State Administration of Traditional Chinese Medicine.
Online Procurement Platform
The Opinions call for the full-scale implementation of the centralised online procurement of drugs under the direction of the local government at the levels of provinces, autonomous regions and municipalities directly under the central government.
Specifically, the local governments shall establish management departments, executive departments and not-for-profit platforms for the centralised procurement of drugs. The local governments shall make sure that the platforms are fully functional with sufficient facilities, staffing and financing.
The Opinions require that all not-for-profit medical institutions under the people’s governments at county level or above, or owned by state-owned enterprises (including state holding enterprises), must participate in the centralised drug procurement process. All other medical institutions are also encouraged to participate in the centralised drug procurement process. In principle, centralised procurement shall be conducted once a year.
Centralised Procurement Drug Catalogue and Procurement Methods
All provinces, regions and municipalities shall make use of the centralised drug procurement catalogues. Class 2 psychotropic drugs, toxic drugs for medical use and radioactive pharmaceuticals under the special administration of the State, as well as raw materials for Chinese medicine and processed Chinese medicine, can be exempted from the Centralised Drug Procurement Catalogue. Narcotic drugs and Class 1 psychotropic drugs are also exempted from the Centralised Drug Procurement Catalogue. Except for the above-mentioned drugs, all other drugs used by medical institutions in theory shall be categorised under the Centralised Drug Procurement Catalogue.
Drugs under the Centralised Drug Procurement Catalogue shall be procured by means of public tendering and bidding (公开招标), online auction (网上竞价), collective bargaining (集中议价) and listing online (直接挂网) (including undertaking governmental pricing directly). Drugs that have been collectively purchased many times with a non-fluctuating price could be directly listed online, about which the provincial governments shall make implementation rules.
Evaluating Drug Procurement
Scientific measures shall be established for evaluating the centralised procurements on the basis of the principle of “priority in quality and reasonable in pricing”. Clinical performance, quality, technology level, price, service, reputation and other factors shall be taken into consideration when evaluating the overall situation of pharmaceuticals.
Reducing Circulation Links of Drugs
By centralised procurements of drugs, bidding by wholesaling enterprises shall be changed to direct bidding by pharmaceutical manufacturers. The drugs shall be, in principle, distributed directly to medical institutions by manufacturers or by pharmaceutical trading enterprises with modern logistics capacity as authorised by manufacturers.
Performing Drug Purchase and Sale Contracts
A medical institution shall enter into a drug purchase and sale contract with the bid-winning (or endorsed) drug manufacturer or the wholesale enterprise authorised by the manufacturer, specifying the varieties, specifications, quantities, prices, dates of payment, methods of performance of contract, liabilities for breach of contract, etc. The contractual procurement quantity shall be determined based on the actual drug consumption by the medical institution for the previous year, subject to proper adjustment (increase or decrease).
Pharmaceutical enterprises and medical institutions shall fulfill their respective obligations and liabilities under the drug purchase and sale contracts in strict accordance with the Contract Law and other applicable laws and regulations. The contractual period shall not be less than one year. A medical institution shall purchase the drugs it will use according to the varieties, quantities, prices and supplying channels as specified in the drug purchase and sale contract, and may not purchase non-bid-winning (or not-endorsed) drugs. The time period of payment shall not exceed 60 days commencing from the date of arrival of goods. If a pharmaceutical enterprise fails to manufacture or supply drugs pursuant to the contract, or a medical institution fails to purchase the drugs pursuant to the contract or fails to make the payment within the specified time limit, it shall pay the liquidated damages at a certain percentage (the specific percentage shall be determined by a provincial authority on centralised procurement of drugs).
The Opinions also require medical institutions to strengthen administrative oversight of drug prescriptions in order to enhance prescription performance and prevent the prescription of drugs for the purpose of pursuing economic interests. Further, the Opinions require various governmental agencies to closely cooperate with each other to enforce laws and regulations.