China's Centralized Procurement & Health System Reform Policies: Key Updates

In recent years, China has undertaken significant reforms in its healthcare sector, focusing on improving the procurement and use of medicines and medical consumables through centralized, volume-based procurement (referred to as "centralized procurement").

These reforms are aimed at enhancing cost-effectiveness, ensuring medicine accessibility, and streamlining healthcare service delivery. Key updates were provided in the notification issued by National Healthcare Security Administration (NHSA) and the National Health Commission (NHC) on November 18, 2024, which detail the policy changes for 2024.

The new guidelines are pivotal for compliance and regulatory affairs managers to ensure adherence to evolving healthcare procurement practices and to align operations with national goals.

1) Ensuring Entry of Selected Products into Medical Institutions

One of the primary objectives of this centralized procurement mechanism is ensuring that the medicines and medical consumables selected through the process are promptly made available to medical institutions. For compliance and regulatory managers, this means overseeing that hospitals and clinics meet the procurement targets, sign agreements with selected suppliers, and ensure timely delivery.

2) Improving Management of Product Usage

The policy stresses the need to enhance the internal management of procurement by medical institutions, especially concerning the use of selected medicines. Regulatory managers must ensure that institutions are aligning their procurement with clinical guidelines and complying with the requirements for selecting products based on clinical needs.

An important aspect of compliance is addressing the incentives for medical staff and ensuring that savings from procurement are used to improve their compensation. By developing strong internal monitoring and reporting mechanisms, institutions can avoid unnecessary procurement of non-selected medicines and ensure better compliance with volume-based targets.

3) Centralized Procurement Savings & Retention Policies

One of the key features of this reform is the surplus retention policy, where funds saved through cost-effective procurement are retained by medical institutions. Compliance managers must ensure that these savings are properly calculated and allocated to incentivize hospitals and clinics to meet their procurement targets.

The allocation process should be transparent, with savings distributed based on the volume of products reported and actual consumption. This ensures that the funds are directed where they can maximize healthcare outcomes.

4) Strengthening Compliance with Regulatory Monitoring Systems

To improve compliance, the policy requires enhanced monitoring systems that track procurement progress, consumption rates, and anomalies in the supply chain. These systems should provide real-time alerts for any deviations, such as underperformance in procurement progress or overuse of non-selected products.

Compliance managers must work closely with provincial and local health authorities to ensure that monitoring systems are in place and functioning effectively.

5) Performance Evaluation & Compliance in Procurement

The policy also outlines clear performance metrics for medical institutions based on their procurement volumes. Institutions must meet the required procurement targets, and any deviation from these targets must be justified.

Additionally, special consideration is given to institutions that face legitimate clinical demand changes, such as due to public health emergencies or changes in clinical guidelines.

6) Collaboration & Industry-wide Regulatory Oversight

A collaborative approach is required to address issues like "kickback" practices and unethical procurement behavior. Compliance managers must work closely with regulatory bodies, such as the NHSA and NHC, to ensure that any signs of corruption or unethical sales practices are identified and rectified.This also includes overseeing the proper handling of supply chain issues, such as delays or selective delivery by suppliers.

Conclusion

The evolving landscape of centralized procurement in China presents both opportunities and challenges for compliance and regulatory affairs managers. The policy updates issued on November 18, 2024, with implementation starting in 2024, emphasize transparency, efficiency, and accountability, while also enhancing the quality and accessibility of healthcare services.

By actively monitoring compliance, managing procurement targets, and fostering industry collaboration, regulatory teams play a crucial role in ensuring the success of these reforms. It is essential for all stakeholders involved to stay informed about these changes and work together to promote a compliant, sustainable healthcare environment.

Further Information

Read the original notice of the NHSA and the NHC on Improving the Working Mechanism for Centralized Procurement and Implementation of Medicine here.

For more information on how these updates might impact your development process, contact us to learn about our specialized drug registration and filing services in China.