Overview of Centralized Procurement Policies for Medical Consumables

Centralized procurement refers to the centralized procurement of goods, projects, and services listed in the centralized procurement catalog. To control medical expenses, enhance procurement transparency, and regulate irregularities in the pharmaceutical distribution sector, China has implemented centralized procurement of medical consumables since 2001. At present, centralized procurement in China's healthcare industry has entered a stage of "normalization and institutionalization," with the scope of centralized procurement continuing to expand. To vigorously promote centralized procurement in the healthcare industry, the national level has issued a series of procurement-related policies, the specifics of which can be summarized as follows:

On January 1, 2019, the General Office of the State Council published the "Pilot Plan for Centralized Drug Procurement and Use Organized by the State," which clarified the overall approach of "state organization, alliance procurement, and platform operation" and proposed four specific measures: procurement with volume commitment, exchanging volume for price; integration of procurement and use to ensure consumption; quality assurance to guarantee supply; and ensuring payment to reduce transaction costs.

On September 25, 2019, the National Healthcare Security Administration, the Ministry of Industry and Information Technology, and other departments published the "Implementation Opinions on Expanding the Regional Scope of the Pilot Program for Centralized Drug Procurement and Use Organized by the State," expanding the pilot scope to relevant areas outside the pilot cities, forming alliances on a provincial basis. The expanded centralized procurement allows multiple pharmaceutical enterprises to be selected, with generally no more than three enterprises selected per drug. At the same time, the contracted procurement volume is determined based on 50% to 70% of the historical procurement volume of the previous year, depending on the number of selected enterprises, thereby securing corresponding market shares.

On March 5, 2020, the Central Committee of the Communist Party of China and the State Council published the "Opinions on Deepening the Reform of the Healthcare Security System" (Zhong Fa [2020] No. 5). The document stated that the leading role of centralized volume-based procurement of drugs and medical consumables in deepening the supply-side reform of medical services should be fully leveraged, promoting the systematic integration of healthcare insurance, medical services, and pharmaceutical reforms, strengthening policy and management coordination, ensuring that the public receives high-quality and affordable medical services, and providing a series of guiding opinions on issues such as medical insurance payment standards and the credit evaluation system for procurement and bidding.

On June 24, 2021, the National Healthcare Security Administration, the National Development and Reform Commission, and other departments jointly published the "Guiding Opinions on Carrying Out Centralized Volume-Based Procurement and Use of High-Value Medical Consumables Organized by the State." This document proposed that, in order to implement the "Opinions of the Central Committee of the Communist Party of China and the State Council on Deepening the Reform of the Healthcare Security System," improve the price formation mechanism for high-value medical consumables, address the issue of inflated prices, and further significantly reduce patients' medical burdens, volume-based procurement should be conducted for "consumables with large clinical usage, high procurement amounts, mature application, relatively sufficient market competition, and a high level of homogeneity."

On October 15, 2021, the Leading Group for Deepening the Reform of the Medical and Health System of the State Council published the "Implementation Opinions of the Leading Group for Deepening the Reform of the Medical and Health System of the State Council on Deeply Promoting the Experience of Sanming City, Fujian Province and Deepening the Reform of the Medical and Health System." The document emphasized that provincial-level entities should conduct or participate in at least one centralized volume-based procurement of drugs and one of medical consumables each year.

Analysis of Centralized Procurement Models

Currently, the centralized procurement methods for medical consumables in China are primarily divided into three types: volume-based procurement, original centralized procurement, and admission-based online listing procurement.

The volume-based procurement method, in accordance with the "Guiding Opinions on Conducting National Organized Centralized Volume-Based Procurement and Use of High-Value Medical Consumables" jointly issued by the National Healthcare Security Administration and eight other departments, applies to medical consumables or reagents with high procurement amounts, large clinical usage, and sufficient competition. It adheres to the principles of "integration of procurement and contracting," "linkage of volume and price," "exchange of volume for price," and "ensuring utilization." Under this model, the winning bid prices for medical consumables or reagents are determined through market-oriented approaches such as independent enterprise quotations, competitive bidding, and evaluation. Medical institutions shall procure at the winning bid prices and are prohibited from negotiating prices.

The original centralized procurement method refers to the classification-based centralized procurement approach formed after 2015 under the guidance of a series of national policies, dominated by mechanisms such as double-envelope bidding, comprehensive evaluation, and inquiry-based competitive bidding. This method is both related to and distinct from the currently mandated "volume-based procurement method." It does not involve an agreement on procurement volume; centralized procurement serves merely as an admission threshold, with winning bid prices determined through centralized procurement. Similarly, medical institutions are required not to negotiate prices.

The admission-based online listing procurement method is a relatively familiar model in the industry, which has been in use since 2005. Except for products procured through the aforementioned two methods, medical consumables or reagents that meet the admission criteria may be directly listed on the procurement platform, and medical institutions shall procure them at the listed prices. With the application of medical consumable coding, various provinces have further refined the admission rules and adjusted the admission conditions. Many provinces have proposed that medical institutions, medical alliances (associations or communities), or regions may negotiate prices with suppliers. Some provinces have also established a "red-yellow-green" early warning mechanism, requiring centralized procurement to be conducted at the negotiated prices.

According to national data, in 2021, 31 provinces carried out centralized volume-based procurement and admission-based online listing projects. The five provinces (autonomous regions) of Zhejiang, Fujian, Shanxi, Guangxi, and Ningxia continued to adopt the original centralized procurement method for the volume-based procurement of certain products.

Development Trends of Centralized Procurement of Medical Consumables

As early as 2019, the centralized procurement of consumables was incorporated into the budget management of medical insurance funds, and arrangements were made for volume-based procurement work across all provinces and municipalities nationwide. With the continuous introduction of national policies, the centralized volume-based procurement of high-value consumables is bound to accelerate, and related enterprises will face a new round of development opportunities. In the coming years, the centralized procurement of high-value consumables may continue to expand, and market concentration is expected to further increase.

Pursuant to the requirements set forth in the "14th Five-Year Plan for Universal Medical Insurance" published by the State Council on September 23, 2021, by 2025, each province (autonomous region, municipality directly under the Central Government) shall have no fewer than 500 varieties of drugs subject to centralized volume-based procurement at the national and provincial levels. Currently, national centralized procurement has covered 234 varieties, and with the addition of 58 varieties in the seventh round of procurement volume reporting, a total of 292 varieties have been included in national centralized procurement. As the reform of "volume-based drug procurement" enters a phase of "normalization and institutionalization," drug centralized procurement is poised to enter a new stage of development.Under the joint guidance of the National Healthcare Security Administration and the National Health and Family Planning Commission, a new round of volume-based procurement for medical consumables has been fully initiated, and phased achievements have been made in the centralized drug procurement and centralized medical consumables procurement organized by the state.(1) In terms of high-value consumables, pilot programs will be carried out for multiple varieties, including intraocular lenses and cardiac pacemakers;(2) The prices of selected products will be significantly reduced, with a price reduction of no less than 80% for such products;(3) Varieties sold at "zero markup" through volume-based tendering and procurement are expected to substantially lower the procurement costs of drugs and high-value medical consumables for medical institutions.