Overview of Medical Consumables Centralized Procurement Policy

Centralized procurement refers to the centralized procurement of goods, engineering, and services included in the centralized procurement catalog. To control medical expenses, improve procurement transparency, and regulate chaos in the pharmaceutical distribution sector, China began implementing centralized procurement of medical consumables in 2001. Currently, centralized procurement in China's medical industry has entered a stage of "normalization and institutionalization," and the scope of centralized procurement continues to expand. To vigorously develop centralized procurement in the medical industry, the state has published a series of procurement-related policies, the specific contents of which can be summarized as follows:

On January 1, 2019, the General Office of the State Council published the "State Organizational Pilot Program for Centralized Drug Procurement and Use," which clarified the overall approach of "state-organized, alliance-based procurement, and platform-based operations," and proposed four specific measures: volume-based procurement, price reduction through volume; integrated tendering and procurement, ensuring usage; ensuring quality, guaranteeing supply; and ensuring repayment, reducing transaction costs.

On September 25, 2019, the National Healthcare Security Administration, the Ministry of Industry and Information Technology, and other departments published the "Opinions on Expanding the Pilot Program for State-Organized Centralized Drug Procurement and Use to Cover More Regions," which expanded the pilot scope to regions beyond the pilot cities, forming alliances at the provincial level. The expanded procurement allows multiple pharmaceutical companies to be selected, with generally no more than 3 selected companies per drug. At the same time, the agreed procurement volume is determined based on 50%-70% of the historical procurement volume of the previous year according to the number of selected companies, so as to obtain 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 Medical Security System" (Zhongfa [2020] No. 5). The document pointed out: The leading role of centralized drug and medical consumables procurement in deepening supply-side reform of medical services should be fully utilized, promoting integrated reform of medical insurance, healthcare, and pharmaceutical systems, strengthening policy and management coordination, and ensuring that the people receive high-quality and affordable medical services. A series of guiding opinions were proposed regarding medical insurance payment standards, procurement credit evaluation systems, and other related contents.

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

On October 15, 2021, the Leading Group for Deepening Healthcare System Reform of the State Council published the "Implementation Opinions of the Leading Group for Deepening Healthcare System Reform of the State Council on Deeply Promoting the Experience of Sanming City in Fujian Province and Deepening Healthcare System Reform." The document emphasized that provinces should conduct or participate in centralized drug and consumables procurement at least once each year.

Analysis of Centralized Procurement Models

Currently, the centralized procurement methods for medical consumables in China are mainly divided into three types: volume-based procurement, original centralized procurement, and listed procurement access.

Volume-based procurement refers to the principles of "integrated tendering and procurement," "volume-price linkage," "volume-price linkage," "price reduction through volume," and "ensuring usage" as stipulated in the "Guiding Opinions on Conducting State-Organized Centralized Procurement and Use of High-Value Medical Consumables" jointly issued by the National Healthcare Security Administration and seven other departments, which apply to medical consumables or reagents with high procurement costs, large clinical usage, and sufficient market competition. Under this model, the selected prices of medical consumables or reagents are determined through market-based approaches such as independent quotation, competitive bidding, and review by enterprises. All medical institutions procure according to the selected prices and shall not negotiate.

The original centralized procurement model refers to the categorized centralized procurement model primarily consisting of dual-envelope, comprehensive evaluation, and inquiry-based competitive bidding approaches that formed under the guidance of a series of national policies after 2015. This model has both connections to and differences from the current "volume-based procurement" required by policies. This procurement model does not include agreements on procurement volume requirements, and centralized procurement serves only as an access threshold. The winning prices are formed through centralized procurement, and similarly requires medical institutions not to negotiate on prices.

The listed procurement access model is a relatively familiar model in the industry, which has been continuously used since 2005. In addition to centralized procurement products through the first two methods, medical consumables or reagents meeting access conditions can be directly listed on the procurement platform, and medical institutions procure according to the listed prices. With the application of medical consumables coding, various provinces have further improved the listing access rules and adjusted the access conditions. Many provinces have proposed that medical institutions, medical alliances (communities), or regions can negotiate with suppliers, and some provinces have established "red, yellow, green" early warning mechanisms, requiring procurement to be conducted according to negotiated prices.

From national data, in 2021, 31 provinces conducted centralized volume-based procurement and listed access projects. Zhejiang, Fujian, Shanxi, Guangxi, and Ningxia continued to use the original centralized procurement model for centralized volume-based procurement of some products.

Development Trends of Medical Consumables Centralized Procurement

Centralized procurement of consumables was incorporated into medical insurance fund budget management in 2019, and arrangements were made for volume-based procurement work across all provinces and cities nationwide. With the continuous introduction of national policies, centralized volume-based procurement of high-value consumables will surely accelerate, and related enterprises will also usher in new development opportunities. In the coming years, centralized procurement of high-value consumables may continue to expand, and market concentration will also further increase.

According to the requirements of the "14th Five-Year Plan for National Medical Security" published by the State Council on September 23, 2021, by 2025, the number of national and provincial centralized drug procurement varieties in each province (autonomous region, municipality) should reach 500 or more. Currently, national procurement has involved 234 varieties, and with the 58 varieties reported for the seventh round of procurement, national procurement has involved a total of 292 varieties. As the "drug volume-based procurement" reform enters a stage of "normalization and institutionalization," drug centralized procurement will also enter a new stage of development.Under the joint guidance of the National Healthcare Security Administration and the National Health Commission, a new round of medical consumables volume-based procurement has been fully launched, and phased achievements have been made in national organizational drug centralized procurement and medical consumables centralized procurement.(1) In terms of high-value consumables, multiple varieties including intraocular lenses and cardiac pacemakers will be piloted;(2) Selected product prices will be significantly reduced, with selected products降价 no less than 80%;(3) Varieties that achieve "zero markup" sales through volume-based tendering and procurement are expected to significantly reduce medical institutions' procurement costs for drugs and high-value medical consumables.