Drug Centralized Procurement in China: Concerns and Implications for Drug Quality and Access

Zijing Yang (LLM expected 2025), student fellow, Center for Law and the Biosciences

In the fall of 2024, during the flu season, discussions began to heat up on Chinese social media about the difficulty of obtaining brand-name azithromycin (Zithromax), manufactured by Pfizer, in public hospitals, as well as the doubt over the slow efficacy of domestically manufactured generic versions of this drug. This sparked public concerns that brand-name medicines might gradually disappear from public hospitals[1], leaving patients with no choice but to turn to lower-quality generic drugs. This discussion gained even more momentum after media reports in China highlighted a proposal titled “How to Ensure Access to Effective Drugs Under the Drug Centralized Procurement”, which was submitted by medical experts at the third session of the 14^th Shanghai Committee of the Chinese People’s Political Consultative Conference (the “CPPCC”)[2], held from January 14 to 17, 2025 in Shanghai.

These online discussions and the proposal from the medical experts mentioned above both focus on issues related to the public’s right to access brand-name medicines and concerns over the quality of generic drugs under China’s recently implemented nationwide drug centralized procurement policy (the “Centralized Procurement”), which is organized by China’s National Healthcare Security Administration (the “NHSA”).

Centralized Procurement in China

The Centralized Procurement is a key policy in China’s healthcare reform in recent years. It was initially piloted in 11 cities, including Beijing and Shanghai, starting in 2018, and has since been gradually expanded nationwide. The NHSA has so far launched ten rounds of Centralized Procurement in China since 2018, involving 435 types of drug products[3].

The Centralized Procurement works as follows: the NHSA first collects and consolidates purchase requests for the same medication from public hospitals across the country, and then conducts a national procurement process, where pharmaceutical companies independently bid and set their prices. This system mainly applies to drugs whose patents have expired, are produced by multiple manufacturers, and face significant market competition. Innovative drugs and orphan drugs are excluded from the scope of the Centralized Procurement. Furthermore, the Centralized Procurement is limited to public hospitals in China and does not extend to private or foreign-invested medical institutions.

The primary goal of the Centralized Procurement is to reduce drug prices and ease the financial burden on the public for medical services. It operates through a “volume-based pricing” mechanism, where the bidding price is tied to a predetermined purchase quantity. This provides pharmaceutical companies with a guaranteed sales volume, motivating them to lower their bidding prices to secure a place in the Centralized Procurement. Additionally, the system helps cuts costs in the drug distribution process by allowing pharmaceutical companies to directly supply drug products to hospitals through the Centralized Procurement, eliminating the need for promotional activities at individual hospitals. As a result, the Centralized Procurement has significantly reduced the commercial bribery that was once common in the drug sales process in China and has lowered the high marketing costs that were previously built in drug prices.

The reduction in drug prices following the implementation of the Centralized Procurement in China has been significant. According to the data from the NHSA, the average price reduction from the first nine rounds of the Centralized Procurement was approximately 50%, with some products seeing price cuts of over 90%. In the tenth round of the Centralized Procurement held in December 2024, the average price reduction surpassed 70%, driven by new changes in the bidding rules.

Concerns over the Quality and Efficacy of Generic Drugs

 Since price is the primary factor in the bidding process for the Centralized Procurement, domestic generic drugs are usually selected over brand-name products. In the first nine rounds of the Centralized Procurement, domestic generic drugs accounted for 96% of the winning bids, while brand-name drugs were largely excluded.

While the Centralized Procurement has resulted in a substantial reduction in drug prices, it has also sparked concerns among the public in China regarding the quality of the domestic generic drugs chosen for procurement. In fact, most Chinese people may not fully understand the difference between brand-name drugs and generic drugs, with many referring to them simply as imported drugs and domestic drugs. However, the long-standing perception in Chinese society, common across many industries, that imported products are generally superior has led people to question whether the cheaper domestic (generic) drugs selected for the Centralized Procurement are considerably inferior in quality and efficacy compared to the higher-priced imported (brand-name) drugs.

Contrary to public perception, the quality of domestic generic drugs has actually improved since the introduction of the Centralized Procurement, which was also designed to elevate the overall quality of generics in the market. Before 2015, China had relatively lax approval standards for generic drugs, leading to generally lower quality levels for domestically manufactured generic. As a result, few Chinese generics could effectively compete with brand-name drugs for a long period, and the “patent cliff” was less common in the Chinese market.

To enhance the quality of generic drugs, the China National Medical Products Administration (the “NMPA”) revised the approval standard for generic drugs in 2015 to align with internationally recognized criteria, requiring generics to demonstrate equivalence in both quality and efficacy to their brand-name counterparts. However, generics approved under the previous standards are still being distributed in the market. It is the Centralized Procurement that has truly forced these low-quality generics out and raised the overall standard of generic drugs in China. This is because the NHSA mandates that any generic drugs entering the Centralized Procurement bidding process must pass a quality and efficacy equivalence evaluation. According to the data from the NHSA, before the implementation of the Centralized Procurement, brand-name medicines and generics that passed the equivalence evaluation accounted for only about 50% of the market, but after the introduction of the Centralized Procurement, this figure surged to around 95%.

Then, why are concerns about the quality of domestic generic drugs even more pronounced ten years after the NMPA adopted the quality and efficacy equivalence approval standard for generics? The public’s basic concern is that, if prices are set too low in the Centralized Procurement, leading to reduced profit margins for domestic pharmaceutical companies, they may lose the incentive to bring high-quality products to the market. Legally speaking, however, the real issue here lies not only in whether pharmaceutical companies are willing to do so, but in whether the NMPA can ensure that these companies continue to manufacture generics that meet the equivalence standards.

This issue also highlights the coordination and tension between NHSA and NMPA. As the healthcare agency directly organizing the Centralized Procurement, NHSA naturally assumes that, since all generic drugs participating in the bidding have passed the NMPA’s equivalence evaluation, the lower-priced drugs should be selected. However, the Centralized Procurement actually places higher regulatory demands on the NMPA compared to the pre-Centralized Procurement era. The NMPA must ensure that generics undergo equivalence evaluation in full compliance with relevant laws and regulations, continue to be manufactured in accordance with approved standards, and that no pharmaceutical companies are using unreasonably low prices as a means of unfair competition while compromising on manufacturing quality. Only by strengthening and enforcing its regulatory measures on generic drug manufacturers can NMPA ensure that the Centralized Procurement, led by NHSA, does not unintentionally push manufacturers to lower the quality of their products.

Restricted Access to Brand-Name Medicines

Beyond concerns about the quality and efficacy of generic drugs, there is also increasing worry among the Chinese public that the Centralized Procurement could restrict access to brand-name medicines, making it more difficult for patients to obtain them in public hospitals.

In fact, the Centralized Procurement itself does not prohibit public hospitals from purchasing and using brand-name medicines. Typically, the volume of drugs from Centralized Procurement accounts for about 60%-80% of the quantities reported by public hospitals, with the remaining portion allowing hospitals to select other brands.

However, in practice, it becomes challenging for brand-name medicines that are not selected to secure the remaining 20%-40% of the market share in public hospitals. As public hospitals are required to meet the forecasted procurement quantities that they previously submitted to the NHSA, and failure to do so will result in a negative assessment from the NHSA and the National Health Commission (the “NHC”), doctors often prioritize prescribing medicines that have been procured through the Centralized Procurement to ensure that these targets are met.

Moreover, after the implementation of the Centralized Procurement, China’s national health insurance fund typically reimburses non-selected brand-name medicines based on the price of the selected generic drugs, rather than the actual price of the brand-name medicine. While some patients may still be willing to pay more for the assured efficacy of brand-name medicines, the majority will opt for generic drugs due to economic pressures, significantly reducing the patient base for brand-name products. Public hospitals, factoring in the higher procurement costs and the potential difficulty in clearing inventory, are also less inclined to purchase brand-name medicines even they are allowed to do so. These factors, along with other recent reforms in China’s healthcare system, has collectively led to a decline in the availability of brand-name medicines in public hospitals.

Although patients can still access brand-name medicines through alternative channels such as pharmacies, online platforms, or private and foreign-invested hospitals, these options present several challenges. For instance, while patients can take prescriptions to pharmacies, the process is more cumbersome compared to receiving medications directly in a hospital, with potential delays in treatment and possible increased costs. Moreover, public hospitals remain the primary healthcare provider for the majority of Chinese citizens, as compared to private and foreign-invested hospitals. In light to these concerns, many industry experts have emphasized the importance of protecting patients’ right to choose their medications, ensuring their access to brand-name medicines in public hospitals.

Looking Ahead

In response to the recent public concerns surrounding the Centralized Procurement, relevant authorities have taken initial steps to look into these issues. On January 21, 2025, just a few days after the proposal by certain medical experts during this year’s annual plenary session of the Shanghai Committee of the CPPCC, the NHSA, in collaboration with the NMPA, the NHC, and the Ministry of Industry and Information Technology in China, visited Shanghai to meet directly with experts, gathering feedback on the Centralized Procurement and the quality of selected generic products. NHSA emphasized its commitment to collecting information on quality and efficacy issues, particularly those backed by clinical evidence and statistical differences. Industry experts believe that this investigation may lead to new policy changes. Additionally, media reports indicate that public hospitals in Shanghai have resumed a sufficient supply of brand-name hypertension medications in late January.

Achieving a balance between drug accessibility, quality, and fairness requires careful consideration of both drug prices and the varying needs of patients. Moving forward, finding ways to improve the national healthcare system and increase patient trust and satisfaction will continue to be a key challenge for policymakers in China.

NOTES:

[1] Public hospitals, which are government-funded and non-profit, serve as the main healthcare providers in China. According to the data from China’s National Health Commission, public hospitals represented 30.7% of all hospitals, yet accounted for 83.5% of the hospital visits and 69.2% of the hospital beds in China in 2023.

[2] CPPCC is the top political advisory body in China, composed of representatives from the Communist Party of China, other non-Communist parties, unaffiliated individuals, as well as representatives from mass organizations, ethnic groups, and various social sectors. The national committee and local committees of the CPPCC each hold a plenary session once a year to discuss political matters and offer proposals to the government.

[3] Under the Centralized Procurement, each “type” refers to drug products with the same generic name and dosage form, including various strengths. For example, ibuprofen tablets in 100 mg and 200 mg are considered the same “type,” while ibuprofen tablets and ibuprofen capsules are regarded as two “types” due to their different dosage forms.