China’s new two-invoice system aims to reduce drug prices

 24-Feb-17, Global Compliance News 

China has launched the “two-invoice” system in drug distribution on a trial basis, aiming to improve transparency in drug prices and eliminate excessive profit margins associated with multi-tier distribution models. This is the first time Chinese regulators have officially launched the two-invoice system, which had been debated for over a decade. The system is expected to be fully implemented in public hospitals across the country by the end of 2018.

Image: Global Compliance News

The two-invoice system – the issuing of the manufacturer’s invoice to the distributor followed by the distributor’s invoice to the end customer (the hospital) – has important implications for pharma companies doing business in China. Such companies may have to adjust their business model, for example:

• Engage more first-tier distributors to ensure geographic coverage by restructuring second- or third- tier distributors as first-tier distributors.
• Sell drug products directly to hospitals with the assistance of qualified logistic service providers.
• Review pricing strategy including strengthening internal marketing function or outsourcing the promotion and marketing function.

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