Historically, there have been multiple invoices at different levels for selling drugs in China. Such multiple invoices have led to big mark-ups and some dishonest behavior in the marketplace.
Thus, in mid 2016, the Chinese government released Circular 26, detailing plans to roll out a “two-invoice” system, which aims to optimize the process of purchasing and selling drugs. The plan is intended to be implemented in Anhui, Fujian, Jiangsu, Qinhai, Shanxi, Shanghai, Zhejiang, and Sichuan provinces. Currently, the plan is only in effect in Fujian province, but will be executed in the remaining provinces in 2017. If successful, the plan could be implemented throughout China.
According to Circular 26, the two invoices are the following:
- The manufacturer issues an invoice to the distributor, and
- The distributor issues an invoice to the medical institution
Typically, a drug manufacturer sells its drugs to a distributor, who then sells the product through multiple distributors before the drug is sold to the medical institution. The two-invoice system effectively reduces sub-distributors in the process, because only one distributor will be allowed to collect money in the supply chain. This could result in the elimination of sub-distributors or alternatively, the acquisition of small distributors by larger ones. Pharmaceutical companies should fully understand the implications of the two-invoice system, as it continues to be implemented.