Challenges of the ‘two invoices’ system for China’s pharmaceutical industry

‘Two invoices’ system for pharmaceutical industry

The implications of Circular 4 for the pharmaceutical industry, and the tax implications of the ‘two invoices’ system for pharma companies in China

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Opinion on the Implementation of the ‘Two Invoices’ System in the Procurement of Pharmaceutical Products by Public Medical Institutions (trial) (“Circular 4”) was officially released on 9 January 2017. Circular 4 stems from the Announcement on Regulating Pharmaceutical Procurement (“the Announcement”), which was jointly released by the National Health and Family Planning Commission and other relevant authorities.

The Announcement aimed to streamline the pharmaceutical procurement process, and was first implemented as part of the Sanming Healthcare Reform. The reform, which is inspiring future reform on a national scale, introduced a four-in-one reform model – governmental reform, drug procurement reform, medical insurance reform and medical service reform. A number of provinces within and outside the scope of the pilot healthcare reform have since announced similar policies encouraging the ‘two invoices’ system, setting the tone for the reforms going forward. 

The purpose of this paper is to highlight and analyse the salient points of Circular 4, and the implications for the pharmaceutical industry. It also includes a summary of the regional policies as at the publication date, and explores the tax implications of the ‘two invoices’ system for pharmaceutical companies in China.

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