Legal & Regulatory > China > Regulatory, Pricing and Reimbursement: China

An intro to the regulatory, pricing and reimbursement scenario for pharmaceuticals in China. Prepared in association with Fangda Partners, one of China’s most prestigious and well-regarded law firms. This is an extract from The Pharma Legal Handbook: China, which can be purchased here for GBP 99.

1. What are the regulatory authorities with jurisdiction over drugs, biologicals, and medical devices in your country?

Several governmental agencies are responsible for the administration of drugs (including biologicals) and medical devices, including the following key players:

• The National Medical Product Administration (“NMPA”), formerly known as the China Food and Drug Administration, which is responsible for issuing marketing authorizations of drugs and medical devices and monitoring product quality.
• The National Health Commission (“NHC”), which is responsible for the overall guidance of healthcare reform, administering China’s Essential Drug List (“EDL”) and managing the drug tendering and procurement policies.
• The Ministry of Human Resources and Social Security (“MOHRSS”), the
  authority that takes the lead in formulating the National Drug Reimbursement List (“NRDL”).

2. What is the regulatory framework for the authorization, pricing, and reimbursement of drugs, biologicals, and medical devices?

DRUGS

Key Regulations

The fundamental pieces of legislation for the pharmaceutical industry are the Drug Administration Law and the Implementing Rules of Drug Administration Law. In addition, the NMPA has issued a wide range of other regulations and implementing measures to regulate the pharmaceutical industry.

Authorization

Steps to obtain the marketing authorization for drugs are mainly set out in the Drug Registration Administrative Measures. In general, all new drug candidates must go through four steps before being marketed: pre-clinical research, application for clinical trial of an investigational new drug, clinical trials and new drug application.

• Pre-clinical research of a drug candidate must be conducted in accordance with the Good Laboratory Practices (“GLP”).
• After completing the pre-clinical research, a clinical study sponsor must obtain approval for clinical trials from the NMPA’s Center for Drug Evaluation (“CDE”) to conduct clinical trials on the investigational new drug. In July 2018, the NMPA promulgated a new rule that if an applicant for clinical trials does not receive any negative opinions from the CDE within 60 days after the date on which the application was accepted, the clinical trials may be initiated and conducted in accordance with the protocols previously submitted to the CDE in the application.
• After obtaining the approval of a clinical trial, the sponsor shall conduct the clinical trial at Good Clinical Practice (“GCP”) certified institutions. Clinical trials are divided into Phase I, Phase II, Phase III and Phase IV, of which Phase IV refers to post-marketing clinical trials.
• Upon completion of the Phase III clinical trial, the sponsor may submit a new drug application for approval to manufacture and launch such investigational new drug.

Pricing

• Terminal Units of Non-Public Hospitals
  The price of drugs was previously regulated under a scheme of maximum retail price (“MRP”) of drugs set by the government, which was abolished (except for narcotic and certain psychotropic drugs) in June 2015.
• Public Hospitals
  • Centralized Drug Procurement Program. Competitive bids shall be used to purchase medications and be carried out by local governmental authorities on a province-by-province basis under the central coordination of NHC. Public hospitals used to be allowed to mark up drugs by around 15% above procurement prices. This policy has been replaced with the “zero-mark-up” (i.e., no-profit, the drug price that a hospital charges the patient should be the same as it pays to the drug suppliers) policy in July 2017.
  • Volume-Based Procurement. The National Healthcare Security Administration (“NHSA”) will directly negotiate with pharmaceutical companies about drug supply for public hospitals and strive to get favorable terms by insisting on bulk purchasing. The participant with the lowest tender price will be the bid winner. By securing the purchase price at the terminal end, the cost at each distribution phase upwards will be reduced, which ultimately leads to an end lower price.

Reimbursement

In terms of reimbursement for the cost of drugs, China’s medical insurance system was first adopted in 1998 and has now been gradually expanded to provide coverage for most of the population in China. Individual participants of the national medical insurance program and their employers (if any) are required to contribute to the medical insurance funds by paying an insurance premium monthly. Medical insurance program participants are eligible for full or partial reimbursement of the cost of medicines included in the NRDL, which contains over 2,000 Western and Chinese medicines that are divided into Class A and Class B drugs. Class A drugs typically include low-priced and clinically necessary drugs that can be fully reimbursed, and the Class B drug catalogue typically includes higher-priced or new drugs that generally require the patients to assume 10-40% of the drug’s total cost.

The latest NRDL issued in 2020 includes a total of 2,800 drug products, of which 1,264 are Western medicines and 1,315 are proprietary Chinese medicines. Two hundred and twenty-one (221) drug products are NHSA negotiation-based drugs which will be supplied at an agreed low price during the term of the applicable purchase agreement. Each province may formulate its own Provincial Drug Reimbursement List based on the NRDL and subject to certain restrictions and procedures, but it is likely that the provincial version of the Reimbursement Drug List may be abandoned in the future.

MEDICAL DEVICES

Key Regulations

The fundamental legislation for the medical devices industry is the Medical Device Supervision and Administration Regulations. A wide range of other regulations and implementing measures have been issued by the NMPA to guide the medical devices industry.

Authorization

Under the Medical Device Registration Administrative Measures, devices can be categorized into Class I, Class II and Class III devices. Class I devices are simple devices that are exempted from clinical trials and are administered through a record-filing system. Class II and Class III devices are more complex devices with medium or high risks, and their safety should be evidenced by clinical trials (unless being on the list of devices exempted from clinical trials) and the devices shall be registered with the NMPA before entering the market.

Pricing

There is no MRP scheme in the medical devices industry. Similar to the mark-up policy previously applicable to drugs, public hospitals are still allowed to charge a certain mark-up on the medical devices purchased by them (for example, a maximum of 5% mark-up is allowed in Shanghai, provided that the purchase price for a medical device exceeds RMB4,000 and the mark-up should not exceed RMB200).

Reimbursement

At the national level, there is a negative list that precludes certain devices (such as glasses and massage devices) from governmental reimbursement. Detailed reimbursement coverage and rates for medical devices are subject to local policies in each province.

3. What are the steps to obtain authorization to develop, test, and market a product?

Please refer to Question 2 above regarding the authorizations of drugs and medical products.

4. What are the approximate fees for each authorization?

The table below lists the government fees charged by the NMPA for each category of registration:

5. For how long are marketing authorizations/registrations valid? How are marketing authorizations/registrations renewed?

Marketing authorizations for drugs and medical devices are valid for a term of five years. The applicant must prepare and submit the renewal application documents to the provincial NMPA six months before the expiry of the marketing authorization. In addition to review of the application documents, the authority may determine that it wishes to conduct a technical review and on-site inspection when it deems necessary.

6. How does the authorization process differ between brand-name products and generic products? Are there differences for local manufacturers versus foreign-owned manufacturers?

In March 2016, the NMPA issued the Reform Plan for Registration Category of Chemical Drugs which reclassified drug applications as follows:

In general, generic drugs follow similar registration pathways to brand-name drugs. The applicant needs to conduct bioequivalence (“BE”) tests for generic drugs to demonstrate conformity with the brand-name drugs. BE tests are administrated through the record-filing system, instead of the review and approval process applicable to new drugs. The BE applicant only needs to file a record on the Clinical Trial Management Public Platform designated by the NMPA and can start the clinical trial after obtaining the filing number. In addition, new drugs in Category 1 may be entitled to certain preferential policies that are not applicable to generic drugs, including fast-track approval treatment by the CDE, a monitoring period up to five years (during which the NMPA will not accept any applications for new drugs with the same active ingredient) and more flexible drug manufacturing technology transfer options.

Local drug manufacturers and foreign-owned drug manufacturers in China are subject to the same drug approval procedures.

7. How are combination products (drug + drug, drug + biologic, drug + device, biologic + device, drug + biologic + device) regulated?

“Drug (including biologics) + device” combination products must obtain marketing authorizations from the NMPA. For such combination products, if the drug plays a major function, the combination products should be registered as a drug; if the device plays a major function, the combination products should be registered as a medical device.

“Drug + drug” combination products can be commercialized in China market after clinical trials have been completed with satisfactory results and the combination therapy has been granted the marketing authorization.

8. How is compliance with regulation monitored and evaluated? Is the regulatory regime comparable with the U.S. Food and Drug Administration or the European Medicines Agency expectations and requirements?

The NMPA and its local counterparts have the jurisdiction to enforce the Drug Administration Law and its implementing rules, the Medical Device Supervision and Administration Rules, and other guidelines and regulations on drugs and medical devices.

In June 2017, China joined the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH) – an international organization founded by drug administrators of the U.S., EU and Japan to facilitate international collaboration in the pharmaceutical industry. Some of the ICH technical guidelines have already been used as the basis of NMPA regulations.

9. What is the potential range of penalties for noncompliance?

Pursuant to the Drug Administration Law and its implementing rules and the Medical Device Supervision and Administration Rules, non-compliance (depending upon the specific illegal activities) could be subject to different administrative penalties, including monetary fines, confiscation of illegal gains, suspension of business activities, and revocation of marketing authorization and other permits and licenses. In the worst scenario, violation of drug and medical device legislations may result in criminal liabilities.

10. Is there a national healthcare system? If so, how is it administered and funded?

HEALTHCARE SYSTEM REFORM

The PRC government has promulgated several healthcare reform policies and regulations to ameliorate and improve the country’s healthcare system. On March 17, 2009, the Central Committee of the PRC Communist Party and the State Council jointly issued the Guidelines on Strengthening the Reform of Healthcare System. On December 27, 2016, the State Council issued the Notice on the Issuance of the 13th Five-year Plan on Strengthening the Reform of Healthcare System. On April 25, 2017, the General Office of the State Council issued the Main Tasks of Healthcare System Reform in 2017. On November 29, 2019, the State Council Leading Group for Deepening the Reform of the Medical and Health Systems, a task force of the State Council, issued the Notice on Several Policies and Measures to Further Deepen the Reform of the Medical and Health System with the Centralized Procurement and Use of Drugs as A Breakthrough (the “Notice”). The Notice pointed out that in order to enhance the interplay of healthcare, medical insurance and pharmaceuticals systems, magnify the synergy of the reforms and resolve the problems involving the general public’s accessibility to good medical services, measures and policies covering 15 aspects shall be adopted, as follows:

1. Deepening the reform of state-led centralized procurement and use of drugs;
2. Establishing a national public drug procurement market and a multiparty interlocked procurement market structure;
3. Improving the quality of drugs;
4. Ensuring stability of drug supply;
5. Shortening the payment periods of public medical insurance;
6. Promoting the establishment of a nationwide unified and open market for drug manufacturing and distribution;
7. Promoting synergic reformative measures, such as the adoption of a dynamic pricing strategy price for medical services;
8. Reviewing the salary structure for healthcare staff in public medical institutions for their benefit;
9. Strengthening the supervision of good medical prescription practices in healthcare institutions;
10. Enhancing the implementation of uniformed medical insurance compensation standards for drugs;
11. Improving medical insurance payment methods;
12. Ameliorating the regulatory framework of medical insurance funds;
13. Promoting the refined management of medical services;
14. Improving the nationwide drug price monitoring system;
15. Accelerating the informatization construction of the healthcare system.

HOSPITALS

China’s hospital system consists of both public and private medical institutions and insurance programs. Public hospitals are owned by the government and funded by out-of-pocket payments by patients, governmental subsidies and various governmental insurance schemes (including Urban Employee Basic Medical Insurance (UEBMI) and Urban and Rural Resident Basic Medical Insurance (URRBMI), both of which managed by the MHRSS).

Private hospitals are controlled and operated by private entities and are mainly funded by out-of-pocket payments by patients and commercial insurance schemes (governmental insurance coverage for private hospitals has been quite low).

REIMBURSEMENT

Please refer to Questions 2 & 13 regarding the medical reimbursement system in China.

ESSENTIAL DRUG LIST

In 2009, the Chinese government launched the National Essential Drug List System, which aims to promote essential medicines sold to patients at fair prices and to ensure that the general public in China has equal access to the drugs contained in the National Essential Drug List. The Ministry of Health promulgated the first National Essential Drug List on August 18, 2009 and the latest version was revised and released on October 25, 2018, which includes a total of 685 drugs.

A new version of the Essential Drug List is being discussed and is expected to be released in 2021.

11. How does the government (or public) healthcare system function with private sector healthcare?

Because of governmental insurance coverage and pricing regime, the public hospitals are of a “non-profit” nature and serve most Chinese patients. Private hospitals can be established either for profit or non-profit, and private hospitals for profit are usually established to attract patients with higher income or with commercial insurance coverage. According to statistics issued by the NHC, as of November 2020, there are 35,000 public and private hospitals across the nation, of which 12,000 are public hospitals and 23,000 are private hospitals. Compared to the statistics by November 2019, there are six fewer public hospitals, while there are 1,146 more private hospitals; the total number of hospital visits over a period from January 2020 to November 2020 is 2.98 billion, a decline of 12.5% compared to that over a period from January 2019 to November 2019, of which public hospitals had 2.51 billion visits, with a year-on-year decrease of 13%, and private hospitals had 0.47 billion visits, with a year-on-year decrease of 9.4%.

12. Are prices of drugs and devices regulated and, if so, how?

Please refer to Question 2 above regarding the regulation of the price of drugs and device products.

13. How are drugs and devices used by patients paid for? What roles do public and private payers play?

At private hospitals, drugs and devices are mainly paid out of pocket by patients or covered by commercial insurance (to the extent available).

At public hospitals, most medical expenditures can be covered by UEBMI or URRBMI (subject to certain exceptions and ceilings) and the patients need to pay out of pocket for the remaining expenditures. For example, the quantity of coverage, reimbursement rates and reimbursement ceiling under URRBMI and UEBMI in Shanghai are as follows:

Urban and Rural Resident Basic Medical Insurance

Out-patient and Emergency Services

• Deductibles: If the annual cumulative medical costs of an insured person meet the deductible amount, a certain percentage of the excessive costs will be covered by the medical insurance, and the remaining costs shall be borne by the insured individually.
• Deductible Amount: RMB300 for people aged 60 years or above, the severely disabled, elementary and middle school students, children and infants; RMB500 for people aged 18 years and above and under 60 years.
• Reimbursement Rates: 70% of covered claims incurred at out-patient and emergency departments of community healthcare centers or primary hospitals; 60% of covered claims incurred at out-patient and emergency departments of secondary hospitals; 50% of covered claims incurred at out-patient and emergency departments of secondary hospitals.

In-patient Services

• Deductibles. If the medical costs of the insured person meet the deductible amount, a certain percentage of the excessive costs will be covered by the medical insurance, and the remaining costs shall be borne individually.
• Deductible Amount: RMB50 for primary hospitals; RMB100 for secondary hospitals; RMB300 for tertiary hospitals.
• Reimbursement Rates:
  For people aged 60 years or above, and the severely disabled: 90% of the covered claims incurred at community healthcare centers or at primary hospitals; 80% of the covered claims incurred at secondary hospitals; 70% of the covered claims incurred at tertiary hospitals.
  For people aged under 60 years: 80% of the covered claims incurred at community healthcare centers or at primary hospitals; 75% of the covered claims incurred at secondary hospitals; 60% of the covered claims incurred at tertiary hospitals.

14. Who dispenses drugs and devices to patients and how are those dispensers compensated?

Drugs and devices are dispensed by hospitals or retail drug stores. Dispensers are compensated through UEBMI and URRBMI.

15. What are the professional and legal responsibilities of those who dispense drugs and devices? What role do they play in providing patient care, information, and safety?

Hospitals and drug stores must purchase drugs and devices from qualified manufacturers or distributors, and comply with other legal requirements on acceptance, storage, transport, distribution and dispensing of drugs or device products.

Hospitals and drug stores should monitor and report adverse drug reactions (ADR) to the NMPA within a statutory time period, and take corresponding remediation actions (such as recall of products) to ensure the patient safety.