Reed Smith Client Alerts

The Chinese government officially launched the National Essential Drug System (NEDS) Aug. 18, 2009 at a press conference held by the State Council, during which it explained the concentration of specific drug purchases in urban and county grass-roots health institutions as the first step in the implementation of NEDS1. By 2009, NEDS will be implemented in 30 percent of government-run urban and county health care institutions in each province, region, or municipality. NEDS could have significant implications for the marketing, sale, distribution, and pricing of drugs by multinational and Chinese pharmaceutical companies in China.

As part of the implementation of NEDS, nine government ministries, including the Ministry of Health (MOH), National Development and Reform Commission (NDRC), Ministry of Industry and Information Technology (MIIT), Ministry of Supervision (MOS), Ministry of Finance (MOF), Ministry of Human Resources and Social Security (MOHRSS), Ministry of Commerce (MOFCOM), State Food and Drug Administration (SFDA), and State Administration of Traditional Chinese Medicine (SATCM), jointly issued the "Implementing Opinions on Establishing the National Essential Drug System"2, the "Administrative Measures on National Essential Drug List (Interim)"3, and the "National Essential Drug List – Section for Primary Medical and Public Health Institutions Use (2009 Version)"4.

NEDS is intended to more effectively manage the selection, production, distribution, usage, pricing, reimbursement, supervision, and evaluation of essential drugs, as well as to improve public health, medical services, and medical security. The new regulations note that all government-run grass-roots health care institutions are required to purchase and use essential drugs, while other types of health care institutions are required to use essential drugs based on standardized percentages for minimum use.

National Essential Drug List (NEDL) – 307 Drug Products

The nine ministries involved in issuing the "Implementing Opinions" will set up a National Essential Drug Working Committee (NEDWC), responsible for the policies that will direct NEDS, as well as the formulation, approval, and adjustment of the National Essential Drug List (NEDL).

Drugs listed in the NEDL include chemical drugs and biological products, Chinese traditional patent medicines, and Chinese herbal medicine pieces, which are required to be included in the Chinese Pharmacopoeia with standards issued by MOH and SFDA. See the attached list of 205 chemical drugs and biological products (Chinese and English), and 102 Chinese traditional patent medicines (Chinese).

The following drugs will not be included in the NEDL:

  • Drugs with materials from rare and endangered animals and plants
  • Restorative drugs and drugs for health protection, the use of which may be easily abused
  • Drugs that are not the first choice in clinical treatments
  • Drugs, the production, sales or use of which are prohibited by the state food and drug administrations because of severe adverse reactions
  • Drugs that are not in accordance with laws, regulations, or ethics
  • Drugs that are prohibited by the NEDWC

Use of non-NEDL drugs must be approved by the provincial government, and filed with the NEDWC. Provincial-level authorities from the nine ministries noted above are responsible for selecting non-NEDL drugs for government-run grass-roots health care institutions, which, in principle, should be from Category A of the Catalogue of Drugs for National Basic Medical Insurance (Category A is comprised of drugs necessary for clinical treatment, with broad usage, high efficacy rates, and an affordable price). They may also be from Category B when necessary (drugs in Category B are considered optional for clinical treatment, with high efficacy rates and a higher price).

All essential drugs will be reimbursed under the Catalogue of Drugs in the Basic Medical Insurance program, and can be paid at a reimbursement level higher than the payment level for non-essential drugs.

The NEDL shall, in principle, be adjusted every three years, and may be adjusted more frequently by the NEDWC if deemed necessary. The NEDL is divided into two parts: the first is for use by primary medical and public health institutions, the second is for use by all other medical institutions. The "Section for Primary Medical and Public Health Institutions Use (2009 Version)" was issued in conjunction with NEDS, and will take effect Sept. 21, 2009. The "Section for Other Medical Institution Use" is set to be issued at a later date. The newly issued section covers 205 chemical drugs and biological products, 102 Chinese traditional patent medicines, and various Chinese herbal medicine pieces.

Procurement of Essential Drugs

Essential drugs used by government-run health care institutions are to be procured through centralized online public bidding. NDRC is responsible for working out a guiding national retail price range for essential drugs, while provincial governments will set specific retail prices within that range, keeping in mind the consolidated procurement price, delivery expenses, and the drug price mark-up policy. Government-run grass-roots health care institutions, where NEDS is to be implemented, will sell essential drugs with no mark-up.

Implementation Plan for NEDS – Provincial and National Roll-Out

In 2009, each province (region or municipality) shall implement NEDS in at least 30 percent of the government-run city and county health institutions. This will be conducted through provincial-level centralized online public bidding and procurement, and will incorporate consolidated distribution, use of essential drugs, and sales of essential drugs with no mark-up. NEDS will be rolled out through 2011, with complete nationwide coverage planned by 2020. This means that by 2020, 100 percent of facilities will be buying their drugs from the NEDL.

Besides NEDL, NEDS will also include a series of policies on pricing, bidding and procurement, distribution, and reimbursement, all of which are expected to be made available by September 2009. Five additional documents on essential drug formulary, quality supervision, etc. should be issued by the end of September. The government has indicated that there should be some financial subsidy to improve payment to hospitals that will lose revenue when they can no longer mark up prices for drugs.

For drug companies, products on the list will have certain sales advantages. Careful attention to implementation, especially at the provincial level, and any bidding procedures will be important to understand what new pricing pressures will emerge, and the new payment environment and marketing implications of being on or off the list.

  1. General Office of the Healthcare Reform Leaders Group of the State Council Holds a Meeting Launching the National Essential Drug System, Aug. 19, 2009, Chinese version available at


Client Alert 2009-253