Can Foreign Pharma Companies Participate in Hospital Tenders in China?

1. Understanding China’s Hospital Procurement System

China’s hospital drug procurement system is a multi-layered mechanism that governs how drugs reach patients in the country’s nearly 35,000 hospitals. Unlike many Western markets where individual hospitals negotiate directly with manufacturers, China has progressively centralized drug procurement to achieve cost savings, standardize pricing, and improve transparency.

The system operates at three levels: national centralized procurement (VBP), provincial centralized procurement, and individual hospital formulary decisions. Foreign pharmaceutical companies must navigate all three levels to achieve broad market access. The system has undergone profound transformation since 2018, when the newly established National Healthcare Security Administration (NHSA) launched the “4+7” pilot cities Volume-Based Procurement program, which has since expanded nationwide.

For foreign pharma companies, understanding this system is not optional — it is the gateway to China’s hospital market, which accounts for over 75% of all prescription drug sales in the country. Without access to the hospital channel through successful tender participation, foreign drugs are limited to retail pharmacies and online channels, which represent a much smaller market segment.

2. The National Volume-Based Procurement (VBP) Program

The VBP program is the most significant procurement reform in China’s pharmaceutical history. It was launched in 2018 as the “4+7” pilot (4直辖市 + 7 cities) and has since expanded to nationwide implementation with regular tender rounds. Key characteristics of the VBP program include:

2.1 How VBP Works

• Drug selection: The NHSA selects drugs that have passed the Generic Quality Consistency Evaluation (GQCE) and have sufficient market competition (typically 3+ manufacturers)
• Guaranteed volume commitment: Participating hospitals commit to purchasing a specific volume (typically 60-80% of their annual demand) from the winning bidders
• Pay-for-performance: Winning manufacturers are guaranteed payment within 30 days through a centralized settlement mechanism (the “settlement center”), a significant improvement over traditional hospital payment terms that could exceed 12 months
• Auction-style pricing: Manufacturers submit bid prices, and the lowest-priced bidders win the contract. Typical price reductions range from 50-90% compared to pre-VBP prices
• Multi-winner system: Depending on the number of bidders, the VBP typically selects 1-3 winning manufacturers per drug, ensuring supply security through multiple sources

2.2 Foreign Company Participation in VBP

Foreign pharmaceutical companies can and do participate in VBP rounds. As of early 2026, several foreign companies have successfully won VBP bids, including:

• AstraZeneca for ticagrelor (Brilinta) — won with a significant price reduction in the third round of VBP
• Bristol-Myers Squibb for apixaban (Eliquis) — participated in the VBP for oral anticoagulants
• Sanofi for clopidogrel (Plavix) — a notable example of a foreign company winning hospital market share through VBP participation
• Novartis (Sandoz) for several off-patent products — leveraging their generics division’s cost structure

However, most foreign companies face a difficult strategic choice regarding VBP participation. The price reductions required (typically 70-90%) can make participation economically unviable for branded originator products with high production costs. Many foreign companies choose instead to exit the VBP market for their off-patent products and focus on innovative products protected by patents or data exclusivity.

2.3 The “Non-VBP” Strategy

Foreign companies that choose not to participate in VBP for specific products can pursue a “non-VBP” strategy that targets the residual market not covered by VBP commitments. This includes:

• Out-of-VBP hospital quota: Hospitals can purchase up to 20-40% of their drug volume outside VBP contracts, creating an opening for non-winning manufacturers
• Private hospitals and clinics: The growing private healthcare sector (approximately 25,000 private hospitals in China) is not bound by VBP rules
• Retail pharmacy channel: Chain drugstores (including large chains like Sinopharm, Yixintang, and DaShenLin) and online pharmacies (JD Health, Alibaba Health) provide alternative access
• Outpatient prescription outflow: Government policies encouraging hospital prescription outflow to retail pharmacies create a growing market outside the hospital procurement system

3. Provincial Centralized Procurement

Beyond the national VBP program, each of China’s 31 provinces operates its own centralized drug procurement platform. These provincial systems handle drugs that are not selected for national VBP rounds. Key features include:

3.1 Provincial Tender Types

• Provincial centralized tenders: Provinces issue regular tender notices soliciting bids from manufacturers. Winning products are listed on the provincial procurement catalog and can be prescribed by hospitals in that province
• Direct negotiation: For innovative drugs or drugs with limited competition, provinces may negotiate prices directly with manufacturers rather than using competitive tenders
• Lowest-price linkage: Many provinces operate a “lowest-price linkage” policy, requiring manufacturers to offer their lowest national price within that province
• Inter-provincial alliances: Several regional alliances have formed for joint procurement, including the Beijing-Tianjin-Hebei alliance, the Yangtze River Delta alliance, and the Guangdong-Hong Kong-Macao Greater Bay Area alliance. These alliances coordinate tender schedules and may apply uniform pricing

3.2 Provincial Variation and Complexity

Foreign companies must manage significant variation across provincial systems:

• Catalog differences: Each province maintains its own procurement catalog, and a drug listed in one province may not be listed in another
• Pricing requirements: Provincial price filing requirements vary, with some provinces requesting detailed cost breakdowns while others accept simple price declarations
• Tender schedules: Provincial tender cycles are not synchronized, requiring continuous monitoring across all provinces
• Suspension risk: Failure to maintain lowest-price commitments can result in suspension from a province’s procurement system

To manage this complexity, foreign companies typically engage local distribution partners (such as Sinopharm, Shanghai Pharma, or Huadong Medicine) who have provincial-level market access capabilities. Many companies also use third-party market access consultancies to track provincial tender schedules and pricing requirements.

4. Hospital-Level Formulary Access

Even after winning a provincial tender or VBP bid, foreign companies must secure individual hospital formulary inclusion. The hospital formulary process involves:

4.1 Hospital Pharmacy and Therapeutics Committee

Each hospital has a Pharmacy and Therapeutics (P&T) committee that decides which drugs are included on the hospital formulary. The committee typically meets quarterly and evaluates new drug applications based on:

• Clinical need: Whether the drug fills an existing therapeutic gap or offers significant improvement over current treatments
• Cost-impact analysis: Budget impact of adding the drug, including total patient population and treatment duration
• NRDL status: NRDL-listed drugs receive priority consideration, as they are reimbursed by insurance
• Physician advocacy: Department head or influential physician support significantly increases the likelihood of formulary inclusion

4.2 Prescribing Quotas and Drug Use Evaluation

Many Chinese hospitals impose prescribing quotas on high-cost drugs, including foreign innovative drugs. These quotas may specify:

• Monthly prescription limits: Caps on the number of prescriptions per month for a specific drug
• Percentage of drug budget: Limits on the percentage of the hospital’s total drug budget allocated to certain categories
• DRG-based restrictions: Under China’s expanding Diagnosis-Related Group (DRG) payment system, hospitals have financial incentives to minimize drug costs for each admission, creating additional barriers to expensive imported drugs

5. The Two-Invoice System and Distribution

The Two-Invoice System (两票制), implemented nationwide since 2018, fundamentally changed drug distribution in China and directly affects foreign pharma companies’ ability to serve hospital tenders. Under this system:

• Manufacturer to distributor: The first invoice is issued when the manufacturer sells to the distributor
• Distributor to hospital: The second invoice is issued when the distributor sells to the hospital
• No intermediaries: No additional layers of distributors or agents are permitted between manufacturer and hospital
• Impact on foreign companies: Foreign manufacturers can no longer use multi-tier distribution networks or independent sales agents (CSOs) in the traditional model. Most foreign companies now work with one of three national distributors: Sinopharm, Shanghai Pharma, or China Resources Pharmaceutical Group

The Two-Invoice System has increased pricing transparency but also increased distribution costs for foreign companies, as they must manage direct relationships with hundreds or thousands of individual hospital accounts through their primary distributor. Many foreign companies have responded by building larger in-market distributor management teams.

6. Strategies for Successful Tender Participation

6.1 For Innovative (On-Patent) Drugs

• NRDL listing first: NRDL listing is the most important enabler of hospital access. Most hospitals will not add a non-NRDL drug to their formulary unless there is an exceptional clinical need
• Value-based pricing dossier: Prepare a comprehensive pharmacoeconomic dossier demonstrating cost-effectiveness that can be used for both NRDL negotiation and individual hospital P&T committee submissions
• Key opinion leader (KOL) engagement: Chinese KOLs at major teaching hospitals strongly influence provincial tender decisions and hospital formulary inclusion. Building relationships with KOLs in each therapeutic area is essential
• Real-world evidence generation: Investing in China-specific real-world evidence studies that demonstrate the drug’s effectiveness in Chinese patient populations strengthens the case for formulary inclusion

6.2 For Off-Patent (Generic Competition) Drugs

• Value-added services: Differentiate through patient support programs, physician education, and disease awareness campaigns that create brand preference even at VBP prices
• Selective VBP participation: Participate in VBP for drugs where foreign companies have a cost advantage (e.g., through local manufacturing or global scale) and exit VBP for products where the price is unsustainably low
• Dual-track strategy: Maintain NRDL access through price negotiation while participating in VBP for hospital volume, accepting lower margins in exchange for guaranteed volume
• Licensing and local partnerships: License off-patent products to Chinese partners who can produce locally at lower cost, sharing the VBP-winning product’s revenue

7. Recent Developments Affecting Foreign Tender Participation (2026)

Several regulatory and policy developments in 2025-2026 affect foreign pharma companies’ ability to participate in hospital tenders:

• Expanded VBP scope: The NHSA has expanded VBP to cover biological products, including insulin (already included since 2021) and monoclonal antibodies (pilot programs in 2025). This brings more foreign biologic products into the VBP framework
• VBP innovation exemption: A new policy provides VBP exemption for drugs with active patent protection or orphan drug status, protecting innovative foreign products from mandatory price competition
• Provincial tender transparency: The NHSA has mandated uniform provincial tender transparency standards, including publication of winning prices and manufacturer names, reducing information asymmetry
• Payment reform alignment: The DRG/DIP payment reform (Diagnosis-Related Groups / Diagnosis-Intervention Packet) is now implemented in over 85% of Chinese hospitals, creating additional cost-control pressure that affects formulary decisions
• Digital procurement platforms: All provinces have migrated to digital procurement platforms with real-time price monitoring, making price compliance more enforceable

8. Conclusion

Foreign pharmaceutical companies can participate in hospital tenders in China, and the system is formally non-discriminatory. However, the practical challenges of price competition, distribution complexity, and provincial variation mean that successful tender participation requires strategic planning and local execution capabilities. The key success factors include NRDL listing for innovative products, selective VBP participation for products that can compete on cost, investment in local market access teams, and partnership with the right provincial distributors.

The hospital procurement landscape in China continues to evolve rapidly, with the trend toward greater centralization, price transparency, and cost control. Foreign pharma companies that invest in understanding and navigating this system will be better positioned to capture the opportunities presented by China’s growing pharmaceutical market, which remains one of the most attractive growth opportunities for the global industry.