Blue Book of Medical Device industry issued: “Two-Invoice System” Ended the Age of low price Agency for Medical Device Enterprises

  • 2018-09-27
The Blue Book of Medical Device Industry: Annual Report on the Development of Medical Device Industry in China (2018) issued by the China Society for Drug Regulation, Social Sciences Academic Press, and the Editorial Board of the Blue Book of Medical Device Industry on September 7, 2018, pointed out that because of the greatly cut middle channels of medical device companies, the industry is about to end the era of “low price agency” and enter the era of “high commission”. Therefore, the adjustment of financial processing, fiscal and tax risks, and marketing factors is the primary focus. A large number of medical device manufacturers and agents face survival challenges.

The Work Focuses on Special Correction of Harmful Practices in Medicine Purchase, Consumption and Medical Service in 2016 was issued jointly by 9 ministries and commissions on June 24, 2016, a national initiative to push forward the “two-invoice system” for consumable purchase, which is the first time that the medical device industry was referred by the two-invoice system in a national document.

Although the Opinions on the Implementation of the “Two-Invoice System” in Drug Purchase of Public Medical Institutions issued by eight ministries and commissions on January 11, 2017 does not cover medical devices, we saw more than 20 provinces, including Anhui, Shaanxi, Qinghai, Fujian, Liaoning, Hainan, Shanxi, Ningxia, Guizhou, Heilongjiang have mentioned “the implementation of two-invoice system for medical consumables or reagents” in their related documents in 2017. As of May 2018, Anhui, Shaanxi and Qinghai provinces have officially issued two-invoice system documents applicable to the device sector. It is believed that more and more provinces will follow the way.

Impact after Two-Invoice System
1) Concentration improvement: Under the guidance of integrated policies including the two-invoice system, the merger and reorganization of the medical device industry has accelerated in the past two years. Nationally-distributed companies, regional leading enterprises and production enterprises concentrate market resources through acquisitions, shareholdings, holdings, partnerships, etc.

2) Changes in channel elements: First, channel structure has changed. Three-level channels (four invoices) and two-level channels (three invoices) are transformed into first-level channels (two invoices) and zero-level channels (one invoice). Second, channel members have changed. As the number of initial distributors of production enterprises has risen sharply, the channel has been expanded, and competition has increased. Third, the logistics, ticket flow, information flow, capital flow of channels has changed, and enterprises should be well prepared for systems and processes as early as possible.

3) Change of marketing model: Under the two-invoice system, the relationship between production enterprises and agents has changed from the past “purchase and sale” to “commission”. (CSO refers to a sales model that the sales organization obtains the sales right through the sales contract with the production enterprise (or the owner of the sales right) and receives compensation based on sales.)