China’s healthcare policies have evolved rapidly over the past decade to meet the growing demand for affordable yet innovative medicines. Key reforms, including the National Reimbursement Drug List (NRDL) and the Volume-Based Procurement (VBP) initiative, aim to strike a balance between improving access to essential treatments and managing healthcare costs. These programs are reshaping the pharmaceutical industry while providing millions of Chinese citizens with access to life-saving drugs.
The National Reimbursement Drug List: Broadening Coverage
The National Reimbursement Drug List (NRDL), issued by the National Healthcare Security Administration (NHSA), is a cornerstone of China’s drug reimbursement framework, ensuring affordability for essential medications. It categorizes drugs into two classes: Class A and Class B. Class A drugs, essential for clinical treatment and lower-cost, are fully reimbursed under the basic medical insurance system. In contrast, Class B drugs, while clinically effective, are costlier and thus only partially reimbursed. Newly negotiated drugs are typically added as Class B during the initial agreement period, balancing expanded access with cost control.
By listing drugs under their generic names rather than brand names, the NRDL mirrors the National Essential Medicines List (NEML), promoting clinical necessity over brand preference. This approach encourages cost-efficient procurement and reduces the influence of branded drugs, aligning with China’s broader healthcare goals. The NRDL’s focus is to prioritize drugs that are clinically necessary, reasonably priced, and easy to use, ensuring that healthcare funds are allocated to treatments that deliver the greatest public health impact.
The NRDL is adjusted annually, involving additions, removals, and renewals. The inclusion criteria reflect China’s public health priorities, such as rare diseases, pediatric treatments, and emergency responses like COVID-19. Drugs included in the 2022 NRDL were evaluated based on factors such as clinical necessity, regulatory approval timelines, and public health needs. For example, new generic drugs approved between January 2017 and June 2022, along with those addressing rare diseases or listed in the COVID-19 Diagnosis and Treatment Protocol, were prioritized. This annual adjustment ensures that the list remains relevant to emerging healthcare challenges.
Inclusion in the NRDL is a meticulous process designed to ensure safety, efficacy, and affordability. Since 2020, the process has been initiated by applications from Marketing Authorization Holders (MAHs), who must submit detailed information on their drug’s characteristics, safety profile, innovation, and projected impact on the medical insurance fund. The NRDL negotiations are competitive and thorough; in 2022, 344 of 490 drugs passed preliminary reviews, a marked improvement from the previous year. This rigorous evaluation promotes high standards while ensuring that listed drugs address the needs of the insured population.
Drugs selected for inclusion must meet stringent criteria, including being clinically necessary, affordable, and supported by stable supply chains. For example, the NRDL now emphasizes pediatric drug development and treatments for rare diseases, recognizing gaps in care for these vulnerable populations. These adjustments not only reflect changing public health priorities but also align with the government’s commitment to improving equitable access to essential therapies.
The NRDL’s structure ensures the prudent use of healthcare funds while expanding access to critical treatments. By focusing on essential drugs, it addresses the need to control healthcare spending without compromising patient care. However, this approach requires significant price concessions from pharmaceutical companies. Price reductions often exceed 60%, posing challenges for profitability, particularly for innovative drugs.
Despite these hurdles, inclusion in the NRDL provides access to China’s vast patient population, offering pharmaceutical companies an opportunity to establish their presence in one of the world’s largest healthcare markets. The program’s emphasis on negotiation ensures that prices remain aligned with the basic medical insurance fund’s capacity, protecting both patients and the healthcare system’s financial sustainability.
Volume-Based Procurement: Revolutionizing Drug Pricing
China’s Volume-Based Procurement (VBP) program has transformed the nation’s pharmaceutical landscape since its pilot launch in 2018 across 11 cities, including major municipalities like Beijing and Shanghai. Originally introduced to consolidate generic drug procurement, the program has since expanded nationwide, prioritizing affordability and access. Unlike the National Reimbursement Drug List (NRDL), VBP operates independently as a mechanism to lower drug prices by leveraging bulk purchasing.
VBP selects drugs based on clinical necessity, competitive landscape, and cost-saving potential. Its hallmark is a “quantity-for-price” model, where manufacturers agree to substantial price reductions in exchange for guaranteed demand—typically 60-70% of public hospitals’ annual drug consumption. Drugs not chosen for VBP can still be procured through provincial VBPs, private healthcare institutions, and via commerical insurance.
The VBP program’s scope predominantly covers chemical drugs, but it has expanded to biological agents like insulin since 2021. State-level VBP emphasizes competition, with different pricing strategies depending on the number of manufacturers involved: competitive bidding for three or more suppliers, bargaining for two, and direct negotiation for a sole supplier.
Beyond lowering drug costs, VBP aims to standardize procurement processes, reduce transaction expenses, and guide public hospitals toward more structured drug use. By fostering competition between originator drugs and generics that meet quality standards, the program improves affordability while maintaining drug efficacy and safety.
The program’s inclusion criteria favor drugs with high clinical demand and cost-effectiveness. Both NRDL-listed and out-of-pocket medications can qualify, provided they meet these benchmarks. The competition is particularly intense for generics, which must prove quality equivalence through GQCE to participate. This focus ensures robust market dynamics while encouraging manufacturers to streamline production and innovate.
As VBP continues to expand, its impact on pricing and market access grows, making it a cornerstone of China’s healthcare reforms. By addressing systemic inefficiencies and fostering sustainable procurement practices, the program aligns with the government’s broader goal of equitable healthcare access.
Challenges for Pharmaceutical Companies
For pharmaceutical companies, China’s reimbursement policies present a double-edged sword. While the vast patient population offers significant growth opportunities, the aggressive price reductions required for inclusion in the NRDL or VBP can erode profit margins. This has led some firms to adopt alternative strategies, such as delaying or not applying for NRDL listing to maintain higher initial market prices.
To offset these challenges, China has introduced policies aimed at supporting innovation. For instance, the National Healthcare Security Administration (NHSA) now offers premium pricing for chemical drugs that demonstrate significant therapeutic value. Additionally, local governments, such as Shanghai, have implemented measures to diversify funding mechanisms. These initiatives include supplemental commercial insurance options to help patients afford innovative treatments that may not be fully covered by the basic insurance system.
Balancing Cost Control and Innovation
China’s focus on reducing healthcare costs is essential for ensuring broad access to medicines. Yet, these cost-control measures must coexist with incentives for pharmaceutical innovation. The inclusion of novel therapies for rare diseases and advanced cancers in the NRDL underscores the government’s efforts to prioritize innovation. However, manufacturers of these high-value drugs face unique challenges in balancing profitability with market entry requirements.
Programs like the VBP and NRDL have helped make healthcare more affordable, but their impact on drug companies’ revenue streams is profound. To navigate these pressures, some companies are forming partnerships with Chinese firms to share development and marketing risks. These collaborations allow global pharmaceutical firms to enter the Chinese market with reduced financial exposure while leveraging local expertise.
In addition, recently, the Shanghai Municipal Security Bureau, in collaboration with other government agencies, launched the Measures to Diversify Payment Mechanisms program. This initiative aims to go beyond basic medical insurance by leveraging commercial insurance and additional funding mechanisms to support innovative drugs and devices.
The program’s primary goal is to provide funding for advanced therapies that fall outside the scope of China’s basic insurance. This includes not only innovative drugs and devices but also comprehensive services and support for patients with pre-existing conditions. One of the program’s main strategies is enhancing the availability of real-world data to commercial insurers. By sharing information between the National Healthcare Security Administration (NHSA) and commercial insurers, the initiative facilitates better risk analysis and underwriting. This data-driven approach ensures that insurance providers can offer tailored plans to support high-cost therapies.
Another important aspect of the program is the involvement of third-party administrators, similar to Pharmacy Benefit Managers (PBMs) in the United States. These administrators play a critical role in pharmaceutical pricing, filtering claims, and managing medical services. Their inclusion is expected to streamline processes and improve the efficiency of allocating funds for expensive treatments. Additionally, the program’s plan calls for commercial insurers to expand their scope beyond funding products to include patient services and long-term care needs.
The Future of Drug Reimbursement in China
Looking ahead, China’s healthcare system is likely to undergo further refinement. Policymakers are tasked with addressing the dual imperatives of cost containment and encouraging the development of innovative therapies. Initiatives like the NRDL and VBP will continue to play a pivotal role in this balancing act, ensuring patients have access to affordable, high-quality medicines while creating an environment conducive to pharmaceutical innovation.
The success of these programs depends on their ability to adapt to changing healthcare needs and market conditions. For instance, ongoing reforms to support innovative drugs—such as providing pricing premiums and expanding supplementary insurance options—highlight a willingness to address the concerns of global pharmaceutical companies. At the same time, measures to ensure the financial sustainability of the national healthcare system remain paramount.
Conclusion
China’s drug reimbursement landscape is a dynamic and rapidly evolving system designed to meet the healthcare needs of its population. Through programs like the NRDL and VBP, the government has made significant strides in improving access to essential medicines while controlling healthcare costs. However, these initiatives also present challenges for pharmaceutical companies, which must navigate a complex environment of aggressive pricing pressures and regulatory requirements.
The future of China’s drug reimbursement policies will depend on their ability to balance cost containment with support for innovation. By fostering collaboration between policymakers and the pharmaceutical industry, China can ensure that its healthcare system continues to evolve in a way that benefits patients, supports innovation, and maintains economic sustainability.
Written by: Ames Gross – President and Founder, Pacific Bridge Medical (PBM)
Mr. Gross founded PBM in 1988 and has helped hundreds of medical companies with regulatory and business development issues in Asia. He is recognized nationally and internationally as a leader in the Asian medical markets. Mr. Gross has a BA degree, Phi Beta Kappa, from the University of Pennsylvania and an MBA from Columbia University.