Shanghai. September 10. INTERFAX-CHINA - Southern China's Guangdong provincial health department is trying to further drive down drug prices by forcing out drug distributors with a two-invoice system to be included as part of the online drug bidding program next year, though a business insider told Interfax today that the likelihood of success of such a system is not high.

The online drug bidding system has been established in a number of provinces in China as part of a drive to push down drug prices. In Guangdong, manufacturers are required to publish the hospital purchase price of their products for the year online, creating a competitive field for hospitals to choose their suppliers. According to an announcement by the provincial government last Friday, starting in next year's round of bids, a two-invoice limit will be imposed, which means that only two invoices can be issued in the process of distributing drugs to hospitals, cutting out a large number of middlemen between manufacturer and hospital.

At present, it is not uncommon that drugs are sold to national drug distributors first, then to second and even third tier distributors before being sold on to hospitals. With each tier adding its own mark-up to the price, drugs are much more expensive than they could be.

Qiqihar No. 2 Pharmaceutical Factory's counterfeit armillarisin A, which caused 13 deaths last year, had an ex-factory price of RMB 5 ($0.66), before it was sold by Guangzhou Jinhengyuan Pharmaceutical Trading Ltd. to Guangdong Medicine Healthcare Ltd. at RMB 34 ($4.52). Hospitals finally bought the drug at RMB 36 ($4.78) and sold it to patients at RMB 46.1 ($6.12).

Presently, Guangdong Province has about 2,000 registered drug distributors, some of which are just trading companies with no distribution facilities. This is in contrast to Japan, which has only 160 drug distributors nationally and whose national drug sales are as much as five times those in China.

It is estimated that about 70 percent of drug distributors in Guangdong will be affected when the two-invoice system is strictly implemented, according to the provincial government announcement.

Last Friday, 35 drug manufacturers jointly made a proposal that the two-invoice system should be canceled or postponed. The companies said that since prices of drugs have already been set in the process of online bidding, the system would not reduce drug prices.

But this was rejected by Yang Junhe, the head of online drug bidding expert team in Guangdong. He argued that, by publishing a hospital purchase price, drug makers will have already taken into consideration profits for distributors in their price proposals. "If there is only a single distribution tier as opposed to two or three, drug makers will naturally propose a lower price," Yang said.

Drug makers have also argued that large drug distributors will be unwilling to sell drugs to remote areas in the province. Yang countered by saying that the system will be strictly carried out in hospitals in cities first, and for hospitals in remote rural areas, three invoices may be allowed.

Zhang Shousheng, vice director of the Guangdong provincial health department said that the online drug bidding in Guangdong aims to provide benefits to the general public, and the two-invoice system takes into consideration the interests of drug makers, distributors and hospitals.

According to Zhang, the department is still soliciting opinions from various sources to improve the online drug bidding system, and on the implementation of the two-invoice system.

However, Zhu Changhao, the vice director of China Association of Pharmaceutical Commerce, believes that the two-invoice system is "too idealistic", since few drug distributors operating alone can ensure adequate coverage to enough hospitals.

"It is quite difficult for the province to strictly carry out the system. It would be better to allow drug distributors to compete with each other freely," Zhu added. (By Karl Zhong)