Life Sciences Horizons Brochure 2025 - Flipbook - Page 79
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2025 Horizons Life Sciences and Health Care
Volume-based procurement: Is the reward worth the risk?
To control health care costs and ensure affordable
access to medications and medical devices, the
Chinese government has developed a volume-based
procurement (VBP) program covering medicines,
high-value medical devices, and medical consumables.
The procurement process, led by the National Health
care Security Administration (NHSA), involves
competitive bidding, with the lowest bidders securing
contracts to supply large volumes of products in
exchange for significant price reductions.
Supply Commitments
For drug procurement, NHSA normally organizes procurement on
behalf of public and military medical institutions across various
provinces and other provincial administrative regions, including
the Xinjiang Production and Construction Corps.
Once a pharmaceutical company wins the bid, it must enter into
supply and sales contracts with designated medical institutions,
committing to deliver the agreed quantities.
Caught in U.S. China Crosshairs
However, some purchasing entities in the VBP program may be
subject to U.S. sanctions imposed by the U.S. Department of the
Treasury’s Office of Foreign Assets Control (OFAC). If an entity is
placed on the Specially Designated Nationals and Blocked Persons
List by OFAC (such entity, the “SDN”), U.S. persons will be
prohibited from engaging in transactions with the SDN, as well
as any entities owned 50% or more (directly or indirectly) by the
SDN. This means that participation in the VBP program could
constitute a violation of OFAC rules unless a license or waiver
is secured beforehand.
On the other hand, if a winning pharmaceutical company
opts to withdraw from the VBP program to avoid potential
sanctions violations, it could face consequences under Chinese
law, including:
Item (b) will attract punitive measures against the winning bidder,
which we previously detailed in our articles: “China Passes the
Anti-Foreign Sanctions Law, Adding More Legal Tools to
Countermeasure Foreign Sanctions and Interference,” and
“China reveals the Provisions on Unreliability Entity List.”
Given the current geopolitical and macroeconomic climate, a
thoughtful analysis of the political and regulatory considerations
should be conducted before any proposal to participate in the
VBP program.
Breach of Contract: Failing to fulfill contractual obligations.
Wensheng Ren
Counsel
Hogan Lovells Fidelity
China’s Countermeasures: Potentially being viewed as taking
discriminatory actions against Chinese parties, which is a
violation of China’s Anti-Foreign Sanctions Law and
regulations such as the Provisions on Unreliable Entity List.
Stephanie Sun
Counsel
Shanghai
