Drug prices are mainly determined by production costs, commercial circulation and use in medical institutions. In 2015, total sales of the Chinese drug distribution industry was CNY1,613.3 billion (USD248.6 billion at 31 December 2015 exchange rate), with CNY28.3 billion (USD4.4 billion) profit and an average cost rate of 5.4 percent due to high logistics costs (1). Under Multi-invoice Systems in China, drugs are delivered through national, provincial, local agents, with invoiced and prices going up each time (2). The Two-invoice System, which comes up in April 2016, is China's first drug distribution policy aiming to compress circulation, and reduce unrealistically high prices. There will be only two invoices, one from production enterprises to distributors, the other from distributors to medical institutions. The objective of this study is to evaluate the effect of the Two-invoice System on drug distribution and price in China.

We conducted a literature review of relevant articles and policies in five provinces on China National Knowledge Infrastructure (CNKI), Wanfang, PubMed and government websites. We conducted in-depth individual interviews for qualitative research on policy mechanisms with two government officials and four drug production and distribution enterprise managers. The quantitative study on policy effect measured indicators, namely, number of distributors, concentration ratio index (CR), net sales ratio, and ex-factory price. We compared the pilot province before and after the policy, with national level and other provinces. We considered related drug policies to eliminate confounding. Focus group discussion on conclusions and suggestions will be conducted.

There are no peer review articles, only news media on this topic. In Fujian Province, the number of distributors droped from 246 to 62. In 2015, the Top 3 drug wholesalers reached a market share of 36 percent (CR3), and Top 10 for 86 percent (CR10). Compared to the whole country, CR3 is 26 percent and CR100 is 86 percent. Net sales in the drug wholesale market in Fujian accounted for 75.6 percent, with an increase of 4.3 percent. While at the national level, it is only 57.2 percent with an increase of 0.3 percent (3).

The Two-invoice System in China reduces intermediate circulation, and increases industrial concentration. Net sales directly to hospitals are encouraged, whichaffects distribution and production areas. Production enterprises tend to invoice with higher prices instead of offering reserve prices to agents.