On August 7, 2012, the Ministry of Health (“MOH”) issued a new regulation supplementing the existing procurement regime for so-called Class A large medical equipment.

Class A large medical equipment refers to high-tech, high-value medical equipment with high operation costs and a significant impact on medical expenditures. MOH has been regulating Class A large medical equipment since 2008 by publishing product catalogues from time to time. The current catalogue of Class A large medical equipment includes Cyber Knife systems, Tomo Therapy Systems and other equipment priced over RMB 5 million.

Under the new regulation, any non-profit medical institutions established by governments or by state-owned-enterprises in China must go through the centralized procurement process when they need to purchase new equipment, replace existing equipment or upgrade existing equipment that will require a change of core hardware.

Significantly, the new regulation emphasizes compliance as a key element for procurement. Qualified suppliers should have good records of tax and social security payments and, in addition to the routine supply agreement, companies winning the bid are expected to sign a separate integrity agreement relating to kickbacks or any form of bribery. Breach of such undertakings by the suppliers may render the winning bid invalid, and the supplier may be blacklisted by MOH.