China's cabinet has ordered hospitals to order drugs only from pre-approved suppliers, in a move intended to regulate a system rife with corruption.

In a circular released on Saturday, the State Council General Office also said that hospitals should pay distribution fees directly to logistics companies to reduce intermediate links, and introduced a "multi-party negotiation mechanism" to formalize price negotiations between hospitals and suppliers.

The move will aid hospital reform, regulate medicine supply and improve state policies in this regard, according to the document, which stressed that the new policies draw on international convention.

Bribery is common in the bidding process to supply drugs to Chinese hospitals. The winning firms are often unable to fulfill their contracts.

There is also a trend of doctors prescribing unnecessary, expensive drugs to reap profits for hospitals or obtain kickbacks from drug companies.

The State Council promised harsh punishments for violations of the new process.

The new rule will effectively curb corruption in drug purchasing, according to Fan Dijun with the Chinese Academy of Governance.