Effect of centralized volume-based procurement of drugs on business performance of listed pharmaceutical enterprises

Since March 2018, China has conducted five rounds of negotiations for the inclusion of drugs in the medical insurance system and implemented eight batches of centralized drug procurement. The role of the medical insurance department as a strategic purchaser in the pharmaceutical market has been continuously strengthened, playing a crucial role in controlling the unreasonable growth of medical expenses and reducing the economic burden on patients. The policy of centralized drug procurement, by exchanging quantity for price, can significantly reduce drug prices and lower the profit level of companies. However, being included in the centralized drug procurement catalog can bring a substantial and stable market share to the winning companies. Therefore, the impact of the centralized drug procurement policy on the operational performance of winning companies and how their business decisions should be adjusted remain to be thoroughly explored from both theoretical and empirical perspectives. To assess the impact of the centralized drug procurement policy on the operational performance of companies, this study takes publicly listed pharmaceutical manufacturing companies from 2016 to 2020 as the sample and conducts empirical analysis using methods such as difference in difference (propensity score) matching (PSM-DID). The results showed that the centralized volume-based procurement of drugs policy had a significant negative impact on the business performance of bidding listed pharmaceutical manufacturing companies, indicating that the increase in the sales of bidding drugs could not fully make up for the profit loss caused by the price reduction in the short term. Pharmaceutical manufacturing companies should further adjust their market competition strategies, actively engage in research and development innovation. The government should guide pharmaceutical companies to improve their operational performance while ensuring the quality of drug supply by optimizing the supporting innovative incentive policies in the centralized drug procurement policy.