The impacts of 4+7 centralized drug procurement on drug price and stock market performance of non-winning firms in China

Abstract

 To address the problem of rising prescription drug prices, more and more governments are implementing centralized purchasing policies. However, our understanding of the policy’s role for non-winning firms is still limited. In this study, we investigate whether the centralized procurement policy has spillover effects on drug price of non-winning firms or non-pilot areas, as well as the influence of procurement policy on stock prices of non-winning firms. By using data of drug prices and stock information of listed pharmaceutical firms in China, we find that the 4+7 centralized procurement policy reduces drug prices for both successful and unsuccessful bidders, but this impact is stronger for successful ones. In terms of regional impact, the implementation of the 4+7 policy leads to the reduction of drug prices in the 4+7 pilot regions but not non--pilot regions. Meanwhile, non-winning firms experience a stronger short-term stock price reduction compared to winning firms after the implementation of the 4+7 policy but will recover in the long term. Furthermore, we adopt qualitative approach to identify the strategies non-winning firms take to recover from the policy-induced disadvantages. These findings provide rich insights into the role of centralized purchasing policies in pharmaceutical firm and drug price management.