Can the Profitability of Medical Enterprises Be Improved After Joining China's Centralized Drug Procurement? A Difference-in-Difference Design

This paper explores the impact of joining centralized drug procurement of China on the profitability of medical enterprises by the difference-in-difference (DID) model. When centralized procurement cannot bring enough cost savings to enterprises, the price competition caused by centralized procurement will lead to the decline of enterprise profits. In the short term, the negative impact of China's drug centralized procurement policy on the net profit of enterprises is not obvious in the year when enterprises win the bid. After the government officially purchases from pharmaceutical enterprises, the negative impact of the drug centralized procurement policy of China on the net profit of enterprises begins to appear gradually. Therefore, the generic drug manufacturers increase R&D investment and have their own heavy products of original drugs as soon as possible to enhance their core competitiveness.

Automated summary

This paper explores the impact of joining China's centralized drug procurement on the profitability of medical enterprises using the difference-in-difference model. When centralized procurement does not generate sufficient cost savings, the resulting price competition can lead to a decline in enterprise profits. In the short term, the negative impact of China's drug centralized procurement policy on enterprise net profits is not evident in the year of winning the bid. However, after the government starts officially purchasing from pharmaceutical enterprises, the negative impact gradually emerges. Therefore, generic drug manufacturers should increase R&D investment and develop their own original drug products as soon as possible to enhance core competitiveness.