Will centralized drug procurement policy improve enterprises' total factor productivity?

Area of Science:

• Health Economics
• Pharmaceutical Policy
• Industrial Organization

Background:

• China's healthcare system faces drug pricing challenges.
• The National Centralized Drug Procurement (NCDP) policy was introduced in 2018 to address these issues.
• Understanding the policy's impact on firm productivity is crucial for reform evaluation.

Purpose of the Study:

• To investigate the causal effect of the NCDP policy on the Total Factor Productivity (TFP) of pharmaceutical firms.
• To identify the mechanisms through which the NCDP policy affects TFP.
• To propose policy recommendations for balancing drug pricing control and corporate sustainability.

Main Methods:

• Difference-in-Differences (DID) methodology applied to quarterly data of A-share listed pharmaceutical firms (2003-2021).
• Robustness checks included index substitution, propensity score matching, and lag tests.
• Analysis of mediating effects through financing constraints (KZ index) and R&D/investment dynamics (RD, INV).

Main Results:

• NCDP participation significantly reduces pharmaceutical firms' TFP.
• The negative TFP impact is more pronounced in non-state-owned enterprises, non-TCM manufacturers, and firms with high analyst coverage.
• Mechanisms include tightened financing constraints and an "R&D→investment inefficiency→TFP↓" transmission chain.

Conclusions:

• The NCDP policy, while controlling drug prices, negatively impacts pharmaceutical firms' TFP.
• Policy recommendations include differentiated financing support and innovation incentive reform.
• These strategies aim to create a sustainable equilibrium between price control and TFP enhancement.