Summary of Key Points
The bid opening for the 12th batch of national drug procurement will take place in Shanghai at the end of this month. The Medical Insurance Bureau is focusing on reducing competitive pressures (or “inflationary competition”) by optimizing the bidding rules:
1. A more reasonable pricing reference line has been set to prevent excessively low prices from dragging down the overall price level.
2. For abnormally low bids, the rule applies a penalty where the winning bidder does not receive the allocated quantity of drugs.
Despite these improvements, there are too many generic drug companies competing for a limited number of spots (in some cases, over 50 companies are vying for just 10 slots), so price remains the key factor in determining success.
Moreover, the procurement process has evolved from a mere “price-cutting tool” to a comprehensive management platform that considers quality, supply, and intellectual property rights, with the goal of providing benefits to patients and promoting healthy competition among companies.
Detailed Explanation
How Does This Procurement Process Reduce Inflationary Competition? Two New Rules to Curb Excessively Low Prices
In previous rounds, some companies’ extremely low bids would force others to lower their prices, sometimes leading to losses for all participants. The new rules address these issues in two ways:
- Higher Benchmark for Pricing: The pricing reference line is no longer based solely on the lowest bid; instead, it is determined by the higher of the “lowest bid” and the average price of the qualifying companies minus one standard deviation (which represents a reasonable lower limit for bids). For example, if the lowest bid is 1 yuan but the average price of the qualifying companies is 1.2 yuan after adjustment, the reference line will be 1.2 yuan, preventing other companies from bidding too low.
- Penalty for Abnormally Low Bids: If a company’s bid is even lower than the average price minus two standard deviations (e.g., if the reasonable lower limit is 1.2 yuan and they bid 0.5 yuan), they will not be awarded the bid or the allocated quantity of drugs, effectively resulting in a “win without gain.” This discourages companies from submitting unrealistic low bids.
Why Reduce Inflationary Competition? The Problems with Focusing Only on Low Prices
In the past, some companies offered prices so low that they couldn’t even cover their costs, leading to issues such as reduced quality or supply disruptions (hospitals running out of drugs, patients unable to obtain them). For instance, the winning bid for a certain antibiotic was so low that the company stopped producing it, causing shortages. By implementing these new rules, the Medical Insurance Bureau aims to ensure prices are “reasonably affordable” while still allowing companies to make a profit and maintain product quality.
Intense Competition Despite New Rules: Dozens of Companies Competing for Few Spots, with Price Still Being the Decisive Factor
This round involves 65 drug varieties, with an average of 15 companies competing for each. For the most popular varieties, up to 54 companies are vying for 10 spots, resulting in an elimination rate of over 80%. Therefore, even with these new rules, companies still need to bid competitively, as the number of spots is limited and price remains a crucial factor. Industry insiders believe it’s difficult for companies to relax their pricing strategies, as failing to win could mean losing business.
The Evolution of the Procurement Process: From a “Price-Cutting Tool” to a Comprehensive Management Platform
Previously, the focus was on using large procurement volumes to secure lower prices. Now, the process has expanded to include:
- Quality Supervision: Companies must ensure drug quality and not compromise it due to low prices.
- Supply Commitment: Winning bidders must deliver drugs on time; failure to do so will result in penalties.
- Intellectual Property Protection: Innovative drugs are protected from being undercut by generic versions.
- Clinical Needs: Consideration is given to the medication needs of different patient groups (e.g., pediatric and rare disease medications).
Jin Chunlin, Director of the Shanghai Health and Development Research Center, emphasizes that the current approach aims for a balanced development of the drug market, focusing on more than just price reductions.
The Ultimate Goal of Reducing Inflationary Competition: Benefits for Patients and Healthy Competition for Companies
The Medical Insurance Bureau’s goal is not to eliminate competition but to make it more structured:
- For Patients: To ensure they can access drugs at reasonable prices with reliable quality.
- For Companies: To encourage them to focus on quality, stable supply, and cost control rather than simply cutting prices. This shift allows companies to improve production processes and maintain supply, benefiting the entire industry in the long run.
Conclusion
The new rules for the 12th batch of national drug procurement represent an attempt by the Medical Insurance Bureau to strike a balance between price reductions and the viability of companies. Although competition remains fierce, the direction is clear: to move away from focusing on low prices and towards a focus on quality and efficiency. For patients, this means accessing cheaper and more reliably supplied drugs in the future; for companies, it means survival depends on their ability to deliver high-quality products efficiently. This represents a win-win situation for both parties.