Summary of Key Points
The 12th batch of national drug procurement auctions was held in Shanghai on July 31st, with the most notable feature being the implementation of anti-competitive (anti-involvement) measures. These measures aim to guide companies to bid rationally by setting price benchmarks and ensuring that extremely low prices do not come with guaranteed volumes. Additionally, a new rule has been introduced to stabilize clinical use, allowing medical institutions to choose specific brands of drugs, making it easier for patients to access original research medications (OEMs). Despite the fierce competition (with over 40 companies competing for some products), the improved rules seek to balance the benefits of reduced prices for patients with the sustainable development of pharmaceutical companies, preventing them from incurring losses just to win bids.
I. Anti-Competitive Measures: Even if a bid is the lowest, it may not result in a purchase order
The most prominent aspect of these procurement efforts is the anti-competitive strategy. The National Healthcare Security Administration (NHSA) does not oppose price reductions but aims to prevent companies from cutting prices arbitrarily:
- Price benchmarks: A reference point has been set based on “two standard deviations below the average winning bid” (in simple terms, a reasonable lower limit for industry prices).
- No guaranteed volume for ultra-low bids: If a company bids at a price lower than this benchmark, even if they win the bid, they will not receive a guaranteed purchase quantity or the corresponding number of spots. For example, if you bid at a loss-making price, you may win the auction, but hospitals might not choose your product, rendering your efforts futile.
Jin Chunlin, director of the Shanghai Health and Development Research Center, stated that this approach prevents extreme low prices from dragging down the entire industry’s price level and avoids companies competing excessively to secure orders.
II. Companies are more cautious when bidding: One bid can affect three years; high-priced drugs may face negative consequences
Pharmaceutical companies participating in this procurement are now much more cautious, for two reasons:
1. Long contract period: The contracts for this batch of auctions are valid for three years, meaning one bid determines the company’s market share for the next three years. They must consider potential risks such as future increases in raw material costs and policy changes, rather than focusing solely on short-term gains.
2. Negative labeling for non-winning bids: If a company’s bid exceeds 1.8 times the healthcare payment standard, their product will be labeled as “yellow”; if it exceeds 3 times the standard, it will be labeled as “red.” Hospitals and patients may avoid purchasing such products, potentially leading to market loss. Therefore, companies need to find a balance that ensures they can make a profit while still being selected.
III. Fierce competition, but more rational bidding
Despite the anti-competitive measures, competition for certain products remains intense:
- For example, 49 companies competed for vitamin B6 injections, and 48 for Vonorafenib oral medication; many other products had over 30 competitors.
Industry insiders note that price remains a key factor in winning bids, as the number of spots is limited. However, companies are more cautious this time and are unlikely to bid at extremely low prices. A company representative predicted, “Prices for highly competitive products may still be low, but overall, the bidding process should be more reasonable, with companies hoping to retain some profit for long-term development.”
IV. Stabilizing clinical use: Hospitals can choose specific brands; OEMs have a greater chance of being selected
New measures have been introduced to align drug selection with actual clinical needs:
- Hospital choice of brands: Previously, the procurement process might specify certain products, but now medical institutions can choose the specific brand and quantity they need. For instance, if doctors are accustomed to using a particular brand of antihypertensive medication, they can directly request that brand.
- OEMs have a chance to remain in the market: Even if an OEM product does not win a guaranteed volume, it can still be listed for sale. This allows both patients and companies to benefit, as it meets the demand for original research medications and provides OEMs with a platform to continue operating in the market.
V. The significance of this procurement: Balancing benefits for patients with company survival
Overall, the 12th batch of auctions represents an effort by the state to find a balance between reducing prices and maintaining the health of the pharmaceutical industry:
- For patients: Patients can access cheaper drugs for conditions such as hypertension, diabetes, and cancer, as well as familiar or original research medications.
- For companies: The new rules prevent excessive price cuts that could lead to losses, encouraging companies to focus on improving product quality and ensuring supply. Only by surviving can companies continue to provide high-quality medicines.
Although competition remains fierce, the improved rules make the procurement process more mature. The focus is no longer solely on the lowest price but on finding a balance between cost and value, ensuring that price reductions truly benefit patients and support the long-term development of the industry.