Summary of Key Points
The second round of national centralized procurement for traditional Chinese medicine (TCM) decoction pieces has concluded, with 41 new varieties added, bringing the total number of varieties covered by the two rounds to 60% of those commonly used in clinical practice. Although the rules have improved aspects such as quality weight and production capacity requirements, companies have reported greater pressure on prices compared to the first round: the bidding process has become so competitive that it leads to losses. The issue of high upstream raw material costs (which are influenced by agricultural product prices) puts companies in a difficult position. There is also a significant gap between the ideal of "better quality equals higher prices" and the reality on the ground.
Detailed Analysis
1. Bidding Becomes Unprofitable: Why Do Companies Bid Despite Losing Money?
A total of 1,140 companies participated in this procurement, with 776 winning bids (a win rate of 68%), but many did so at a loss. The main reason is the procurement volume distribution rules: the top 40% of the winning companies receive 100% of the agreed-upon purchase volume from hospitals, while those lower in the ranking only get the remaining portion. To secure market share, companies are willing to take losses. For example, a state-owned enterprise in Zhejiang won bids for 22 varieties and expects to lose tens of millions of yuan annually; another 37 companies won bids for all their varieties, aiming to lock in more hospital orders through full coverage.
The bidding rules are even more stringent: after qualifying, there are two methods for submitting prices. The second method requires the bid not to exceed 1.2 times the standard deviation below the average price of the same group. Fearing being excluded from the top 40%, most companies lower their prices, which drives down the overall median bid. As a result, profits across the entire supply chain have been compressed to around 1.3 times the cost of production. The traditional profit distribution (25% for cultivation, 15% for processing, 15% for preparation, and 25% for hospitals) has been disrupted, leaving companies with little room for profit.
2. The Dilemma of TCM Decoction Pieces
TCM decoction pieces are different from Western medicines; their raw materials are TCM herbs, which are both considered "genuine agricultural products" (such as Yunnan notoginseng and Zhejiang Ophiopogon japonicus) and are highly affected by climate and planting cycles (droughts can lead to significant yield reductions). Companies face the following challenges:
- Uncontrollable Upstream Prices: Raw material prices can rise suddenly (for example, Ophiopogon japonicus cost 70 yuan/kg during the first round of procurement but rose to 160 yuan/kg by the time of delivery). Since the procurement price is fixed, companies have to bear the losses.
- Additional Costs for Downstream Buyers: Hospitals prefer small-packaged decoction pieces, but the procurement prices do not compensate for these additional costs (in some provinces, there is only a 5 yuan/kg increase, or no increase at all). Medical insurance requires minimum packaging standards, forcing companies to repackage larger packs, increasing costs further.
- Quality Traceability Issues: Quality traceability only extends to the processing stage; companies cannot control the cultivation process (such as whether pesticides or additives were used), making it difficult to address potential quality issues.
3. The "Time Bomb" of Quality and Supply
Ten companies were eliminated during the sample review phase, including two large suppliers that had won bids for 37 varieties. This could be due to substandard samples or voluntary withdrawal from supply due to rising raw material prices. During the first round, ten companies had their procurement qualifications suspended until 2027 due to their inability to fulfill their obligations.
Potential risks include:
- Weak Resilience of Small and Medium-Sized Companies: Many winning companies are small and cannot afford price increases; they may face supply disruptions or reduced quality if they cut corners.
- Lack of Deterrence for Violations: Some companies simply change their names and re-register to participate in future procurements, as the enforcement mechanisms are not effective enough.
- New Pharmacopoeia Standards: New standards (such as a maximum limit of 0.1 ppm for paclobutrazol) can reduce yields, but companies may use old inventory, posing quality risks.
4. The Challenge of Achieving "Better Quality equals Higher Prices"
The procurement aims to encourage better quality and higher prices by increasing the weight given to GAP (Good Agricultural Practice) certified bases. However, the reality is:
- Insufficient GAP Bases: There are only 560,000 mu (about 37,000 hectares) of GAP-certified bases nationwide, accounting for 1.2% of the total cultivation area, making it difficult for companies to cover all their varieties.
- No Price Premium for Quality: Varieties from GAP bases are 20% more expensive, but there is no additional subsidy, leading to losses for companies that invest in GAP certification.
- Varying Standards Across Regions: Different provinces have different GAP certification and regulatory requirements, increasing compliance costs for cross-provincial operations and making coordinated supervision difficult.
In summary, although the second round of TCM decoction piece procurement aims to address issues from the first round, it has resulted in greater price pressure, lower company profits, and ongoing supply and quality risks. The core contradiction lies in the mismatch between the "agricultural product nature" of TCM decoction pieces and the need for standardized centralized procurement. Balancing lower prices to reduce medical insurance costs with maintaining quality and stable supply while ensuring profitability for all stakeholders remains a challenge that requires gradual improvement.