– The 11th batch of China’s national drug centralized procurement features significant rule changes aimed at reducing internal competition and preventing extreme low pricing.
– New pricing mechanisms use average values instead of lowest bids to set benchmarks, promoting rational competition among pharmaceutical companies.
– Hospitals gain more autonomy by reporting drug quantities by brand, which could accelerate industry consolidation and favor established players.
– These reforms represent a critical inflection point, balancing cost control with patient safety and drug quality.
– Experts emphasize the need for multi-department coordination and real-world data tracking to enhance the pharmaceutical ecosystem.
In the bustling bidding hall of a Shanghai hotel, the air was thick with a tense calm on October 27. Wang Ming (王铭), a seasoned pharmaceutical industry veteran, observed the proceedings of China’s 11th national drug centralized procurement round. Having witnessed numerous previous batches, he noted a distinct shift—this time, the competition was fiercer, with 445 enterprises submitting 794 products for bidding, yet the atmosphere was more measured and rational. Unlike past rounds where extreme low prices like “three cents per aspirin tablet” dominated, the 11th batch emphasized anti-internal competition, signaling a pivotal moment in China’s drug procurement system. This focus on anti-internal competition aims to reshape the landscape, ensuring that price reductions do not compromise drug quality or market sustainability. As the National Healthcare Security Administration (国家医保局) introduces reforms to stabilize clinical supply and prevent cutthroat pricing, stakeholders are watching closely to see if this marks a lasting change toward a more balanced pharmaceutical market.
The Shift to Anti-Internal Competition in Centralized Procurement
The 11th batch of China’s national drug centralized procurement represents a fundamental departure from previous approaches, with anti-internal competition at its core. This strategic move addresses long-standing issues of irrational pricing and market instability, aiming to foster a healthier competitive environment.
New Pricing Mechanisms and Rules
A key change in the 11th batch is the overhaul of pricing anchors. Instead of relying solely on the lowest bid to set benchmarks—a method that often led to extreme undercutting—the new rules use the average “unit comparable price” from all qualified bidders. Specifically, the anchor price is set as the higher value between 50% of the average unit comparable price and the lowest bid. Jiang Bin (江滨), Deputy Director of the Peking University Public Policy Research Center and a member of the National Healthcare Security Administration’s expert group, emphasized, “The anchor price is the most important factor, as it determines the maximum selectable price for each drug variety.” This shift from individual to collective pricing logic helps reflect industry consensus and reduces the risk of destabilizing low offers. For instance, simulations by the National Healthcare Security Administration showed that using this optimized anchor could raise benchmark prices by up to 170% for some varieties, effectively curbing internal competition.
Impact on Bidding Behavior and Market Rationality
The introduction of anti-internal competition measures has already yielded tangible results. In the 11th batch, 272 enterprises saw 453 products selected, with an average selection rate of around 57%, a slight increase from the 49.5% in the 10th batch. Notably, extreme low bids were scarce, and companies engaged in more calculated pricing strategies. Jin Chunlin (金春林), Director of the Shanghai Health Development Research Center, described the reforms as a “combination punch” using all available tools to combat internal competition. However, he suggested that future adjustments could further raise anchor prices to allow broader participation. The policy also includes a “low-price declaration” requirement, where the lowest bidder must justify its price and commit to not selling below cost. These steps underscore a broader effort to align pricing with sustainable business practices, reducing the volatility that has plagued past rounds.
Addressing the Root Causes of Internal Competition
While rule changes are crucial, experts argue that internal competition stems from deeper structural issues within China’s pharmaceutical industry. Tackling these root causes is essential for long-term stability and quality assurance.
Industry Overcapacity and Structural Imbalances
China’s generic drug market is characterized by severe overcapacity, with too many firms competing for limited procurement slots. Chen Hao (陈昊), Director of the Tongji Medical College Drug Policy and Management Research Center at Huazhong University of Science and Technology, pointed out that despite regulatory reforms like updated Good Manufacturing Practice (GMP) standards, capacity reduction has been slow. He noted, “Internal competition’s deep-seated cause lies in China’s generic drug industry overcapacity.” Data from the “China Generic Drug Development Report (2023 Edition)” reveals that in 2023 alone, 1,993 generic drug approvals were issued, and over 1,000 enterprises hold evaluated varieties. This surplus fuels intense rivalry, as seen in the 11th batch where 48 firms competed for just 10 slots in the diprophylline injection category. Jiang Bin (江滨) echoed this, citing the “structure-behavior-performance” paradigm from industrial economics, where unhealthy industry structures drive detrimental behaviors like price wars.
Regulatory and Policy Interventions for Sustainable Growth
To address these challenges, multi-department coordination is vital. Hu Shanlian (胡善联), a health economics professor at Fudan University, highlighted that internal competition arises from a combination of institutional flaws and market failures. He recommended that drug regulatory authorities raise entry barriers and optimize approval resources, such as prioritizing first-to-market generics to reduce redundant applications. For example, implementing a tiered approval system could incentivize innovation over imitation. Additionally, the National Medical Products Administration (国家药品监督管理局) could play a stronger role in phasing out outdated capacities through stricter enforcement. These measures, coupled with the anti-internal competition focus, aim to create a more orderly market where quality trumps quantity.
Empowering Hospitals in Drug Selection
A significant innovation in the 11th batch is the enhanced role of hospitals in reporting drug quantities, which supports the anti-internal competition agenda by aligning procurement with real clinical needs.
Brand-Based Quantity Reporting and Its Implications
For the first time, hospitals were allowed to report demand by specific drug brands rather than just generic names. This change gives medical institutions greater autonomy, acknowledging their preferences and historical usage patterns. In the 11th batch, 77% of the 46,359 participating institutions reported by brand, while 23% stuck to generic names. Liu Feng (刘枫), Vice President of Yichang Renfu Pharmaceutical (宜昌人福药业), which secured multiple selections, noted that this rule “links procurement demand more closely with market choices, favoring products with strong clinical reputations.” This approach can accelerate industry consolidation, as larger firms with established brands gain an edge over smaller “barefoot enterprises” that previously relied on deep discounts to enter the market. However, it also risks entrenching existing market shares, potentially stifling competition from newcomers.
Challenges in Implementation and Market Dynamics
Despite the intent, brand-based reporting faces practical hurdles. Some large public hospitals hesitated to specify brands due to concerns about offending other suppliers or complicating relationships. Chen Hao (陈昊), drawing from his experience with Wuhan’s insulin procurement pilot, suggested distinguishing between “reporting by brand” and “allocating by brand” to maintain government control over volume distribution. He advised using medical big data to verify hospital reports against actual usage, mitigating risks of bias or corruption. Moreover, while the rule supports anti-internal competition by reducing price-centric battles, it may dilute the bulk-purchasing power that centralized procurement aims to leverage. Balancing hospital autonomy with collective bargaining remains a key challenge for future reforms.
Towards a Sustainable Pharmaceutical Ecosystem
The 11th batch’s reforms are a step toward a more resilient drug supply chain, but long-term success depends on comprehensive quality oversight and adaptive policies that reinforce anti-internal competition principles.
Quality Assurance and Real-World Data Integration
Ensuring drug quality post-selection is critical for building patient trust. Hu Shanlian (胡善联) advocated for a robust post-market surveillance system, including routine follow-ups and real-world data collection on drug efficacy and safety. He proposed, “The government should organize targeted tracking of selected varieties in specific hospitals, with teams documenting outcomes and sharing findings publicly.” Recently, the National Healthcare Security Administration launched a real-world value assessment pilot in 11 provinces, using data from actual clinical settings to evaluate drugs’ effectiveness, safety, and cost-effectiveness. This initiative aligns with anti-internal competition goals by shifting focus from mere cost to overall value, helping to prevent quality compromises in pursuit of lower prices.
Future Directions and Market Outlook
As China’s centralized procurement system matures, experts anticipate further refinements. Jin Chunlin (金春林) emphasized that the overarching direction is correct, moving away from price-only metrics to incorporate quality, supply chain reliability, and brand influence. The anti-internal competition measures are expected to evolve, potentially including higher anchor prices or incentives for innovation. For investors and healthcare professionals, this signals a more predictable market where rational pricing and quality assurance take precedence. The ongoing shift toward anti-internal competition not only aims to stabilize drug supplies but also to foster a competitive landscape that benefits patients, providers, and manufacturers alike.
China’s 11th drug centralized procurement batch marks a transformative step in combating internal competition and prioritizing sustainable healthcare. By introducing rational pricing mechanisms, empowering hospitals, and addressing structural overcapacity, these reforms aim to balance affordability with quality. The focus on anti-internal competition has already curbed extreme low bids and encouraged more strategic industry behavior. Looking ahead, continuous monitoring, real-world data integration, and multi-stakeholder collaboration will be essential to solidify these gains. For global investors and pharmaceutical executives, this evolution presents opportunities to engage with a maturing market that values long-term stability over short-term gains. Stay informed on regulatory updates and market trends to navigate China’s dynamic healthcare landscape effectively.