IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i16p7388-d1725217.html
   My bibliography  Save this article

The Impact of Drug Price Reduction on Healthcare System Sustainability: A CGE Analysis of China’s Centralized Volume-Based Procurement Policy

Author

Listed:
  • Yujia Tian

    (Dong Fureng Institute of Economic and Social Development, Wuhan University, Wuhan 430072, China)

  • Fei Sha

    (School of Accountancy, Central University of Finance and Economics, Beijing 100081, China)

  • Haohui Chi

    (Dong Fureng Institute of Economic and Social Development, Wuhan University, Wuhan 430072, China)

  • Zheng Ji

    (Dong Fureng Institute of Economic and Social Development, Wuhan University, Wuhan 430072, China)

Abstract

China’s healthcare expenditure tripled during 2010–2019, prompting the nationwide implementation of centralized volume-based procurement (CVBP). While effective in reducing drug prices, CVBP introduces sustainability challenges including supply chain vulnerabilities and welfare trade-offs. This study develops a pharmaceutical sector-embedded computable general equilibrium (CGE) model to quantify CVBP’s multidimensional sustainability impacts. Using China’s 2020 Social Accounting Matrix (SAM) with simulated 10–50% price reductions, key findings reveal that (1) >40% price reductions trigger sectoral output reversal; (2) GDP exhibits an inverted U-shape; (3) household income declines despite corporate/government gains; and (4) industrial contraction impairs innovation capacity and employment stability. Our analysis identifies potential sustainability risks, emphasizing the need for rigorous empirical validation prior to implementing aggressive price reduction policies, and underscores the importance of integrating supply chain considerations into procurement policy design. This approach maximizes resource allocation efficiency while advancing socioeconomic resilience in healthcare systems.

Suggested Citation

  • Yujia Tian & Fei Sha & Haohui Chi & Zheng Ji, 2025. "The Impact of Drug Price Reduction on Healthcare System Sustainability: A CGE Analysis of China’s Centralized Volume-Based Procurement Policy," Sustainability, MDPI, vol. 17(16), pages 1-17, August.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:16:p:7388-:d:1725217
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/16/7388/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/17/16/7388/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mills, Mackenzie & Kanavos, Panos, 2020. "Do pharmaceutical budgets deliver financial sustainability in healthcare? Evidence from Europe," Health Policy, Elsevier, vol. 124(3), pages 239-251.
    2. Fangjun Qiu & Shouming Chen & Yujia Li & Xianjing Wang & Mengfei Zhu, 2025. "The impact of the centralized volume-based procurement policy on Chinese pharmaceutical manufacturing firms’ R&D investment: A difference-in-differences approach," PLOS ONE, Public Library of Science, vol. 20(1), pages 1-19, January.
    3. Qian Xing & Wenxi Tang & Mingyang Li & Shuailong Li, 2022. "Has the Volume-Based Drug Purchasing Approach Achieved Equilibrium among Various Stakeholders? Evidence from China," IJERPH, MDPI, vol. 19(7), pages 1-22, April.
    4. Chen Wu & Yang Cao & Hao Xu, 2025. "How Population Aging Drives Labor Productivity: Evidence from China," Sustainability, MDPI, vol. 17(11), pages 1-28, May.
    5. Atanu Saha & Heather Roberts, 2020. "Pharmaceutical industry’s changing market dynamics," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 27(2), pages 159-175, May.
    6. Lei Chen & Ying Yang & Mi Luo & Borui Hu & Shicheng Yin & Zongfu Mao, 2020. "The Impacts of National Centralized Drug Procurement Policy on Drug Utilization and Drug Expenditures: The Case of Shenzhen, China," IJERPH, MDPI, vol. 17(24), pages 1-11, December.
    7. Pricivel Carrera & Sükran Katik & Fredo Schotanus, 2021. "Joint procurement of complex products: actual price savings, perceived nonmonetary advantages, disadvantages and impediments," Journal of Public Procurement, Emerald Group Publishing Limited, vol. 21(2), pages 167-182, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Qian Xing & Wenxi Tang & Mingyang Li & Shuailong Li, 2022. "Has the Volume-Based Drug Purchasing Approach Achieved Equilibrium among Various Stakeholders? Evidence from China," IJERPH, MDPI, vol. 19(7), pages 1-22, April.
    2. Shu Yan & Lizi Pan & Yan Lu & Juan Chen & Ting Zhang & Dongzi Xu & Zhaolian Ouyang, 2023. "Towards Sustainable Drug Supply in China: A Bibliometric Analysis of Drug Reform Policies," Sustainability, MDPI, vol. 15(13), pages 1-20, June.
    3. Chih-Hsiung Chang & Wu-Hua Chang & Yi-Yu Shih, 2022. "Is Financial Institution Management Effective to Reduce Problems Related to Information Asymmetry in Taiwan?," Bulletin of Applied Economics, Risk Market Journals, vol. 9(2), pages 37-58.
    4. Amarawan Pentrakan & Cheng-Chia Yang & Wing-Keung Wong, 2021. "How Well Does a Sequential Minimal Optimization Model Perform in Predicting Medicine Prices for Procurement System?," IJERPH, MDPI, vol. 18(11), pages 1-17, May.
    5. repec:osf:socarx:xagr6_v1 is not listed on IDEAS
    6. Susha, Iryna & de Wilde de Ligny, Sofie & Schaeffer, Mirko & Schotanus, Fredo, 2024. "Uncovering the purchasing of private sector data by governments: State of play in the Netherlands," SocArXiv xagr6, Center for Open Science.
    7. repec:osf:socarx:xagr6_v4 is not listed on IDEAS
    8. Yuanyuan Hu & Shouming Chen & Fangjun Qiu & Peien Chen & Shaoxiong Chen, 2021. "Will the Volume-Based Procurement Policy Promote Pharmaceutical Firms’ R&D Investment in China? An Event Study Approach," IJERPH, MDPI, vol. 18(22), pages 1-21, November.
    9. Böhm, Anna-Katharina & Steiner, Isa Maria & Stargardt, Tom, 2023. "Market diffusion of biosimilars in off-patent biologic drug markets across Europe," Health Policy, Elsevier, vol. 132(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:17:y:2025:i:16:p:7388-:d:1725217. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.