Effects of Volume-Price Contracts on Pharmaceutical Prices: A Retrospective Comparative Study of Public Hospitals in Hubei of China

Background: Pharmaceutical expenditure has been increasing worldwide. Many countries have attempted to contain the increase through collective bargaining, including in China. In 2015, the Chinese government introduced a new policy to empower regional governments to reduce pharmaceutical prices through its existing tendering system which enables a lower price for products with higher procurement volumes. Xiangyang municipality in Hubei province took a lead in piloting this initiative. Objectives: This study aimed to evaluate the effects of the volume-price contract initiative on pharmaceutical price procured by the public hospitals in Xiangyang. Methods: A retrospective comparative design was adopted. The price of cardiovascular medicines (349 products under 164 International Nonproprietary Names) procured by the public hospitals in Xiangyang was compared with those procured in Yichang municipality in Hubei. A total of 15,921 procurement records over the period from January 2017 to December 2018 were examined (Xiangyang started the volume-price contract initiative in January 2018). Generalized linear regression models with a difference-in-differences approach which could reflect the differences between the two cities between January 2018 and December 2018 were established to test the effects of the volume-price contract initiative on pharmaceutical prices. Results: On average, the procurement price for cardiovascular medicines adjusted by defined daily dosage in Xiangyang dropped by 41.51%, compared with a 0.22% decrease in Yichang. The difference-in-differences results showed that the volume-price contract initiative resulted in a 36.24% drop (p = 0.006) in the price (30.23% for the original brands, p = 0.008), in addition to the therapeutic competition effect (31.61% reduction in the price, p = 0.002). The top 100 domestic suppliers were highly responsive to the initiative (82.80% drop in the price, p = 0.001). Conclusion: The volume-price contract initiative has the potential to bring down the price of pharmaceutical supplies. Higher responses from the domestic suppliers are evident.