The Unintended Consequences of the Volume-Based Procurement Policy on Pharmaceutical Innovation: Evidence from China on the Quality-Quantity Trade-off

The Unintended Consequences of the Volume-Based Procurement Policy on Pharmaceutical Innovation: Evidence from China on the Quality-Quantity Trade-off | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article The Unintended Consequences of the Volume-Based Procurement Policy on Pharmaceutical Innovation: Evidence from China on the Quality-Quantity Trade-off Yiran Gong, Beini Lyu, Ting Qian, Tianqi Sun, Tingting Xiao, Pengcheng Liu This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7859363/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 13 You are reading this latest preprint version Abstract Background Healthcare systems around the world are grappling with the complex challenge of reconciling drug price regulation, increased access to medication, and sustained incentives for pharmaceutical innovation. China’s Centralised Volume-Based Procurement (CVBDP) policy has significantly reduced drug prices and improved patient access to essential medicines. However, the systemic effects of this policy on the innovation ecosystem within the pharmaceutical industry require further investigation. Methods This study examined corporate innovation from both input and output perspectives using a multiperiod difference-in-differences (DID) model and event study, with a sample of A-share pharmaceutical manufacturing firms from 2015 to 2024. Mediating and moderating effect analyses were conducted to reveal the underlying mechanisms, and the robustness of the results was verified through parallel trend tests, placebo tests, and propensity score matching with DID. Results This study included 253 pharmaceutical companies, totaling 1,950 company years. The policy led to a notable rise in firms’ R&D intensity (coefficient: 0.031, 95% CI: 0.015 to 0.047) and the volume of invention patent applications (lag 2 coefficient: 2.014, 95% CI: -0.123 to 4.152). Meanwhile, CVBDP significantly reduced the average value of patents (lag 2 coefficient: -0.936, 95% CI: -1.694 to -0.178) and diminished the extent of technological breakthroughs (lag 2 coefficient: -0.982, 95% CI: -1.756 to -0.209). Mediation analysis indicated that inventory turnover rate and gross profit margin serve as mediating channels through which the policy influences R&D investment. Furthermore, moderation effects demonstrate that firms’ market power amplifies the positive impact of the policy on R&D intensity. Conclusions Implementing the CVBDP policy has led to a significant increase in quantitative output and a decline in quality-driven outcomes. This reveals a pattern of 'quantity expansion at the cost of quality erosion'. To foster sustainable innovation within the sector, policy instruments that specifically reward high-value innovation must be introduced, alongside mechanisms for the ongoing evaluation of policy repercussions. Future studies should develop more nuanced metrics for assessing innovation quality and employ longitudinal approaches to delineate the causal pathways through which volume-based procurement shapes corporate innovation behaviour more clearly. Centralized Volume-Based Drug Procurement Pharmaceutical Innovation Multiperiod Difference-in-Differences Event Study Methodology Innovation Input Innovation Output Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Under Review Version 1 posted Editorial decision: Revision requested 11 Feb, 2026 Reviews received at journal 03 Feb, 2026 Reviews received at journal 31 Dec, 2025 Reviews received at journal 27 Nov, 2025 Reviewers agreed at journal 26 Nov, 2025 Reviewers agreed at journal 24 Nov, 2025 Reviewers agreed at journal 23 Nov, 2025 Reviewers agreed at journal 22 Nov, 2025 Reviewers invited by journal 11 Nov, 2025 Editor invited by journal 19 Oct, 2025 Editor assigned by journal 16 Oct, 2025 Submission checks completed at journal 16 Oct, 2025 First submitted to journal 14 Oct, 2025 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-7859363","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":545214332,"identity":"1c97e4e3-20f5-41d6-a1e2-b5affee38281","order_by":0,"name":"Yiran Gong","email":"","orcid":"","institution":"China Pharmaceutical University","correspondingAuthor":false,"prefix":"","firstName":"Yiran","middleName":"","lastName":"Gong","suffix":""},{"id":545214334,"identity":"3963c0c6-7a1e-4ee6-ad51-97ece77022f0","order_by":1,"name":"Beini Lyu","email":"","orcid":"","institution":"Peking 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Trade-off","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"bmc-health-services-research","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"bhsr","sideBox":"Learn more about [BMC Health Services Research](http://bmchealthservres.biomedcentral.com/)","snPcode":"","submissionUrl":"https://www.editorialmanager.com/BHSR/default.aspx","title":"BMC Health Services Research","twitterHandle":"BMC_series","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"em","reportingPortfolio":"BMC Series","inReviewEnabled":true,"inReviewRevisionsEnabled":true},"keywords":"Centralized Volume-Based Drug Procurement, Pharmaceutical Innovation, Multiperiod Difference-in-Differences, Event Study Methodology, Innovation Input, Innovation Output","lastPublishedDoi":"10.21203/rs.3.rs-7859363/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7859363/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003ch2\u003eBackground\u003c/h2\u003e\u003cp\u003eHealthcare systems around the world are grappling with the complex challenge of reconciling drug price regulation, increased access to medication, and sustained incentives for pharmaceutical innovation. China\u0026rsquo;s Centralised Volume-Based Procurement (CVBDP) policy has significantly reduced drug prices and improved patient access to essential medicines. However, the systemic effects of this policy on the innovation ecosystem within the pharmaceutical industry require further investigation.\u003c/p\u003e\u003ch2\u003eMethods\u003c/h2\u003e\u003cp\u003eThis study examined corporate innovation from both input and output perspectives using a multiperiod difference-in-differences (DID) model and event study, with a sample of A-share pharmaceutical manufacturing firms from 2015 to 2024. Mediating and moderating effect analyses were conducted to reveal the underlying mechanisms, and the robustness of the results was verified through parallel trend tests, placebo tests, and propensity score matching with DID.\u003c/p\u003e\u003ch2\u003eResults\u003c/h2\u003e\u003cp\u003eThis study included 253 pharmaceutical companies, totaling 1,950 company years. The policy led to a notable rise in firms\u0026rsquo; R\u0026amp;D intensity (coefficient: 0.031, 95% CI: 0.015 to 0.047) and the volume of invention patent applications (lag 2 coefficient: 2.014, 95% CI: -0.123 to 4.152). Meanwhile, CVBDP significantly reduced the average value of patents (lag 2 coefficient: -0.936, 95% CI: -1.694 to -0.178) and diminished the extent of technological breakthroughs (lag 2 coefficient: -0.982, 95% CI: -1.756 to -0.209). Mediation analysis indicated that inventory turnover rate and gross profit margin serve as mediating channels through which the policy influences R\u0026amp;D investment. Furthermore, moderation effects demonstrate that firms\u0026rsquo; market power amplifies the positive impact of the policy on R\u0026amp;D intensity.\u003c/p\u003e\u003ch2\u003eConclusions\u003c/h2\u003e\u003cp\u003eImplementing the CVBDP policy has led to a significant increase in quantitative output and a decline in quality-driven outcomes. This reveals a pattern of 'quantity expansion at the cost of quality erosion'. To foster sustainable innovation within the sector, policy instruments that specifically reward high-value innovation must be introduced, alongside mechanisms for the ongoing evaluation of policy repercussions. Future studies should develop more nuanced metrics for assessing innovation quality and employ longitudinal approaches to delineate the causal pathways through which volume-based procurement shapes corporate innovation behaviour more clearly.\u003c/p\u003e","manuscriptTitle":"The Unintended Consequences of the Volume-Based Procurement Policy on Pharmaceutical Innovation: Evidence from China on the Quality-Quantity Trade-off","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-11-21 14:23:48","doi":"10.21203/rs.3.rs-7859363/v1","editorialEvents":[{"type":"communityComments","content":0},{"type":"decision","content":"Revision requested","date":"2026-02-11T13:06:14+00:00","index":"","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2026-02-03T08:47:36+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-12-31T13:27:32+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-11-27T06:44:02+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"329881357205232582414997174828047315893","date":"2025-11-27T04:50:50+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"226745908863929815727557778776577647582","date":"2025-11-24T09:27:07+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"107445723902635542755298581582380792663","date":"2025-11-23T21:56:03+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"299747736642532323569600926974329182461","date":"2025-11-22T08:12:54+00:00","index":"hide","fulltext":""},{"type":"reviewersInvited","content":"","date":"2025-11-12T00:48:53+00:00","index":"","fulltext":""},{"type":"editorInvited","content":"","date":"2025-10-19T14:34:56+00:00","index":"","fulltext":""},{"type":"editorAssigned","content":"","date":"2025-10-17T01:22:16+00:00","index":"","fulltext":""},{"type":"checksComplete","content":"","date":"2025-10-17T01:21:20+00:00","index":"","fulltext":""},{"type":"submitted","content":"BMC Health Services Research","date":"2025-10-14T13:46:07+00:00","index":"","fulltext":""}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"bmc-health-services-research","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"bhsr","sideBox":"Learn more about [BMC Health Services Research](http://bmchealthservres.biomedcentral.com/)","snPcode":"","submissionUrl":"https://www.editorialmanager.com/BHSR/default.aspx","title":"BMC Health Services Research","twitterHandle":"BMC_series","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"em","reportingPortfolio":"BMC Series","inReviewEnabled":true,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"16d063b6-a481-4031-82ef-3dd6e03fd6c5","owner":[],"postedDate":"November 21st, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"under-review","subjectAreas":[],"tags":[],"updatedAt":"2026-03-10T14:23:57+00:00","versionOfRecord":[],"versionCreatedAt":"2025-11-21 14:23:48","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-7859363","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-7859363","identity":"rs-7859363","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}