Will centralized drug procurement policy improve Enterprises' Total Factor Productivity?

Xin Li¹Ran Tao^1*Yuning Jin²

• ¹Capital University of Economics and Business, Beijing, China
• ²Banking Department under the Headquarters, China Power Finance, beijing, China

Adjusting drug prices has presented a major challenge in the context of China's healthcare reform. Introduced in 2018, the NCDP has significantly affected a wide range of stakeholders. This study uses data from the WIND and CSMAR platforms and applies the Difference-in-Differences (DID) method to assess the NCDP's impact on pharmaceutical firms' total factor productivity (TFP). The results indicate that NCDP implementation significantly reduced TFP among listed pharmaceutical manufacturers participating in the program. This finding remains robust across various robustness checks, including index substitution, propensity score matching, and lag tests. Moreover, the effects of NCDP differ across firms with varying characteristics. Non-state-owned firms, Western medicine producers, and companies under analyst coverage experience more pronounced TFP declines after NCDP inclusion.The transmission of NCDP's impact on TFP operates through multiple mediating channels, including financing constraints, innovation investment, and investment efficiency. These findings underscore the importance of considering these multifaceted mechanisms and offer practical policy implications for optimizing and scaling up the NCDP across China.