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

Yujia Tian, Fei Sha, Haohui Chi and Zheng Ji ()
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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

Sustainability, 2025, vol. 17, issue 16, 1-17

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.

Keywords: centralized volume-based procurement (CVBP); pharmaceutical pricing; computable general equilibrium (CGE); socioeconomic sustainability; health policy evaluation; industrial ecosystem resilience (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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