China Drug Procurement: From Lowest Price to Clinical Value

China’s centralized drug procurement system is undergoing a fundamental strategic shift. With the launch of the 12th round of national volume-based procurement (VBP), regulators are moving away from a singular focus on the lowest price toward a framework that prioritizes clinical value, stable supply, and quality assurance — a move designed to address the phenomenon of “involution” (neijuan) that has plagued the pharmaceutical bidding process.

Announced on June 23, 2026, the 12th round covers 65 drug varieties across therapeutic areas including metabolic diseases, cardiovascular conditions, digestive system disorders, and oncology, representing an estimated market size of nearly 600 billion yuan (~$83 billion USD), according to People’s Daily.

The Involution Problem in Drug Procurement

China’s Volume-Based Procurement program, launched in 2018 with the “4+7” pilot in 11 cities, has been a cornerstone of the country’s healthcare cost-containment strategy. By aggregating purchasing power across public hospitals, the program has secured steep price reductions — the first 11 rounds have covered over 490 drug varieties.

However, the program’s singular focus on price created an unintended consequence: “involution.” Smaller manufacturers with no existing market share, known as “barefoot enterprises” (guangjiao qiye), would bid at or below cost to win contracts, hoping to capture market share through volume. This led to unsustainably low prices that threatened drug quality, supply disruptions when companies could not profitably manufacture, and reduced investment in quality improvement and innovation.

The Four Principles and Anti-Involution Measures

Starting with the 11th round in late 2025, the National Healthcare Security Administration (NHSA) introduced the “Four Principles”: stabilizing clinical supply (wen linchuang), ensuring quality (bao zhiliang), preventing bid-rigging (fang weibiao), and countering involution (fan neijuan). The 12th round significantly strengthens these measures.

A key innovation is the use of statistical methods to identify and exclude abnormally low bids. According to Jiang Changsong, Assistant Director of the Price and Procurement Office at the National Healthcare Security Institute, Capital Medical University, if a company’s bid falls below two standard deviations from the average qualifying price, it is considered an “abnormally extreme low price.” Such a winning product does not occupy a qualifying slot, is not included in the anchor price calculation, and does not affect normally priced products, as reported by China National Radio via China News Service.

This mechanism prevents a single low bid from distorting the entire price structure, effectively removing the incentive for extreme lowballing.

Revival Mechanism for Originator Drugs

Another significant innovation is the “revival” mechanism for reference-listed drugs (originator/brand-name drugs). If an originator drug’s initial bid does not qualify for winning, it can still gain winning status by voluntarily lowering its price to no more than three times the anchor price and below the maximum effective bid price. The revived drug receives zero guaranteed volume, meaning it gains hospital access without guaranteed sales.

Gu Hai, Director of the Health Policy and Management Research Center at Nanjing University, explained the rationale: “Some originator drugs, although priced higher and not selected in the winning list, are still needed by clinicians and some patients. The newly added mechanism allowing reference-listed drugs that did not win to ‘revive’ better aligns with actual clinical needs.”

Quality Assurance and Patent Protection

The 12th round introduces enhanced quality requirements. Winning drug packaging cannot be downgraded — for example, independent aluminum-plastic packaging cannot be replaced with multi-dose plastic bottles. Drug regulatory authorities now require retrospective quality review certificates to further strengthen quality assurance.

For the first time, patent protection has been systematically integrated into the procurement process. Eight varieties in the procurement list were flagged with patent disputes. Companies must submit a “no infringement commitment” letter or face delisting from provincial procurement platforms — a significant step toward balancing drug accessibility with intellectual property protection.

Market Implications

Industry analysts note that the changes particularly disadvantage barefoot enterprises — small manufacturers that relied on extreme low bids to enter the market. Conversely, established manufacturers with clinical recognition, stable supply chains, and quality track records stand to benefit. The bid opening is expected to take place in July 2026.

What to Watch For

The actual bid opening results will reveal whether the anti-involution measures successfully reduce extreme low bidding. Key questions remain: How will the patent compliance requirements affect the flagged varieties, particularly Novartis’ Sacubitril Valsartan (Entresto) given its recent patent extension? Will the shift toward clinical value and quality incentivize greater R&D investment in China’s pharmaceutical industry? The answers will shape the future of drug procurement — and drug pricing — in the world’s second-largest pharmaceutical market.