Policy Comparison between Shenzhen GPO and Guangdong Medicine Exchange Center

Xiang You,Tian Lijuan

(School of Business Administration,Shenyang Pharmaceutical University,Shenyang 110016,China)

Abstract Objective To put forward some suggestions for improving the procurement policy of Shenzhen Pharmaceutical Group.Methods The literature research and comparative research were used to compare the policies between Guangdong’s centralized drug procurement and Shenzhen Pharmaceutical Group’s procurement so as to analyze their advantages and disadvantages.Results and Conclusion The purchasing model of Shenzhen group purchasing organization (GPO) can ensure the timely supply of medicines.Besides,the cross-regional alliance system helps to achieve a true price-for-quantity exchange,and a market-based price linkage mechanism can effectively reduce drug prices.However,the online drug catalogue of Shenzhen GPO cannot fully cover the actual needs of hospitals for procurement.The market-based price linkage may lead to problems of drug quality or shortage of drugs.Therefore,the number of batches of drugs should be increased online appropriately.Meanwhile,a mechanism must be established to guarantee the supply and quality of low-priced drugs.

Keywords:Shenzhen pharmaceutical group procurement;Shenzhen GPO policy;centralized drug procurement

1 Introduction

The group purchasing organization (GPO)for pharmaceuticals first appeared in the early 20th century,and the first healthcare procurement group was established in the USA[1].This organization integrates the drug and medical device purchasing needs of medical institutions as an intermediary.It combines market-oriented mechanisms to obtain purchase orders through the advantages of procurement volume,helping medical institutions to purchase lower-priced medicines from pharmaceutical manufacturers and distributors.At present,Shanghai,Shenzhen,Guangzhou and Guangxi are the regions that carry out drug group procurement in China.Shenzhen GPO,the first market-oriented organization in China,undertakes some drug procurement for medical institutions in such cities as Shenzhen,Dongguan,Huizhou,etc.It reduces the price of drugs by purchasing a large quantity of them,which also cuts patients’ medication burden.This study compares the advantages and disadvantages of Shenzhen Pharmaceutical Group’s procurement policy with Guangdong’s traditional centralized drug bidding procurement policy to sum up the experience.And then recommendations are proposed to improve Shenzhen Pharmaceutical Group’s procurement policy.

2 The value of GPO

GPO has a positive effect on the operation of supply chain entities such as pharmaceutical manufacturers,logistics distributors,medical institutions and government regulatory departments.The effect is mainly reflected in cost control,price reduction,risk avoidance,and assistance in supervision.

2.1 GPO reduces operating costs

As a supply chain procurement intermediary,GPO can reduce the procurement and operating costs of medical institutions.Therefore,hospitals and other medical institutions do not have to deal with complicated procurement process so that they will invest more manpower and material resources in medical services.The market value of GPO depends on the degree of cost reduction required for reaching the transaction between the manufacturing enterprises and medical institutions.At the same time,it also reduces the negotiation cost among the medical institutions,the manufacturing enterprises and the distributors to improve the vitality of the industry.

2.2 GPO reduces drug prices

GPO usually negotiates prices with suppliers with the advantages of purchasing volume to obtain lower drug prices.GPO not only helps medical and health service providers across the country to purchase medicines at lower prices,but also guarantees a certain market supply,ensuring that medical and health service providers can easily cope with a highly dispersed and diversified market.

2.3 GPO reduces operational risks

GPO can integrate the total estimated drug demand of hospitals,helping drug manufacturers,sales companies and medical institutions to understand the relationship between stock and future demand at the macro level.Therefore,they can prepare the drugs timely to reduce operational risks.Although the price of drugs has been reduced,due to the sharp increase in the volume brought by GPO,drug manufacturers and distributors can also get considerable profits.

2.4 GPO improves regulatory efficiency

Since 2015,China’s GPO model has mainly been a bidding and procurement platform based on provincial government.As the regulator of the pharmaceutical industry,the government must not only manage the procurement of drugs,but also monitor the circulation of drugs at all times,which increases the burden on the government to a certain extent.The third-party group purchasing organization can help to share the burden of centralized government procurement.In this way,the government only needs to undertake the supervision work and regularly monitor the operation of the GPO,which can reduce the government’s human and material investment in the procurement and improve its efficiency of supervision[2].

3 Shenzhen GPO policy

Shenzhen GPO is selected by Shenzhen Municipal Health and Welfare Committee according to the selection rules.It has the qualifications for drug trading and can independently assume legal responsibility.Entrusted by local public medical institutions,it is a third-party medicine group procurement supplier with the purpose of reducing drug prices[3].The Shenzhen GPO was officially launched in May 2017,and the drug group procurement work was carried out in accordance with two laws and one regulation,namely,the quality level division and dosage form integration rules.

3.1 Procurement model of “combining bidding and procurement”

Shenzhen GPO adopts the purchasing mode through market-oriented method,and a drug logistics warehouse is established to ensure the timely supply of low-cost drugs and some emergency medical devices.Besides,a basic drug distribution system is established and a drug logistics warehouse is set up so that drugs can be put into the warehouse after purchasing,and shipped out to the medical institutions when necessary according to the procurement contract.This method can eliminate the problems in the traditional bidding model of only inviting bid but not purchasing or the invalid bid prices.In addition,the bidding and procurement mode can reduce the delivery time by avoiding the interference of pharmaceutical production and operation enterprises,and quickly responding to hospital orders.To a certain extent,it can meet the emergency medical supplies and ensure the allocation of drugs for medical institutions.

3.2 Cross-regional alliance procurement system

In 2017,the Dongguan Municipal Health and Welfare Bureau released the “Promoting the Public Hospital Drug Cross-regional Joint Procurement Reform Trial Program in Dongguan”,which clearly implemented cross-regional joint procurement reform,strengthening drug procurement supervision and determining that the Dongguan and Shenzhen GPO formed a procurement alliance.Dongguan is the first city that has cross-regional joint procurement with Shenzhen GPO,thus formally establishing an alliance procurement system.At present,Shenzhen GPO supplies drugs to a total of 17 cities in Guangdong,Heilongjiang and Xinjiang[3].This cross-regional alliance system can integrate the demand for drug purchases in more cities,which can help negotiate drug prices with big quantity.

3.3 Price linkage platform

The price of drugs made by Shenzhen GPO is the cost of drugs in hospitals,which is constantly updated in a price-linked manner.The market-based competition mechanism is used to make the drug price return to a reasonable range.Shenzhen GPO is an independent third-party organization.As its operation is only supervised by the medical insurance bureau and it can integrate procurement demand,it is easy to monopolize and damage the free competition in the market[4].Generally,there must be sufficient competition in the pharmaceutical GPO market,and multiple GPOs should be allowed in a region.When medical institutions choose a procurement platform,they will refer to the purchase prices of various platforms to promote drug price competition in the market.Shenzhen GPO usually compares price of drugs with that of Guangdong Medicine Exchange Center and Guangzhou GPO.If the price of the same generic drug is higher than other platforms,it will lower the drug price.This kind of pricing model in the market can really reduce the price of drugs.

4 Guangdong Province centralized drug purchasing policy

The Guangdong Medicine Exchange Center was established in 2013 to be responsible for the supply of essential drugs at low prices.The exchange center is selected by the government according to laws[5].It is a third-party trading platform independent of the government,drug manufacturers,and medical institutions.The price of medicines in the trading platform includes the market entry price and transaction price.

4.1 Traditional bidding and procurement model

In April 2017,Guangdong Medicine Exchange Center issued “Measures for Drug Purchasing,Supervision,Management and Settlement in Medical Institutions in Guangdong Province”.At the same time,the types of procurement transactions,quality levels,and rules for the division of dosage forms were also determined.Non-essential drugs are mainly divided into four quality levels.Patented drugs and some drugs approved for marketing in accordance with the “Administrative Measures for Drug Registration(2007 Edition)” are the first quality level.National varieties,first-class protected varieties of Chinese medicine,pharmaceutical preparations that have won the national second prize or above,and the national special drugs are the second quality level.The expired patent drugs,export drugs,generic drugs that have passed the consistency evaluation are the third quality level.Other GMP certified drugs and imported drugs are the fourth quality level.Guangdong Medicine Exchange Center is a drug group procurement led by the province.The exchange center participates in online bidding and procurement in drug purchase,but it does not directly participate in offline procurement.

4.2 Provincial procurement system

At present,Guangdong Medicine Exchange Center mainly involves the procurement of drugs for medical institutions in remote areas in Guangdong,and it has not reached some areas in other provinces.Therefore,the procurement demand held by this platform is low,and the price reduction is not obvious.

4.3 Drug price confirmation mechanism

The procurement methods of Guangdong Medicine Exchange Center mainly include centralized online bargaining purchase,direct online purchase and double-envelope bidding procurement.The exchange center sets the market entry price of drugs and uses the market entry price as the top price of the online purchase.For alliance members,the transaction price must not exceed the market entry price.

5 Policy comparison between Shenzhen GPO and Guangdong Medicine Exchange Center

The purchasing mode adopted by Shenzhen GPO can guarantee the supply of drugs and prevent the delivery from being delayed caused by the time difference between the order from medical institutions and delivery from drug manufacturers.In terms of quality level division and dosage form integration rules,Shenzhen GPO simplifies the purchasing rules and the number of purchased drugs on the Internet.The quality levels have been reduced to three based on the drug purchasing platform of Guangdong Province.Patented drugs,new special drugs,and national first-class protected products of traditional Chinese medicine are the first quality level.The expired patented drugs,exported drugs,and over-rated generic drugs are the second quality level.Other GMP certified drugs and imported drugs are at the third quality level.The dosage form division rule is reduced to 21 groups as a whole.At present,the number of drugs listed in Shenzhen GPO is much lower than that of the Guangdong Medicine Exchange Center,which simplifies the process and improves the efficiency.However,its possible drawback is that the online drug catalog cannot meet the procurement needs of medical institutions.The policies are compared in Table1.

Table 1 Policy comparison between Shenzhen GPO and Guangdong Medicine Exchange Center

6 Conclusions

Based on the centralized drug procurement policy of Guangdong Province,Shenzhen GPO has greatly reduced the quality level and dosage form grouping and simplified the policy process.Compared with the Guangdong Provincial platform,Shenzhen GPO adopts a purchasing model to effectively distribute drugs that are in short supply and the emergency medical devices that have high requirements for delivery time.Meanwhile,a marketbased mechanism is used to determine drug prices.This mode can really reduce drug prices and patients’burden.But on the other hand,the simplified quality level and grouping may result in the problem that the online drug catalog cannot fully meet the actual procurement requirements of the hospitals.When the prices of medicines are completely determined by the market,the profit margins of some low-priced drugs will become smaller,which may cause the quality problems of these drugs.What is worse,it can even lead to the situation that these drugs cannot be purchased in the market.Therefore,it is recommended that the relevant departments of Shenzhen GPO increase the number of listed drugs appropriately and establish a price protection mechanism for low-price and insufficient drugs,which will improve its policies.