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

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.