The Effects Of Medical Insurance And Patients’ Preference On Manufacturer Encroachment In A Pharmaceutical Supply Chain

In recent years,in order to solve the problem of "artificially high" drug prices,the Chinese government has been committed to implementing a new retail model of "Internet + drug circulation".However,the special properties of drugs lead to different characteristics of online sales of drugs from those of ordinary commodities.The manufacture,sale,and even use and dosage of drugs are more tightly regulated than ordinary commodities,and the cost of drugs is shared by patients and the health insurance sector.However,the current medical insurance policy is mainly aimed at offline drug transactions and has not been fully integrated with online drug sales,which is bound to affect the channel choice of patients when purchasing drugs,and then affect the interests of members of the drug supply chain.Drug supply chain is generally composed of drug manufacturers,intermediate wholesalers and terminal patients.In order to gain more market share and profit,drug manufacturers may choose to encroach the retail market.This paper examines the“encroachment strategy” of drug manufacturer considering the characteristics of the medical insurance policy and patients’ preferences.We find that when patients’ acceptance of drugs purchasing through direct channels and the proportion of out-ofpocket payment for offline drugs are both medium,the encroachment of drug manufacturer can make both manufacturer and retailer achieve a win-win situation,contrary to the traditional view that the encroachment of manufacturer into the retail market is detrimental for retailer.In addition,the manufacturer is more likely to encroach when the additional cost of introduction of direct channel is small enough,patients’ acceptance of direct channels is high enough,and co-payments for offline channel sales of drugs are high.We further study the influence of manufacturer’s encroachment on social welfare,and find that when patients’ acceptance of direct selling channels is low,drug manufacturer’s encroachment will reduce social welfare,when patients’ acceptance of direct selling channels exceeds a certain threshold,social welfare will be improved.