Monopsony, Pricing And R&D Input In China's Pharmaceutical Industry

Pharmaceutical industry plays import role in national economy, and R&D provides vital energy to drive the development of pharmaceutical industry. Having developed for several decades, China's pharmaceutical industry has achieved strong productive capability, meanwhile its industrial structure upgrading and competitive power in international market are highly restricted by the low R&D capability. There has been a lack of research on the R&D statement of China's pharmaceutical industry using economic research methods for a long time. China's pharmaceutical industry is facing characteristic market environment due to the economic system reform and medical system reform, which has great impact on the R&D input to pharmaceutical industry. Focusing on the R&D input to pharmaceutical industry, this paper carries out research on how China's public hospitals monopsony and pharmaceutical pricing system affect the R&D input to pharmaceutical industry. It is meaningful to deeply understand the R&D statement of China's pharmaceutical industry and can give support to establishment and implement of relative policies.This paper consideres the following issues:(1) how China's public hospitals affects the R&D input to pharmaceutical industry via monopsony power;(2)how current pharmaceutical pricing system affects the R&D input to pharmaceutical industry explaining the machanisms of how hospital monopsony on pharmaceutical market effects the R&D input of pharmaceutical industry.(3)how to eliminate the monopsony power of public hospital and reconstruct the pharmaceutical pricing system as to increase the R&D input to pharmaceutical industry.With theoretical and empirical methods, this study gets the main conclusions:First, public hospitals have a monopsony on retail drug sales. This situation is closely connected with the mode of dispensing with prescription. The system of "drugs subsidizing hospitals" and the natural characteristics of healthcare industry give the monopsony further incentives. And the original aim of the policy that public hospitals are allowed to sell drugs at the wholesale price plus mark-up has also been distorted. Both the monopsony and pharmaceutical pricing system involve the R&D input of pharmaceutical industry.Second, as to both brand-name drugs and generic drugs, public hospitals' monopsony power in pharmaceutical market stifles pharmaceutical enterprises' incentives to innovate. Facing same downstream market structure, the producer of brand-name drugs has more incentive to innovate in process innovation than the producer of generic drugs.Third, the pharmaceutical enterprises' incentives to innovate in process innovation has a neglect relationship with the markup ratio by the hospitals, considering the average R&D efficiency is low in China's pharmaceutical industry. The cost-plus pricing methods spur more on the pharmaceutical industry's process innovation than no mark-up ratio pricing methods.Fourth, from theoretical framework and empirical analysis, this paper shows that breaking the monopsony of public hospitals and reforming current pharmaceutical pricing system could contribute greatly to the increase of the R&D input of pharmaceutical industry. The basic strategy for breaking the monopsony of public hospitals should be the separation of dispensing from prescription. The reform of pharmaceutical pricing system must be in accordance with healthcare system reform.The innovations of this paper can be summarized as follows:First, the study provides a new perspective for the research on R&D activity of pharmaceutical industry. This paper considers effects of monopsony of public hospitals and pharmaceutical pricing system on the R&D input of pharmaceutical industry, providing a new way for future research.Second, this paper explores to analyze the effects of public hospitals'monopsony on the R&D input of pharmaceutical industry. This paper discusses the effects via a bargaining game interface, and uses panel data to do the empirical study. The results would be more objective and reseanable.Third, this paper explores to analyze the effects of pharmaceutical pricing system on the R&D input of pharmaceutical industry. This paper discusses the effects via a bargaining game interface, providing strong evidence for current essential medicine policy.Fourth, the proposed suggestions on how to increase the R&D input of pharmaceutical industry have strong application values.