"4+7" Volume-Based Procurement Goes Nationwide: DTP Pharmacies and Innovation Emerge as New Strategies for Pharma Companies

During the 2019 Two Sessions, Ma Xiaowei, Director of the National Health Commission, stated: “The ‘4+7’ volume-based procurement program will be further expanded and rolled out nationwide.”

As the 11 pilot cities successively issued detailed rules for implementing centralized drug procurement, national-level authorities continued to signal the nationwide expansion of volume-based procurement, once again drawing widespread attention from the pharmaceutical industry.

Industry insiders state that the disruption caused by volume-based procurement to the entire pharmaceutical industry cannot be underestimated, as a new round of consolidation has already begun.

How Can Pharmaceutical Companies Forge a Path of Survival of the Fittest Amid Shifts in Policy and Market Trends?

In the high-stakes game of volume-based procurement, winning bidders have captured 60% of the market share in pilot cities, leaving only the remaining 40% of the out-of-hospital market for non-winning products to compete for. However, since only a small number of pharmaceutical companies secured bids, the majority were shut out and unable to access the public hospital market. It is easy to imagine how “fierce” the battle for the remaining 40% of the out-of-hospital market will be.

Driven by policy mandates and survival pressures, pharmaceutical companies will inevitably intensify their layout of out-of-hospital sales channels. The strategic shift toward out-of-hospital sales has become unavoidable, thereby creating greater opportunities for retail pharmacies. The ensuing large-scale transition and absorption of this volume present both opportunities and challenges for enterprises across the upstream and downstream supply chain.

In the long term, the scope of drugs covered by volume-based procurement (VBP) will gradually expand, encompassing an increasing variety of categories. Pharmaceutical companies are urgently seeking to develop high-potential out-of-hospital channels as a key strategy to capture market share. Meanwhile, pharmacies will benefit from diversified procurement channels and a more varied product portfolio. In this process, Direct-to-Patient (DTP) pharmacies—characterized by direct engagement with manufacturers and superior professional service capabilities—are better positioned to capitalize on these emerging opportunities.

However, whether DTP pharmacies can capitalize on this favorable trend depends on two critical factors. First is the issue of prescription sources. Since prescriptions can only be issued by physicians, if hospitals are unable to provide prescriptions, it becomes crucial for DTP pharmacies to integrate with internet hospital platforms and possess prescription-processing capabilities. Second is professional pharmaceutical care services. For prescription medications, patients may need to consult on contraindications, compatibility standards, and other concerns; thus, professional service capability is essential to ensure medication safety. These two factors also serve as a test of the comprehensive capabilities of DTP pharmacies.

As DTP pharmacies continue to iterate and upgrade, a new wave of such pharmacies has emerged within the industry, demonstrating greater adaptability to policy and market changes. Analysts point out that these new-generation DTP pharmacies may deliver promising results for pharmaceutical companies’ growth in the out-of-hospital market.

Taking Linker Smart Pharmacy, a new type of DTP pharmacy representative, as an example, empowered by LinkCare’s medical big data and supported by clinical expertise, Linker Smart Pharmacy has successfully pioneered a new chain model of “DTP Pharmacy + Day Clinic.” It is leading the DTP 3.0 era, characterized by “dual-driven medical and patient education, and data-enabled new retail.” This stands in stark contrast to the Retail Pharmacy 1.0 era, marked by undifferentiated drug sales, and the conventional DTP 2.0 era, which involved drug sales alongside general specialized medical guidance. The DTP 3.0 era focuses on providing patients with personalized, full-cycle, one-stop health management services.

Wei Tian, General Manager of the Smart Pharmacy Operations Division at LinkDoc, stated that Yinchuan ZeroCr Internet Hospital will play a pivotal platform role in capitalizing on the benefits of the “4+7” Volume-Based Procurement (VBP) policy. Patients can access services such as online consultations, health advice, and electronic prescriptions through experts on the internet hospital platform, thereby addressing the issue of prescription sourcing.

Furthermore, each Linke Smart Pharmacy is staffed with a professional team comprising at least four licensed pharmacists and experienced clinicians. The pharmacy is equipped with advanced facilities, including a full-process cold chain distribution system backed by an uninterruptible power supply (UPS). Its AI-assisted diagnosis and treatment center enables services such as multidisciplinary team (MDT) remote consultations and localized patient management, thereby ensuring the pharmacy’s professional pharmaceutical care capabilities.

In the short term, it is crucial to rapidly expand into out-of-hospital channels and capture market share, as the nationwide implementation of volume-based procurement has become an irreversible trend. Amidst this major transformation, innovation capability will be the key to breakthrough success for pharmaceutical companies seeking to secure a share in both in-hospital and out-of-hospital markets.

As is well known, the drugs awarded in the “4+7” volume-based procurement are predominantly generic drugs. For generics, a prerequisite for participating in volume-based procurement is passing the Consistency Evaluation. Only by improving the quality of generic drugs can they achieve clinical interchangeability with originator drugs, thereby driving structural reforms in pharmaceutical manufacturing, facilitating the elimination of outdated production capacity, and enhancing the competitiveness of generic drugs.

A representative of a domestic pharmaceutical company stated that in the future, generic drug manufacturers need to shift their focus toward developing first-to-file generics, complex generics, and improved new drugs. By establishing technological and patent barriers, these companies can truly master innovation capabilities and secure an invincible market position.

According to IQVIA data, in stark contrast to developed countries where innovative drugs dominate the market, innovative drugs account for less than 15% of China’s pharmaceutical market, which is primarily composed of off-patent drugs, generics, and traditional Chinese medicines. Furthermore, it is worth noting that even amid fierce competition in the U.S. generics market, generic drug manufacturers with capabilities in first-to-file generics, complex generics, and improved new drugs continue to achieve substantial excess returns. This undoubtedly provides reference and hope for the transformation of Chinese pharmaceutical companies.

Therefore, the aggressive price reductions under the volume-based procurement (VBP) policy will compel pharmaceutical companies to accelerate their transformation and upgrading. Enterprises with advantages in production costs and product portfolio diversity will gradually emerge as winners. Pharmaceutical firms may either strengthen their continuous development capabilities for generic drugs by launching new products or increase investment in the development of innovative drugs. In this process, innovative pharmaceutical companies and large-scale pharmaceutical enterprises will further expand their strength and market presence, securing greater room for survival and growth.