The Impacts of Drug Price Regulations in China

Yi Liu, Juliang Zhang, T. C.E. Cheng, Yihong Ru, Guowei Hua

Research output: Journal article publicationJournal articleAcademic researchpeer-review

4 Citations (Scopus)


To lower pharmaceutical expenditure, the Chinese government has replaced the Fixed Percent Markup (FPM) policy with the policies of the Separation of Outpatient Pharmacies from Hospitals (SOPH) and the Zero Markup Drug (ZMD). We build a multistage game theoretic model comprising a hospital and a drugstore to analyze the policies’ impacts on the providers’ drug selection and pricing behaviors. By comparing the equilibrium outcomes, we draw the following conclusions: (i) FPM, especially for one imposing a strict margin ceiling, actually induces an expensive prescription given patients’ great compliance. (ii) Both SOPH and ZMD can conditionally lower patients’ expenditure, and their performances rely on the hospital’s selection. (iii) A proper rate of insurance coverage and a removal of drug rebate are helpful to improve the policies’ performance.

Original languageEnglish
Pages (from-to)674-693
Number of pages20
JournalJournal of Systems Science and Systems Engineering
Issue number6
Publication statusPublished - 1 Dec 2019


  • Drug price regulations
  • game theory
  • healthcare reform
  • patients’ expenditure

ASJC Scopus subject areas

  • Control and Systems Engineering
  • Information Systems


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