The Effect of Procurement Design on Entry and Success of Generic Drug Firms

U. Laitenberger, M. Hunold

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Objectives: Competitive tendering of active ingredient-specific contracts for generic drugs has emerged in Germany due to regulatory changes in 2009. The central goal of these changes is to accomplish that small and medium sized firms (SME) have better chances to succeed. Another goal is more participation of manufacturers, including outright market entry. We study how different designs of the competitive tendering affect participation and the outcome of generic drug manufacturers. Methods: We use a newly collected data set on almost all of the around 4000 public competitive awardings of procurement contracts by purchase groups in Germany from the first one in 2008 to the end of 2012. An important source of cross-sectional variation is caused by the nine purchasing groups, which differ in how they design their awarding procedures. Major differences include the lot size, the number of possible contracting firms and whether a drugs of a specific active pharmaceutical ingredient is auctioned in one or different lots. We use OLS regressions with fixed effects for unobserved active pharmaceutical ingredient (API) market characteristics, as well as count data and discrete choice models. Results: Our econometric analysis reveals that there are more bidders in tenders where contracts with more than one supplier are possible, when the drugs for one API are auctioned in a single lot and when the lot size is smaller. Also small firms are more likely to win when multiple winners are possible and the lot size is smaller. Co nclusions: We find that the design of awarding procedures influences participation in tenders and, furthermore, the chance of new suppliers to win the contract. This is relevant for both purchasing groups and policy makers as low bids and thus drug expenses of the statutory health insurances can only be achieved with a competitive industry structure.
Original languageEnglish
Pages (from-to)A448
JournalValue in Health
Volume17
Issue number7
DOIs
Publication statusPublished - Nov 2014
Externally publishedYes

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