Abstract: To improve the centralized procurement system for medicines is an important task of the reform of medical-sanitary system. In recent years, China's centralized drug procurement is gradually turning from the provincial government-dominated into that of national organized. Whether the reform can take advantages of the national overall planning and improve drug quality is worthy of an in-depth analysis. By employing a game model, this study explores the problem of the pricing of centralized procurement and corporate quality decision-making, analyzes the Subgame Perfect Nash Equilibrium of different provinces and its influencing factors, and compares the different impacts on drug quality of the centralized procurement at the national level and at the provincial level. The results show that the provincial governments only optimize their own total welfares. The smaller the economic scale, the higher the sensitivity level of the consumers to the drug prices, and the lower the pricing will be. At the national level, because the positive externality of innovative input for drug R&D can be fully internalized, so regardless of changes in the influencing factors, the quality of drugs chosen by the enterprises in the national procurement is always superior to that in the provincial procurement. Therefore, to carry out comprehensive national centralized drug procurement can help China to realize the transformation from a“Big Country of Generic Drugs”to a“Strong Country of Generic Drugs”.

Key words: pharmaceutical quality, drug pricing, centralized procurement system, provincial centralized procurement, national centralized procurement