Demand aggregation and payment risk effects on pooled procurement: Evidence from the public healthcare sector

This paper empirically investigates the impact of pooled procurement arrangements on acquisition prices of pharmaceuticals and health products. Pooled procurement involves a collaborative agreement among organizations aiming to procure products from suppliers jointly. Pooled arrangements can decrease acquisition prices by aggregating demand but may raise the price paid by buyers with lower payment risk when they jointly acquire products with high-risk ones. We examine these two different channels through which pooled procurement affects prices in the context of public health procurement in Brazil. We find that pooled procurement allows public entities to obtain lower prices. However, we also find evidence that the price paid by low payment risk buyers increases when they associate with high payment risk buyers in pooled arrangements. These two results together indicate that pooled procurement must be properly designed to achieve its potential gains for buyers, which can lead to suboptimal creation of bulk procurement arrangements.