As the global economic crisis deepens, China is entering a new phase in its development. Its exports, economic growth, and employment levels are all falling. It is, however, important for Western businesses to keep these changes in perspective. China’s gross domestic product (GDP) growth over the last fifteen years has been extremely fast, around 8-12 percent annually. In the fourth quarter of 2008, growth fell to about 6.8 percent (at an equivalent annual rate). The current economic slowdown will reduce growth to 4-6 percent, which is still impressive by the standards of Western economies. Therefore, China will remain an important market for Western medical companies in terms of its continued growth and high potential for the future.
Western manufacturers’ medical products such as drugs and medical devices are particularly well positioned in the Chinese market, despite its current slowdown. Not only is healthcare spending generally more resilient to recessions, but healthcare in China is currently seeing a structural shift, too, as the increasingly affluent population gets access to more modern, higher-quality treatment. Government investment is an important driver of this structural shift, since increased public spending is modernizing and expanding the healthcare system. In January 2009, the government announced it was committing an additional $124 billion to this purpose, including both infrastructure investment and subsidies for medical spending.
This major government investment, however, is also accompanied by increased regulation. As China’s Basic Medical Insurance (eventually planned to become a universal health insurance program for urban residents) and New Rural Cooperative Medical Insurance (for rural residents) expand in coverage, the government is also looking to increase the affordability and quality of the healthcare it provides. Policies for such improvement include: increased quality requirements for drugs and devices to be allowed on the Chinese market; reform to reduce overuse of drugs and medical services at the hospital level; and collective purchasing systems to negotiate down the price of medical products.
The reform with the most potential for direct impact on the Chinese medical market is the reform of hospital drug systems. Currently, although the majority of Chinese hospitals are government-affiliated, most of their operating funds come from service fees and prescription drugs (which they sell in-house, typically adding a 15 percent markup). The general perception in China is that this practice leads to overprescription of drugs, but the government cannot simply ban it due to the large revenue shortfalls such a ban would cause.
In January 2009, however, the Ministry of Health (MOH) announced a pilot reform program, which will eliminate hospitals’ drug markups in several cities, among other reforms. The lost income will be made up with increased government subsidies to the affected hospitals as well as some increases to medical service fees. If the reform proves feasible in the pilot program, it may be extended to the rest of China in the next few years. If fully implemented, it may somewhat slow the growth of China’s drug market and pressure the Chinese drug industry to adopt more scientific marketing strategies.
With a more immediate impact on the drug and medical device industry, many recent regulations have been raising standards for medical products to be allowed onto the Chinese market. China’s State Food and Drug Administration (SFDA) is continuing to crack down on drug and medical device quality in response to public outcry over a number of safety scandals in China and internationally. This article will present several of the recent key regulatory changes that regulatory and business professionals must be aware of when working to get their products marketed in China.
Good Manufacturing Practice
Good Manufacturing Practice (GMP) is a key issue for the manufacturing of medical devices in China. The Chinese government is in the process of raising its mandatory GMP requirements to meet international standards. Its goal is partly to protect public safety, and partly to help the domestic medical device manufacturing industry move up the value chain from low-margin, labor-intensive products to more sophisticated products and components.
Previously, most of the Chinese government’s work on improving medical device GMP was related to sterile and implantable devices, as opposed to general medical devices. GMP specifically for sterile and implantable devices was gradually implemented over the course of 2008, and it became an official requirement on January 1, 2009.
A set of GMP requirements for general medical devices was issued in late 2008. This regulation laid out the planned GMP requirements for all other medical devices. These standards will likely be revised and made mandatory in 2010 or 2011, based on the SFDA’s experience in implementing GMP for sterile and implantable medical devices.
Although GMP compliance was already required by the Chinese regulatory system on paper, it was poorly enforced. The success of the new GMP initiative will obviously depend greatly on how well the SFDA implements inspections and increases enforcement. Although most Western firms that manufacture medical devices in China are already compliant with stricter international GMP standards, raising quality management at domestic Chinese companies would make it safer and easier for foreign companies to source more sophisticated products and components from China.
While the SFDA reviews and approves medical devices for the Chinese market, another agency, the General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ), inspects and certifies medical devices so that they can be physically imported into China.
AQSIQ administers the China Compulsory Certificate (CCC) program, a quality certification that is mandatory for a range of specified products, including diagnostic X-ray equipment, hemodialysis equipment, artificial heart-lung machines, implantable cardiac pacemakers, and other medical devices. Therefore, any of these products manufactured outside China require quality testing before AQSIQ will allow them into China. However, these tests are extremely similar to the tests the SFDA requires as part of the medical device registration process. This meant that foreign manufacturers of some medical devices had to endure redundant testing procedures before their products could be sold in China.
In the fall of 2008, the SFDA and AQSIQ jointly issued a notice to fix this problem. Under the notice, CCC marking and SFDA medical device registration will now share a single testing process, with no duplication of tests or fees. This change should significantly lighten some medical device manufacturers’ inspection burden.
Adverse Event Reporting
A system of adverse event reporting and monitoring is still being developed in China. It is not yet routine for hospitals or manufacturers to report adverse events to monitoring authorities. However, an official network of adverse event monitoring institutions does exist, and the reports that the network receives have increased dramatically in recent years. Medical device adverse events, which previously did not receive much attention compared to drugs, are also being reported more. In the first half of 2008, according to the SFDA, there were 5,835 medical device adverse events reported, more than eight times the number reported in the first half of 2007.
Medical device manufacturers in China report adverse events much less frequently than medical institutions and patients do, and the SFDA wants manufacturers to take on more responsibility in regards to monitoring. It released a new regulation on December 30, 2008, which significantly increased manufacturers’ reporting requirements.
Under this regulation, the Provisions on Medical Device Adverse Event Monitoring and Re-evaluation, a medical device manufacturer that learns of an adverse event must report in the following timeframe:
- Adverse event involving death: within 5 working days of learning about it
- Adverse event involving severe injury: within 15 working days
- Other adverse event: no mandated timeframe
Under the Provisions, medical device manufacturers are also obliged to examine the adverse events to conduct a re-evaluation of the safety information submitted for their product. They must then report the results of their re-evaluation to the SFDA (or local FDAs for some lower-risk devices). Additionally, manufacturers of Class II and III medical devices must file an “Annual Report on Medical Device Adverse Events” with their local adverse event monitoring institution by the end of January each year.
The new regulations also impose penalties for failing to properly report or respond to medical device adverse events, possibly including revoking approval for the medical device.
Fast-Track Drug Approval
In January 2009, the SFDA issued a new regulation, Requirements on Special Approval of New Drug Registration, setting up expedited approval for certain types of drugs. In theory, these drugs are supposed to receive significantly faster technical approval, promoting research and development. The drugs affected are the following:
- Active ingredients or their formulations extracted from plant, animal, or mineral resources that have never been marketed in China (expedited clinical trial approval)
- Chemical raw drug materials, their formulations, or biological products, which have never been marketed anywhere in the world (expedited clinical trial approval)
- New drugs with demonstrated therapeutic advantages in treating AIDS, cancer, or rare diseases (expedited new drug approval)
- New drugs to treat diseases for which no effective therapy currently exists (expedited new drug approval)
The details of this system, however, have not been made concrete yet. For example, there is no definition so far of what constitutes a “rare” disease for the purposes of receiving special approval status (like the US FDA definition, a disease with less than 200,000 patients). It remains to be seen how easy and accessible the system will actually be to the drug industry.
In 2008, the SFDA also issued a set of technical guidelines concerning changes to previously-approved chemical drugs. These guidelines laid out in more detail the types of post-approval changes which require additional submission of data to the SFDA.
As a general principle, post-approval changes are defined in the Guidelines as changes to drug production, quality control, or use, such as to affect drug safety, efficacy, or quality. The Guidelines divide changes into three classes, based on how much impact the changes have on the drug’s safety, efficacy, or quality.
In particular, the Guidelines mandate that if the manufacturing location of an imported drug changes, GMP certification for the new site must be submitted. In addition, the site change should have regulatory approval from the drug’s country of origin. The same requirements apply to new active pharmaceutical ingredient (API) manufacturing locations, except that a quality system certification (ISO 9000, etc.) may be substitutable for government approval in some cases.
Third Parties in Drug Registration
The process of registering drugs for marketing in China can be quite slow. Drug registration is conducted by the SFDA only, without technical assistance from third-party organizations (such as Notified Bodies). However, in 2008, the SFDA began paving the way for the use of third parties in the future.
Specifically, in 2008, a third-party testing institution was used on a trial basis to verify the product samples of several traditional Chinese medicines (TCMs) that were submitted with their registration application. The SFDA is now making plans to incorporate such outsourced testing into the drug registration system generally. Eventually, this could greatly speed up the backed-up registration process. The initiative could pose some concerns on intellectual property (IP) protection; however, the SFDA has said it will only provide third-party organizations with limited sections from the registration applications to protect IP.
In Vitro Diagnostics (IVDs)
Quality system audits
In late 2008, the SFDA issued the Rules and Procedures for Determination of Effective Coverage of IVD Quality System Audit. Previously, it had already issued a number of regulations requiring quality system audits (i.e., internal audits) by manufacturers of IVDs. The Rules and Procedures increased the complexity of developing and maintaining these audits by limiting how many different IVD products can have the same audit applied to them.
The Rules and Procedures divide IVDs into 23 categories. Under these rules, IVDs in different categories must have quality system audits that are designed and performed separately, even if they are otherwise very similar functionally. In addition, IVDs with different risk classifications cannot have the same audit apply to them: for example, a quality system audit designed for a Class II IVD cannot be used for a Class III IVD.
In July 2007, Zheng Xiaoyu, the longtime SFDA director, was executed after being convicted of corruption. This act symbolized the sharp decline in the SFDA’s reputation in China after numerous product safety scandals. In September 2008, the SFDA was officially reorganized in an attempt to bring corruption under control.
The reorganization has not greatly altered the SFDA’s drug and medical device regulatory functions on the ground. (The SFDA did lose some responsibilities for food regulation.) However, whereas the SFDA was formerly an autonomous regulatory agency, it has now been put under the direct command of the Ministry of Health (MOH). The government intends for the MOH’s new authority to help restrain SFDA corruption. However, this change itself has prompted some worries that the MOH could also use its power to interfere in individual regulatory decisions for political reasons.
US FDA in China
Another important development in late 2008 was the establishment of US FDA offices in China. The new FDA offices are now open in Beijing, Shanghai, and Guangzhou. These offices were conceived in response to shortfalls in the FDA’s inspection of overseas manufacturers. In particular, in the wake of American deaths from tainted Chinese heparin, it was discovered that the heparin’s Chinese manufacturer had never been inspected despite having FDA approval.
The FDA offices in China have their work cut out for them. Staffed by a total of eight FDA officials as well as some Chinese employees, they are charged with safeguarding the huge quantities of Chinese drugs, medical devices, and food that are exported to the US. Their presence will help increase the level of oversight conducted on China’s medical factories. Hopefully, the offices’ staff levels will grow in the near future.
Recent regulatory changes to the drug and medical device regulatory system in China promise to make the system more rational and transparent for companies in a number of ways. Past scandals are leading China to enforce its regulations much more strictly across the board, with closer attention to public safety. Western medical firms should eventually benefit from such changes.