China: A Huge Medical Device Market with Prospects and Challenges

This article was originally published on MedTech Intelligence. 

China’s medical device market has grown tremendously over the last five years. While estimates vary on the total size (somewhere around $50 billion), many foreign companies have grown their business there. Accounting for about 20% of the world’s population, wealthier upwardly mobile citizens demanding better healthcare, and more efforts by the Chinese government to provide healthcare to its citizens, there is no end in sight to this market growth.

However, as the market has grown, so have the pitfalls. Registration that was relatively easy five years ago in China is now a lot tougher and slower, and requires much more documentation. A dramatic increase in the number of tenders and volume based procurement (VBP) has reduced prices significantly. Reimbursement of new products takes time, has bureaucratic barriers, and is generally geared to locally made products only. Finally, while intellectual property issues have gotten better, it is still not easy for foreign companies to win in China’s court system.

Five to 10 years ago, registration in China was easier. There were simply fewer regulations, and the reviewers seemed more flexible on approval of foreign-made devices. While type testing was fairly straightforward, and previously took about two to three months, it now can take about six months or longer in China. Dossier requirements have also increased. And, if clinical trials need to be done in China for product registration, these costs have gone up dramatically too. If a Class 2 device without clinical studies took nine months to register five years ago, today that timeline is more like 12–18 months.

China’s device regulations are constantly evolving. On June 1, the country issued Order 739 with respect to medical devices. While this Order increased the number of regulations by the NMPA, there were some advantages for foreign companies looking to grow their business in China. The new Order allows medical companies to use more of their own in-house tests or tests from qualified vendors, eliminates the need for Country-of-Origin approval for innovative products before registering in China, allows more clinical evidence to support clinical evaluation, and expanded the number of products that are exempt from doing local clinical trials for China product registration.

A huge pitfall in doing business in China today is the increase in tenders and volume based procurement (VBP). While VBP has been going on in China’s drug market over the last several years, this just recently started for devices. VBP’s goal is to reduce prices by large purchases. To date, this policy has been directed primarily toward high-value devices including cardio stents and orthopedic hip and knee implants. These products have seen whopping 70–90% decreases in price. Large device companies in these sectors have had to re-purchase products previously sold to distributors, prior to the price reductions. Some foreign device companies have had to reimburse their China distributors millions of dollars to account for the significantly lower prices for these products in China today.

While VBP of devices has been primarily focused on the cardio and orthopedic sectors to date, there is no way to determine how many other device products will encounter huge price drops in the future. To avoid such situations, foreign device companies need to focus their business in China on new state-of-the-art medical technologies that the Chinese people need. Registering these new products on a timely basis is crucial to success.

Reimbursement in China is also a tricky and complicated process. The majority of medical institutions are owned by the state. The top-level policies of the social healthcare insurance—National Basic Medical Service Systems (NBMSS) —are regulated by the central government, and the insurance funds are run by local governments mostly at the provincial level. There are a number of key Chinese government agencies in the reimbursement process including the National Health Security Administration (NHSA), the National Health Commission (NHC), the price departments of the National Development and Reform Commission (NDRC), and more importantly, their counterparts at the city and provincial levels. The medical service catalog includes the diagnosis and treatment service items where the pricing department has set the charging standards for medical insurance, which is the basis for medical institutions to provide healthcare services.
The process to get a new charge code for a new medical device is long and complicated. Steps include:

  1. Having a specialist department of the hospital make their case for the new product to the medical institution’s price management committee
  2. Submittal of the application to the health commission or the medical insurance bureau of the province or city for review by health experts
  3.  Trial implementation at local hospitals for one to two years
  4.  Depending on how well the product has done during the probation period, a final decision is made on the reimbursement price by the appropriate local insurance authorities.

China also encourages the development of private insurance. Given the reality that reimbursement for many products and services is very low, it is advisable to consider cooperating with private insurance companies that have enrolled a lot of wealthy people and families whose healthcare needs are obviously higher than those of the average person in China.

In short, given the size and growth rate of the Chinese medical device market, there are still plenty of opportunities for foreign companies to make profits. Some foreign companies are increasing their exports or are setting up manufacturing or joint venture manufacturing operations to make products in China, for the Chinese market. On the other hand, foreign device manufacturers must understand that local Chinese medical device manufacturers are getting more sophisticated. This presents competition to Western product manufacturers in our Western markets, too.