Medical Device Daily Washington Editor
WASHINGTON – The Advanced Medical Technology Association (AdvaMed; Washington) hosted the Globalization of Medical Device Policies conference, with the subtitle “The Good, the Bad and the Ugly” — that title an effective foreshadowing of the gathering’s discussions concerning both the tremendous potential of this market and the many trap doors awaiting firms that find a wedge into this most populous nation of the world.
Henry “Hank” Levine, senior vice president for consulting firm Stonebridge International (Washington), pointed out that the reforms undertaken by Beijing in the late 1970s “have been fantastically successful at the macro level,” but that the concomitant reform of healthcare has been “murky.” As just one prominent example, while more than 200 million citizens of mainland China moved above the poverty threshold between 1980 and 2004, the government has largely dismantled the free healthcare system.
Thus, the country’s governmental outlays for healthcare in this timeframe dropped from about 40% of overall healthcare spending to about 16%, according to Levine. This is of particular interest, he said, “in a time of rising social tensions” — an allusion to riots that have sprouted across the country concerning income disparities and resource conflicts.
China has undertaken a debate on the role of competition and state-mandated healthcare not dissimilar to the debates taking place in other national capitals. Beijing, he said, “has positioned itself with a populist agenda,” and wants to “broaden access to low-cost healthcare” despite the earlier roll-back of taxpayer funding for healthcare.
Ambition runs deep in Beijing, Levine said, in noting that the intent is to bring “every citizen under the national healthcare umbrella by 2010.” But he said that this timetable is “already ... behind schedule.”
Government officials are said to be “very positive” regarding the UK model of healthcare, but a few problems must be dealt with before an effective system can take root.
Prominently is the fact that doctors and hospitals make a substantial portion of their income from medication sales, which “has led to corruption” and has prompted price controls.
Impeding any progress on this and other fronts is the fact that “Chinese ministries don’t talk to each other,” Levine said, but that a few agencies in the mix have formed “a large, inter-agency task force” hoping to cobble together a national healthcare plan to the Communist Party Congress next year, targeted for 2008 roll-out.
Perhaps understating the case, Roberta Lipson, president/CEO of Chindex International (Bethesda, Maryland) described the Asian giant’s healthcare system as “a really challenging environment,” but reminded the audience that it is the fastest-growing market for devices in the world, with imports valued at $5.1 billion in 2005. And imports of medical devices and equipment are expected to grow 10%-15% per year until 2010.
Recent efforts at reform are designed to deal with cost and distribution, but “there was a lot of corruption,” she said, which led to a slower growth for foreign medical devices and equipment between 2004 and 2005 than in previous years. China makes only about a quarter of what it consumes in these product lines, partly because it exports about 75% of its production.
Lipson said that U.S. firms currently account for about 40% of sales and 27% of the profits from sales of medical devices and equipment in China.
Customs duties and value-added taxes can boost the end cost of imports by 20%, she noted, and so importing firms must make a tender offer for a sales price that is subject to further negotiation by purchasers.
Add in the threat of price controls, and this system “is a huge problem” and “tends to favor domestic firms,” she said.
Tendering, Lipson said, “has been going on for a long time in the military,” but because of the relative lack of discipline in the private sector, the Ministry of Health “found it a lot more unwieldy.”
In addition to price controls, the regulatory structure creates a process that is extremely complex in part because there are “a lot of folks in the process,” leading to “turf disagreements and overlap” in responsibility, Lipson said. The March 2003 restructuring of China’s State Drug Administration into State Food and Drug Administration has created even more redundancy, thanks to the existence of the China Quality Certification Center for Import and Export Commodities. That bureaucratic addition requires testing of a wide range of products and normally does not recognize international standards.
Lipson added that biocompatibility is another area in which China does not recognize international standards, a situation she described as “a disaster for a lot of companies.”
Paul Barry, director of international health policy at the DC office of Boston Scientific (Natick, Massachusetts,) said that of all the regulatory hoops to jump through, tendering is “potentially the most threatening to our industry.”
The tendering process commenced in eight provinces under the Ministry of Health’s directive, but after rolling out in March 2005, the MOH yanked the program in February 2006 “in large part due to lack of management resources,” he said.
As for price controls, China’s National Development and Reform Commission (NDRC) is charged with national oversight, but the Shanghai City Price Bureau is perhaps the most aggressive of the regional price control bodies and is asking for data that it reserves the right to disclose “to the public.”
Depending on the meaning of the work “public” and how the information is used, Barry said, “this could be used against us.”
Among the data the authorities will require are insurance and freight costs, exchange rates, port expenses and the wholesale cost of devices and other equipment.
“I’m not crazy about them having the wholesale price information,” Barry said, “but it’s not something we can stop.”