Defining Business Strategies to respond to control mechanisms of Chinese Reimbursement Regulation

In this article, we will discuss some of the basic regulatory steps for obtaining reimbursement-approval for medical devices, and list the key impacts and strategic considerations when dealing with HC reimbursement in China.

China: regulating the largest population on the planet

There is a single factor that is of considerable influence on the functioning and developments in China –on pretty much anything and everything, including its healthcare (HC)- and that is sheer size.

Effective control, far-reaching mechanisms, and Chinese government regulations for domestic and foreign business activities to create structural improvements/change, are in many aspects unique to China’s proportions.

This regulatory landscape presents a tricky playing field for those unfamiliar with its market mechanisms. We will not digress unnecessarily to elaborate on the quantitative figures regarding its magnitude, nor detail the Chinese administrative history used to rule this sizable population. However, let us keep it present in our minds, that China thrives with a population of close to 1.4 bn, and has shown a history of civil servant schemes and systematic approaches, that dates back to the dynasties of 1000 AC and beyond, intent on ruling and developing its society.

Any problem arising within China is inevitably going to be massive. Looking at the greying of its population alone, this is an issue represented by 220 m citizens in less than 15 years from now.

Health reforms: achievements since 2009 and the agencies involved

“Since the launch of the 2009 health reforms, China has substantially increased investment to expand health infrastructure; strengthened the primary-care system; achieved near-universal health insurance coverage in a relatively short period; reduced the share of out-of-pocket expenses—a major cause of disease-induced poverty—in total health spending; continued to promote equal access to basic public health services; deepened public hospital reform; and improved the availability, equity and affordability of health services. It has also greatly reduced child and maternal mortality and rates of infectious diseases, and improved the health and life expectancy of the Chinese people.”

The World Bank. (2016, July 22): Report Recommends Deeper Healthcare Reforms in China

It is assumed that it will take China 10 years to implement the proposed reforms and for them to reach full scale. The various regulatory agencies in charge of the policymaking, as well as the monitoring processes of the medical device industry, will experience strains in this period.

The implicated agencies are the National Health and Family Planning Commission (NHFPC), the Ministry of Human Resources and Social Securities (MOHRSS), the National Development and Reform Commission (NDRC) and the Chinese Food and Drug Administration (CFDA), of which the first three organizations are responsible for setting pricing, and all of which decide on reimbursement policies at the national level.

Achieving reimbursement listing: a lengthy, unpredictable and complex process

In order to receive approval and be involved with reimbursed care, foreign companies have to go through a complex, lengthy and sometimes unpredictable and uncertain process.

Without going into the extensive details of each of the steps, let us list some of the principles processes and complications:

  • At a national level, the company must register with- and obtain approval from- the CFDA to enter the market.
  • Per province where the medical device aims to be sold, a maximum sales-prices must be established for the product.
  • There are no reimbursement lists to include all the medical devices used in the various reimbursed activities in China.
  • Some products, such as certain single-patient-use implantables from a particular brand/manufacturer, could be included on a reimbursement list.
  • Other medical device types, e.g. a CT scanner or a patient monitor, which are typically used multiple times, would not be listed under a particular manufacturer name on a reimbursement list.

Guidelines and extensive reimbursement sub-factors depend on the province where the care provision is given and upon the Chinese Diagnostics and Treatment Reimbursement list categorization, and will result in varying levels of funding, from 100% to 0%, dependent on numerous factors (from place of residence, to insurance scheme membership type).

Understanding and being able to operate in the system sounds complicated, cumbersome …. and it IS complicated, laborious and lengthy. Resorting to the literature available, is taking the risk of getting a sense of having only grasped the tip of the iceberg.

Impacts and control mechanisms of Chinese reimbursement regulation

In addition to the administrative registration and reimbursement’s proverbial cake-walk, it makes sense to prepare oneself to compete with the local industry; being able to gauge the chances of profitably surviving the battle in this market segment. The last count tallies 6,000 local Chinese companies, conceding that the majority of these are active in the lower-tech area’s; nonetheless, they still demonstrate a sizable local manufacturing and sales force that has distinct advantages within the market.

The Chinese (medtech) regulatory system, including the reimbursement process, is not only to satisfy the standard requirements, which we are acquainted with from most other countries in the world, but also intends to have other affects:

China control mechanisms

China-specific: necessity for local know-how and strategy formulation

The preparation efforts required for working with the Chinese administrative system, both in regards to understanding and for dealing with it, make resource deployment shift from middle/end of the cycle to early/middle of the cycle.

Registration and other pre-launch activities are not abnormal, but the unusually lengthy and complicated trajectory to obtain the proper reimbursement is quite China-specific. While comparable markets, such as Japan, have set up barriers at the registration levels, China has an additional minefield at the level of reimbursement, embedded in a difficult tendering and bidding mechanism.

China requires a different preparation and operation, something that companies should not be finding out whilst already in the middle of it.

Setting up for commercialization requires a strategy; a business model that covers market segments, country regions and the type of hospital.

It requires a much more rigorous prioritization of resources and a specific, dedicated, new and improved sales process.

Understanding the hospital purchasing policy linked to the acquired technology, and the kind/type of treatments offered, as well as the coverage available for that type of treatment, is essential.

TforG’s Chinese expertise

We have over 400 hospitals in our database, providing us with direct access to senior managers and heads of department. Our approach is to establish a partnership with these managers, involving them in our research. They also serve as a great reference, allowing us to expand our research scope to tier 1, 2 and 3:

  • Tier 3: Acute hospitals with typically more than 500 beds, acting on a national level, having a high level of educational and research responsibilities.
  • Tier 2: Acute hospitals having anywhere between 100 and 500 beds, serving more than 1 community.
  • Tier 1: Typically no larger than 100 beds, serving only 1 community.

Another interesting profile in our database is the experts and Key Opinion Leaders, covering all major pathologies (consisting of 3-5 experts/KOLs per pathology).

Furthermore, our database provides a number of VIP contacts, such as policy makers and the Ministry of Health (which we visit face-to-face every 3-4 months). These contacts are working closely together with our Chinese field research team, to design patient flows/care tracks for 150 to 160 different diseases.

In China, TforG does not outsource any interviews with market specialists, on the grounds that we have our Shanghai-based Greater China regional headquarter.

Want to have a conversation about the Chinese healthcare market and its reimbursement system?

Call us at +32 (03) 201 64 02 or leave your details here and we will contact you on the same day.


About Helgert Van Raamt

Helgert van Raamt has 35 years of experience in running and setting up companies, big and small, in EMEA (and beyond). After his senior marketing positions with Organon Teknika and Abbott Labs and four years in Venture Capital as an investment manager for US, UK and NL based funds, he joined Nellcor Europe in 1989 and has lead this company through two consecutive M&A’s (Puritan Bennett and Mallinckrodt). The acquisition by Mallinckrodt for 2.7 Billion made Nellcor the most successful Medic venture after the Second World War. He left to set up the International Operation of Aspect Medical Systems and brought that to success. In three years it reached a revenue level of $10 million and was profitable two months after the start of the operation. Since then (2003) he has successfully advised numerous companies about setting up internationally or cleaning up an existing international operation, both independently and as a partner for TforG Group.