Market Drivers and Reimbursement Landscape of the Chinese MedTech Market

China has one of the largest medtech markets in the world, presenting a market full of opportunities and growth potential now and in the years to come. In this article, we will highlight the medtech market figures of China, in comparison to other leading nations, and pinpoint the Chinese market context and its key drivers.

Introducing some facts and figures of the Chinese healthcare market

> Since 2013, China spends an annual average of 5.6% of its GDP on healthcare.

> In 2016, 5.88% of the GDP was spend on healthcare of which 3.28% came from public sources.

> In the coming 3 years, HC expenditures are expected to increase yearly by 10-15%.

> In 2016, the Chinese medtech market was estimated at almost €35 m, which makes it the third largest in the world after the USA (€145 m) and Japan (€41 m).

> Although the growth of the Chinese medtech segment has slowed down from almost 18% to 11-13%, China remains one of the most attractive markets and will be the second largest in the world by 2020.

> In total, there are 8,512 acute hospitals in China, of which 1,558 are level 2 and 6,954 level 3. (Tier 1 hospitals are not acute.)

> Together the acute hospitals provide 3,543,433 acute beds.

China in the global medtech market

As a point of reference, the Big 5 in Europe account for €90 m of the global medtech market and the other BRICS countries (excluding China) together account for €30 m.

China market size

Chinese market segments and the changing role of local providers

Traditionally, Chinese companies dominated the low end of the markets. A few years ago, the government started to launch a number of initiatives, promoting innovation in the local medtech industry. The Innovative Medical Device Assessment office (part of CFDA; China Food and Drug Administration) provides grants and loans to local companies to support R&D in segments such as diagnostic imaging, cardiovascular implants, IV-diagnostics, etc.

These initiatives, together with the reforms of the reimbursement and tendering processes, have strengthened the competitive position of local companies. Today, an increasing share in the growing mid-portion of the market reflects this.

China medtech market size

Imaging equipment represents the largest product segment in the Chinese medtech market, followed by consumables and general medical supplies.

Market context and drivers

In the near future, the Chinese medtech market will be shaped by the following 3 drivers:

Demographics

> As the Chinese population ages chronic diseases become more prevalent; currently 330 m in the Chinese population have chronic diseases.

> The Chinese middle class exceeds the population of the USA or W-Europe; this class is continuously facing more lifestyle-related diseases and expecting more and better healthcare provisions.

HC reforms and new policies

> Basic HC insurance is being introduced for all citizens through public insurance funding. The share of HC expenses covered by the government will increase from 30% in 2010 to 40% by 2020. Nevertheless (regional) inequalities in regards to access and quality of care will remain present.

> Cost control is presented through a packaged pricing policy, allowing hospitals to charge a fixed amount for a specific procedure. This reimbursement policy results in using fewer and lower cost products.

> Tendering is gradually expanding across China and putting pressure on ASPs. This creates a challenge for sales and marketing tactics, since decision criteria differ from province to province.

> A limited channel markup, aiming to limit the markup that is added by distributors, will obviously impact the partner strategy for many medtech manufacturers.

> The decentralization of reimbursement-decisions and tariffs at city, county and province-level, resulting in fragmented and complex policies.

Shifts in the provider landscape

> The government wants to boost the role of local hospitals (level 1 hospitals) in low and mid-range care provision.

> They also intend to reroute part of the referred patients from reference centers (level 3 hospitals) in tier 1 cities, to level 2 and 3 hospitals in tier 2 or 3 cities.

> Different reimbursement tariffs for the respective types of hospitals have to manage the patient streams. This will challenge the efficiency and profile of the sales and distribution resources of medtech companies.

> The private sector is expected to play a larger role in acute care. In spite of the fact that this process is proceeding slower than expected -since no specific action plans have been put in place-, the number of private hospitals and clinics is still increasing rapidly.

The reimbursement system in China

In the summary above, one element repeatedly turns up, namely: the role of the complicated reimbursement system.

Rules and tariffs depend on different parameters, and differ according to:

  • Region: Reimbursement decisions and the formulation of tariffs is delegated to cities, counties and provinces, and result in different coverage levels.
  • Care provider: For a specific procedure or treatment, reimbursement will differ within public and private hospitals, but also for level 1, 2 or 3 hospitals.
  • Type of HC insurance: Chinese citizens are subject to different HC insurance systems, which may result in different levels of reimbursement for a specific procedure or treatment.

In our blog Exploring and Defining Business Strategies and Effects of the Chinese Reimbursement Landscape, we are expanding on the impact of the reimbursement system on business strategies and tactics and on why it is crucial to understand the complex aspects of the system.

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About Bart Van den Mooter

Bart is the CEO and founder of TforG and works closely together with over 50 global companies such as Abbott, Baxter, GE, J&J, Medtronic, Philips, Stryker and Covidien. In this function, he spends a lot time with Key Opinion Leaders and Health Policy makers in Europe and in Emerging Markets. He graduated at the Polytechnic University of Leuven and has an MBA (University of Antwerp/N-Western Chicago).