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May 24, 2017updated 01 Jun 2017 5:15pm

China public hospital reform: a storm is coming

By GlobalData Healthcare

There is bad news for global pharmaceutical and medical devices companies; China has developed a set-in-stone timetable to conduct government-driven price management and reimbursement controls.

In April the National Health and Family Planning Commission of China announced its work plan for China public hospital reform in 2017, stating that all public hospitals have to control the increasing rate of overall medical expenses by keeping it under 10 percent.

Drug markups will be cancelled in all public hospitals by 30 September 2017.

Drugs, except for Chinese herbal medicine, will account for less than 30 percent of expenses in public hospitals of 200 major cities in China by the end of 2017.

In addition, medical disposables will be controlled, keeping them under 20 percent of hospital revenue, regardless of drug sales.

More than 100 diseases will be reimbursed based on their diagnosis-related group in these cities.

The core of the reform is to restrain the price increase of drugs and disposables in order to lower the cost for patients and healthcare systems.

To reach the budget line, public hospitals will have to go through centralised procurement, directly adding pressure to the supplier and reducing supplier channels to decrease the purchase price of supplies.

They will also further control of the use of medical supplies by using less expensive products and reducing unnecessary usage.

As a result, average selling prices and the increasing rate of overall sales volume of medical supplies, especially high-end products, are likely to shrink.

For example, the markets for top-notch orthopedic implants and advanced wound dressings are going to be largely affected.

According to GlobalData research, the pharmaceutical industry in China is expected to grow by 25.6 percent, from approximately $417.6bn in 2014 to $1.64trn in 2020.

The Chinese medical device market is projected to double to approximately $50.8bn in 2020, with growth of 10.6 percent, from $30.3bn in 2015.

It will become more difficult for multinational corporations to profit from this high-growth market during the forecast period.

Despite public hospital reform, the newly launched so-called two invoices system and an increase in government initiatives to help local manufacturers will also hinder MCSs from accessing a bigger share of the local market.

Strategic realignment needs to be implemented for corporations to both better understand the unmet needs and continue experiencing market success in China.

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