China in vitro diagnostics (IVD) market is likely to exceed USD 15 billion by 2025, projects Business Wire. China is a large and fast-growing IVD market, in fact, only second to the United States in terms of value. Historically, large multinational companies have dominated the IVD market in China and today, domestic companies, such as Shanghai Kehua Bio-Engineering (KHB), are the leading IVD product developers in China.
China represents one of the largest clinical laboratory markets in the Asia-Pacific region, and the fastest growing among the top ten IVD country markets. China’s quickly aging population means the country is experiencing an explosion of chronic conditions, such as diabetes, heart disease, and cancer. All of these conditions can be diagnosed and monitored using IVD products. Further, the average Chinese consumer is now willing and able to pay more for healthcare than a decade ago. Hence, China has the potential for more dramatic growth in the future.
Some of the recent developments include:
Reform of the CFDA. One of the most important changes in the regulatory field in 2018 was the transformation of the CFDA (China Food & Drug Administration) into the NMPA (National Medical Products Administration). This has brought major improvements to clinical trial management, including an updated trial-exemption catalogue, recognition of overseas trials data, and a simplified authorization process for clinical testing facilities. It has also streamlined the application review procedures.
Two-receipt regulation, DRG-based hospital payments and a hierarchical medical system. The two-receipt system that regulates the number of transactions from manufacturer to hospital – minimizing medical products’ routes to market and ultimate costs – was implemented for drug distribution in China in 2013-14. In 2018, the system was finally introduced to the IVD sector on a national scale. International companies doing business in China will have to respond to the challenges brought by this new system as it will change channel structures and routes to market. At the same time, a diagnostic-related group (DRG)-based hospital payment system is being introduced to replace the fee-for-service system. This will provide fixed fees to hospitals according to the patient’s medical conditions, regardless of actual costs. Pilot projects of DRG-based payments started to appear in 2017, with reform speeding up in 2018. These medical payment reforms are likely to have far-reaching implications for the whole medical sector, with hospitals becoming increasingly cost-sensitive. Last but not the least, China’s hierarchical medical system was a hot topic in 2018. Today, Class-III hospitals are struggling to keep up with patient demand, whilst demand at Class-II hospitals and below is comparatively subdued. Central government increasingly advocates the introduction of medical partnerships to combine classes of hospitals into multi-level regional conglomerates. The aim is for Class-I hospitals to treat patients with common conditions and Class-II and Class-III hospitals to treat special cases and rare diseases. According to a report from The National Health Commission, 70 percent of regions were undertaking pilots for a hierarchical system in 2018. Given the deficit-plagued national medical insurance system, such ongoing reforms aim to control medical costs more effectively throughout the whole chain. It is expected that these changes will continue in the months and years to come and international medical companies with an eye on China need to monitor these carefully. This is good news for international firms as optimized review and approval processes should speed up the import of devices which – usually labelled Class-I and Class-II – pose low-to-moderate-risk.
Increased protectionist measures. In November 2018, the National Health Commission responded to proposals for changing how medical devices are treated in government procurement. Its response emphasized the importance of avoiding discrimination against domestic equipment by setting technical parameters based on imported products. It argued that general technical parameters should be applied to incentivize the use of domestic equipment. It said hospitals should be provided with special catalogues of excellent Chinese medical equipment, and it recommended pilot projects for preferential use of domestic products. If put into practice, this will mean procurement specifications could be tailored in favor of the leading domestic brands, leaving international brands to compete on price rather than just quality. It is an unfolding situation to watch closely.
Industry stakeholders suggest 2018 was an extremely fruitful year for the IVD industry in China and it continues to grow at a much faster rate than the 5–6 percent world average, so this global share is only set to increase.
Despite the sector’s complexities, then, for serious international IVD firms, it is a market one really cannot afford to ignore.