In June, this column examined the healthcare reform that had been underway in China and the impact to the medical device industry. To offer a fresh perspective for companies doing business in China, following are some additional factors in the marketplace that also may impact you this year and beyond.

Pricing Control Taken to Task

In an effort to curb mounting healthcare costs that patients incur, the Ministry of Health (MOH) and National Development and Reform Committee proposed a new policy in late 2005 that would impose a mandate on the mark-up amounts between the supplier’s pricing and the retail price to patients. For example, the policy suggested limiting markups from the factory sales price for disposable low-value consumables to no more than 40%.
 
  Since the announcement of this proposal, discussions among regulators, equipment suppliers, hospitals and the media have reached a feverish level. Manufacturers believe such mandated mark-up ranges would cut into normal operational profits (eg, high R&D and manufacturing costs as well as distribution expenses). Consumers, on the other hand, consider this level unreasonably high as they struggle in daily life.

  Not surprisingly, regulators are caught between the public outrage of accelerating healthcare costs and the need to protect legitimate business interests. In fact, the originally scheduled release of this policy in June 2006 was delayed due to unfinished discussions among interest groups.

  In addition to its attention toward mark-ups, the MOH is further regulating fees that hospitals can charge for medical examinations and procedures, including any equipment used.

  Historically, foreign-made medical equipment used to command higher reimbursement rates than locally made Chinese products. This gap eventually prompted a dramatic increase in purchases of high-end foreign medical products, causing an imbalance between equipment availability and the supply needed for patients—as a result, high-end equipment was being used for the bulk of examinations.

  As an example, research conducted by the China Association of Medical Equipment (an agency under the MOH) found that the national utilization rate of installed CT and MRI scanners was less than 40%. Among prescribed tests, 17% of CT and 27% of MRI procedures were unnecessary. Standardizing the fee rates created a level playing field for both international and Chinese suppliers, reducing the competitiveness of imported products (however, it also reduced the reimbursement rates).

Chang-Hong Whitney is president of Whitney Consulting Ltd. in Massachusetts. With an MBA from Babson College (Wellesley, MA) and undergraduate degrees in electronic engineering and international business, she has been consulting for western companies on doing business in China since 1994, focusing on the medical device market. Her services include China regulatory affairs, market research, sourcing and logistics programs and China business strategies. She can be reached at [email protected].