Updates on China’s Medical Device Market

Updates on China’s Medical Device Market

China’s economic growth has skyrocketed during the last 15 years. In the second quarter of 2010, China’s nominal gross domestic product (GDP) of $1.33 trillion surpassed that of Japan, $1.29 trillion.

Along with the economic surge, China’s healthcare market also is growing. For 2009, China’s total healthcare spending was approximately 4.5 percent of GDP. In other words, China spent roughly $220 billion on healthcare in 2009. Healthcare spending in China this year likely will exceed $270 billion.

This column will examine China’s recent healthcare reforms, key growth sectors and successful trends among medical device companies in the country.

2009 Healthcare Reforms

For 2010 and 2011, China’s increased healthcare spending primarily is due to the healthcare reform programs the country enacted in 2009. The reforms will allow multiple levels of government to contribute $125 billion in extra development funds for healthcare between 2009 and 2011. The funds aim for five overarching goals:

Increased Insurance Coverage

China is revising its three public insurance programs to increase healthcare coverage. Its three programs include Basic Medical Insurance for urban employees, Urban Resident Basic Medical Insurance, and New Rural Cooperative Medical Insurance.

Reformed Pharmaceutical System

In an effort to decrease dependence of hospitals on drug sales for revenue, China is implementing more market methods into the drug pricing system. Furthermore, the Chinese government will increase the standardization of the 2009 National Essential Drug List (a list of approximately 300 drugs that have government-controlled prices).

Improved Public Health

Additionally, China is working to change the overall attitude of Chinese citizens toward certain aspects of healthcare. Regular physical examinations, for example, are not commonplace among individuals in China. The Chinese government is trying to direct the nation to include this check-up and more in their preventive healthcare repertoire.

Health Facility Reorganization

Urban hospitals will be shifted into providing a gatekeeper role, where Tier 1 hospitals will refer patients to Tier 2 and Tier 3 hospitals for more advanced care when necessary.

Rural Development

An important new emphasis in the 2009 reforms is the focus on China’s rural areas. More hospitals and clinics will be built in these regions. China aims to build these new facilities in a fashion that also will establish a gatekeeper model in the rural areas.

Medical Device Marketand Sectors

One of the results of last year’s reform will be an expanding medical device market. China’s medtech industry will exhibit strong growth of about 15 percent per year through 2011, according to industry experts. The medical device market in China currently ranks fourth in the world and is estimated at approximately $7.5 billion. China’s device market is about one-third the size of Japan’s $25 billion device market, but the Japan device market is not growing significantly. Of the $125 billion provided by the recent reform program, more than $10 billion reportedly has been allocated solely for medical device purchases by hospitals and clinics in China.

Diagnostic Imaging

The diagnostic imaging market in China occupies about 43 percent of the total medical device market at the moment. A growing number of Chinese have attitudes that emphasize preventive healthcare with technological support. Thus, diagnostic imaging will become an even more important sector for medical device growth. New hospitals built under the 2009 reforms will purchase more diagnostic imaging equipment. Specifically, expanded healthcare plans include detailed requirements for specific hospitals and clinics to have a number of devices such as MRIs and X-rays.

Disposables

Today, the disposables market in China is approximately 18 percent of the total medical device market. Similar to diagnostic imaging devices, China will require new hospitals and clinics to be supplied with certain disposable products. In addition, as Chinese hospitals slowly discontinue the use of the same product multiple times, the disposables market is anticipated to experience double-digit growth through 2011.

Implants

Although less directly affected by the 2009 reforms, the implants sector recently has experienced the strongest growth in China’s medical device sector. Most of this increase can be attributed to the changing lifestyles in China that are leading to medical conditions such as heart disease. Currently, the implants market is approximately 17 percent of China’s overall medical device market. Implants include devices such as stents and pacemakers.

Cardiovascular

Cardiovascular technology is roughly 10 percent of the country’s total device market—yet another beneficiary of last year’s reform. This sector includes equipment such as electrocardiograms, which will need to be purchased by newly established hospitals and clinics. For example, at least one electrocardiogram will be required by all clinics in rural areas. Hospitals in rural areas and other facilities in secondary urban areas will be required to have the same amount or even more.

Trends for Success

For many foreign medical device businesses, China’s up-and-coming rural medical device market may be out of reach unless adjustments are made to certain products. Individuals living in China’s rural regions will have increased insurance and access to medical facilities. However, they remain poor compared to those living in China’s larger urban cities. The result is that China’s rural areas will exhibit increasing demand for devices—but mainly for devices that have fewer features and are thus cheaper than many top-of-the-line Western device products that sell in China’s coastal areas. It is important that Western device makers of Class A products also make a Class B line better suited to rural budgets.

The Chinese government’s next big medical focus seems to be the rural markets and second- and third-tier cities. It behooves medical device companies to begin adapting to this trend. However, medical device companies seeking to sell in China outside the major cities need to be cognizant of these populations’ needs and lower per capita income in order to be successful.

Ames Gross is president and founder of Pacific Bridge Medical, a Bethesda, Md.-based consulting firm that helps medical companies doing business in the Asia market (www.pacificbridgemedical.com). A recognized national and international leader in the Asian medical markets, he founded Pacific Bridge Medical in 1988, which has helped hundreds of medical companies with business development and regulatory issues in Asia.

Arthur Chyan is an associate with Pacific Bridge Medical. He is fluent in Chinese and Japanese and works on consulting projects and research.