China is a huge potential medical device market and companies who can focus on value may in fact be the ones best-positioned for growth.
by Stephen D. Simpson, CFA
In recent years, medical device companies in the U.S. and Europe have woken up to what pharmaceutical, industrial, and consumer goods companies have known for some time – China is a major growth opportunity. Even more recently, we've seen several well-known device companies step into the market more directly by buying domestic Chinese device companies. While China is indeed a huge potential device market, the realities of the market mean that companies who can focus on value may in fact be the ones best-positioned for growth.
A Large Market, But With Serious Questions About Capacity To Pay
To say that the Chinese healthcare system is confusing would be a gross understatement. About 90% of the country's population is theoretically covered by a system of urban and rural government-sponsored insurance programs, but the actual effective coverage rate for the nearly 900 million rural Chinese is quite a bit lower.
Patient co-pays vary with the wealth of the city/province in question, and patients in China may be called on to pay anywhere from 20% to 60% of the price of a procedure. Worse still, the standard model in China is for the patient to pay 1st, receive treatment, and then seek reimbursement from the insurance system (though this model has been changing).