By Ames Gross
Introduction
The 2009 Chinese healthcare reform has been a catalyst for high growth in the hospital industry in China. Almost one-third of the reform proposals were aimed towards constructing new medical facilities. As a result, $40 billion of spending has been channeled into China’s hospital market.
This article aims to provide an overview of the China’s hospital market as well as highlight several key points about selling medical devices to these hospitals.
Introduction to Chinese Hospitals
At the end of 2011, there were more than 315,000 hospitals and clinics in China. That number is rising quickly. In comparison, the United States only has about 5,900 hospitals. Besides hospitals, there are various other types of medical institutions in China, including clinics and community health centers which are more predominant in the rural areas. Nonetheless, for the main medical device market, foreign device companies should focus on China’s hospitals.
The Chinese government owns most of the hospitals which operate in China. Private hospitals currently represent less than a tenth of the total number of hospitals. The hospitals in China are categorized into 3 tiers based on their capabilities. The most sophisticated hospitals are classified as Tier Three, and usually have multiple specialized departments. Tier Three hospitals are normally in the bigger cities, and have more than five hundred beds. Tier Two hospitals are smaller and have less specialty departments. They are usually referred to as “district hospitals”. Lastly, Tier One hospitals are considered as community hospitals. They generally provide preventive care and healthcare for general situations.
Medical Devices Distribution at Chinese Hospitals
There are two steps to sell medical devices to hospitals in China, namely, becoming listed on the authorized equipment list and submitting tenders or bids to hospitals.
1. Becoming Listed on the Hospital’s Authorized Equipment List
In general, hospitals in China will not consider purchasing any imported devices not listed on its authorized equipment list. To be listed on their authorized equipment list, medical device companies are required to officially apply. Generally, these registered products are required to be either represented by a key opinion leader or a department head associated with the hospital. He or she will then present the medical device to the advisory committee of the hospital. Ultimately, the final decision lies with the advisory committee.
This listing process is complex and full of potential problems. Sometimes, fostering good relationships with the advisory committee will hasten the approval process, which can range anywhere from 3 months to 3 years.
2. Submitting Tenders / Bids to Hospitals
Once the medical devices are listed on the hospital’s authorized equipment lists, companies can begin promoting their products via tenders. Every year, hospitals will specify categories of medical devices and ask the authorized distributors to submit tender proposals. For each medical device categories, two medical devices are generally accepted — one which is a lower price locally produced device, and the other a higher priced product from a foreign manufacturer.
The hospitals will generally make the decision to purchase the low value device, while the Ministry of Health decides on the higher value device.
Buying and Setting the Price
There are specific departments in all hospitals which will determine the payments and sell-in volume for the medical devices. It is crucial to investigate which department of the hospital will be in charge of making the decision so that medical device companies can customize their sales pitch and secure a deal.
Foreign medical device companies need to understand that multiple markups will be added before their products are sold to the consumers. For example, foreign medical device companies are generally required to partner with a local distributor to adhere to the Chinese regulations that require purchases from local distributors.
Similarly, the Chinese hospitals will also raise the prices of the medical devices. After the bidding process, Chinese hospitals will normally increase the prices of the medical devices to their patients.
Thus, for Western medical device companies to set a competitive price for their products, they need to take the distributor fees and the price hikes by the hospital into consideration. Combined with proper research, Western companies need to determine a competitive proposal to be successful in China’s hospital market.
Conclusion
The China’s hospital market will continue growing rapidly. The Chinese healthcare market will grow significantly over the next decade. For Western medical device companies, this growth represents better opportunities to increase their product sales in China.
Ames Gross is president and founder of Pacific Bridge Medical, recognized nationally and internationally as a leader in the Asian medical markets. Founded in 1988 PBM has helped hundreds of medical companies with business development and regulatory issues in Asia. Contact PBM at info@pacificbridgemedical.com.
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