China has become the world's most promising emerging market for medical devices

In recent years, driven by economic development, the public's demand for health has steadily increased, and the pharmaceutical industry's R&D level and manufacturing capabilities have significantly improved. Simultaneously, a series of national policies supporting innovation in domestic medical devices have released dividends, making China the most promising emerging medical device market globally.

It is estimated that the scale of China's medical device market increased from 43.4 billion yuan in 2006 to 530.4 billion yuan in 2018, with a compound annual growth rate of approximately 25.55%. Among them, the market size of high-value medical consumables was approximately 104.6 billion yuan, a year-on-year increase of 20.37%, the highest growth rate among the medical device sub-sectors.

However, behind the opportunities lie challenges. The nationwide volume-based procurement of high-value medical consumables is imminent.

Intensive Policy Rollout, Full Implementation Pending

On July 16 this year, Anhui Province issued the "Implementation Plan for Concentrated Volume-Based Procurement and Negotiation of High-Value Medical Consumables in Provincial Public Medical Institutions (Pilot)", which clearly states that concentrated volume-based procurement and negotiation will be implemented for orthopedic implants (spinal) and ophthalmic (intraocular lenses) high-value medical consumables, with procurement volumes accounting for 70% and 90% of the procurement volume of orthopedic implants (spinal) and ophthalmic (intraocular lenses) high-value medical consumables in Anhui Provincial public medical institutions in 2018, respectively. On July 30, the results of Anhui Province's volume-based procurement and negotiation were announced. The average Price reduction for domestic spinal implants was 55.9%, and for imported products, it was 40.5%, with an overall average Price reduction of 53.4%, and the maximum Price reduction for a single component was 95%; the average Price reduction for domestic intraocular lenses was 18.1%, and for imported products, it was 20.9%, with an overall average Price reduction of 20.5%.

In addition, after the preliminary negotiation, bidding, and announcement procedures, on August 7, the first high-value medical consumables procurement alliance, consisting of 55 tertiary public hospitals in Jiangsu Province, clarified that volume-based procurement would be carried out for 6 types of cardiovascular stents and 25 types of dual-chamber pacemakers. Under the premise of ensuring no less than 70% of the procurement volume, the average Price reduction for the selected stent products was 51.01%, with the highest reduction reaching 66.07%; the average Price reduction for the selected pacemaker products was 15.86%, with the highest reduction reaching 38.13%.

A week before Jiangsu Province announced the results of the volume-based procurement of high-value medical consumables, the General Office of the State Council issued the "Reform Plan for the Governance of High-Value Medical Consumables" on July 31, which clearly states that it will lower the inflated Prices of high-value medical consumables by improving the Price formation mechanism; encourage medical institutions to jointly conduct volume-based negotiation procurement by improving the classified centralized procurement methods; and strictly control the unreasonable use of high-value medical consumables by regulating medical service behaviors. It is understood that, in the next step, the National Health Commission will cooperate with relevant management departments to establish a consumable consistency evaluation agency and explore the promotion of the successful experience of centralized volume-based procurement of drugs to the medical consumables procurement field.

The determination of the national level to promote volume-based procurement of high-value medical consumables is evident. Under the situation of strictly controlling medical insurance expenditure, the nationwide rollout of volume-based procurement of high-value medical consumables is only a matter of time.

Favorable Mergers and Growing Pains: Businesses Experience a Bittersweet Victory

Under the price-for-volume model brought about by volume-based procurement, in the short term, the sales Achievements of high-value medical consumable manufacturers that win bids will inevitably be affected; however, in the long run, winning manufacturers can enjoy more than 70% of the market share in the province (city)'s public hospitals, which is undoubtedly good news for large-scale enterprises with high production capacity and strong innovation capabilities. At the end of July, after the results of the volume-based procurement negotiation for high-value medical consumables in Jiangsu Province were announced, an executive of a winning cardiovascular stent manufacturer described his feelings as "bittersweet".

On the other hand, with the promotion of volume-based procurement on a larger scale, the market share of manufacturers who did not win bids will be greatly compressed. Small and medium-sized consumable manufacturers, due to their thin profit margins, small Price reduction space, and relatively limited production capacity, are at a disadvantage in negotiations and cannot compete with large manufacturers. If they do not actively seek transformation, in the long run, small-scale enterprises with weak innovation capabilities may be eliminated from the market.

From the industry perspective, a series of recently issued policies on the governance of high-value medical consumables, in addition to squeezing out the "water" of inflated product Prices and playing the role of medical insurance "replacing the old with the new," also helps to play the role of market mechanism in eliminating the inferior and selecting the superior, promoting the development of the industry towards standardization and economies of scale.

Compared with imported counterparts, domestic medical consumables have a greater Price advantage. The ultimate goal of volume-based procurement is to control medical insurance expenditure. The implementation of this policy is expected to accelerate the domestic substitution of high-value medical consumables and provide opportunities for enterprises with independent intellectual property rights and core competitiveness to stand out.

Prepare for the Future, Enter the Market's "Blue Ocean"

The pharmaceutical industry is extremely sensitive to policy trends. Relevant enterprises can only achieve sustainable development by following the trend and planning ahead.

Understanding Trends and Responding Early: Faced with the new policy environment created by volume-based procurement, relevant manufacturers should prepare for the future and formulate response strategies in advance. Enterprises can understand market change trends through analysis reports conducted by their own market departments or external consulting agencies, and by strengthening communication with relevant policymakers, they can promptly learn about the policy trends of volume-based procurement in various provinces.

Based on the analysis of factual data, enterprises can form an interpretation of the volume-based procurement models in various places, an assessment of the differences between similar products, an estimation of their own maximum production capacity and the maximum Price reduction they can afford, and a prediction of competitors' negotiation strategies, so as to prepare in advance.

Expanding Channels and Exploring Markets: In recent years, thanks to the promotion of tiered medical treatment and the "Healthy China" related policies, county-level public hospitals and non-public medical institutions have gained broad development space, and the market potential is huge. Against the backdrop of the saturated market of public hospitals in first- and second-tier cities, the market "blue ocean" of county-level public hospitals and non-public medical institutions deserves the full attention and advance layout of enterprises.

Currently, enterprises such as Medtronic in the United States and MicroPort in Shanghai have begun to establish market promotion departments such as "Regional Growth Initiatives" to promote medical solutions in the county market and non-public medical institutions market.

Independent Innovation and Taking the Initiative: The cardiovascular stents and orthopedic implants included in this volume-based procurement are relatively mature market developments and high-value medical consumables with severe homogeneous competition. For manufacturers, in order to obtain stronger bargaining power in volume-based procurement negotiations and maintain industry competitiveness, they must have independent innovation capabilities. Enterprises should drive development through innovation, achieve diversified business layouts, and improve the technical content and added value of single products to enhance their competitiveness.

The "future" of volume-based procurement of high-value medical consumables has arrived. In this market "blue ocean," opportunities are only reserved for those who are prepared.