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Just how high are the sales costs of medical devices in our country?
Release time:
2025-03-12 09:43
High and persistent costs
The current situation faced by medical suppliers can be described as chaotic and turbulent.
Some are aggressively predicting a downturn, while others are vehemently proclaiming prosperity. While it's difficult to clearly define the prosperity or decline of an industry, the announcement of new consumable procurement prices always causes a shock, especially since some consumable prices have dropped by as much as 99.9%.
What's shocking is not only the plummeting prices of consumables, but also the rapid industry consolidation and the persistently high sales costs. The sales costs of medical instruments/consumables in China account for more than 15 times the proportion of typical industrial products in China, and more than three times that of India. Although the medical device industry is facing downward price pressure and the threat of drastically changing procurement processes, various costs remain high.
1
The era of naked running, endless decline
In 2018, medical devices were marked with the word "reduction." Relentless price pressure cast a shadow over the entire industry.
The joint procurement of six major categories of medical consumables in the Beijing-Tianjin-Hebei region saves over 800 million yuan annually; Zhenjiang City, Jiangsu Province, procurement of medical consumables, with the highest reduction of 99.9%. Suppliers who have experienced the decline in drug prices seem unsurprised by the various plunges in consumable prices, but the frightening part is that this decline has not bottomed out. Last month, the People's Daily also published an article stating, "How to prevent medical consumables from being costly."
From the current domestic medical device procurement methods, the mainstream ones are mainly provincial Bidding procurement, regional alliance procurement, and hospital alliance procurement, etc., which improve the bargaining power by increasing the procurement volume. At the same time, the procurement characteristics of medical devices are gradually developing towards price transparency, and the quotation for similar products shall not be higher than the lowest Price of the previous round of procurement.
Not long ago, the Shanghai Sunshine Pharmaceutical Procurement Network issued a "Work Notice on Matters Concerning the "Sunshine Procurement" of Medical Devices," which clearly stated:
Provide data export function;
Provide the latest price information and negotiation results of medical devices from other provinces and cities;
This means that in Shanghai, prices are completely transparent and are monitored in real time. It should also be noted that for the medical device industry, which has always followed the pharmaceutical industry, national volume-based procurement is only a matter of time. Under the strength of various measures and against the backdrop of hospital cost control, the decline in medical device prices is endless, at least, it has not yet bottomed out.
2
Worse than India! High and persistent equipment costs
How high are the costs of China's medical device industry?
According to BCG's 2015 data, the average sales, general, and administrative expenses (SG&A, mainly marketing expenses, as a percentage of cost of goods sold) of Chinese medical instrument/consumable companies are more than 15 times that of typical industrial product companies. Although the medical device industry is facing downward price pressure and the threat of drastically changing procurement processes, various costs remain high.
As shown in Figure 1, in terms of medical instruments and consumables, both the profit margin and the proportion of sales costs to total costs are far higher than other domestic industries and the three BRICS countries, and generally show the development characteristics of "high profit, high cost."
Looking at India, which has a lower economic level and a larger population than China, its data remains in a relatively reasonable state, with sales costs only one-third of China's. Part of the reason for China's "high profit, high cost" phenomenon may be that the revenue growth of China's medical device industry is stronger.
In the future, with the promotion of policies such as project-based charging and unified Bidding, medical instrument/consumable companies will inevitably face enormous price pressure. Under the glamorous appearance of high profits, facing high and persistent costs, suppliers may face unsustainable development.
3
Elimination and integration, a life-or-death game
Starting with the "two-invoice system," the first domino to disrupt the profit structure of the medical industry, suppliers have truly felt the survival crisis. The policy's direction is twofold: raising the industry's entry threshold and industry concentration.
In Baoji City, which implemented the two-invoice system for consumables in all public hospitals at all levels at the end of 2016, more than 630 consumable distributors in the city, after two selections, only more than 90 met the standards, and more than 85% of the distributors faced elimination.
Although this is currently one of the few known data on the effect of the two-invoice system for consumables + distributor selection, there is no doubt that the trend of national policies is to raise the entry threshold, accelerate industry integration, and change the "small, scattered, and chaotic" situation of medical equipment circulation. Industry insiders believe that in the short term, the pharmaceutical and medical equipment circulation field will form a competitive pattern of "national leaders + regional leaders + remote scattered households."
On the other hand, the current low marketing efficiency in China also needs to be changed. According to BCG data, the marketing efficiency of medical instruments/consumables in China is lower than the global average, and even lower than other BRICS countries, especially India, where the market is also growing but the maturity is lower.
It is speculated that a large part of the reason is that China's medical device industry uses suppliers far more than other countries, which leads to increased costs and further reduces marketing efficiency. Almost 100% of medical devices in China are sold through distributors, while in other markets, this proportion is only 5-35%. Therefore, integration is an inevitable trend.
Such high sales costs and the impending price and downward pressure mean that China's medical device industry still has a long way to go. However, with the gradual implementation of various policies from the Medical Insurance Bureau and the Health and Health Commission, we still have reason to believe that there is still a way out for medical device sales costs to become reasonable.
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