In May 2014, the National Healthcare and Family Planning Commission (NHFPC) launched the ‘Excellent Domestic Medical Device Selection’ program. This is the first government approved open selection of domestic medical devices in China in order to form the ‘Excellent Domestic Medical Device’ catalog.
The China Association of Medical Equipment (CAME) who is responsible for the selection, has now confirmed that the catalog will be the primary reference for healthcare institutions in China for purchasing medical devices. With strong support for local suppliers, this initiative is expected to significantly boost market share for domestic medical device manufacturers in China.
The new selection program is expected to impact a number of medical device markets including; X-ray, ultrasound, MRI and CT. Strongest growth in the Chinese medical device market is forecast to be from investment in Tier-2 and Tier-1 hospitals. As cost remains a key purchasing factor in most Tier-2 and Tier-1 hospitals in China, the new selection program is expected to predominantly impact low-end and mid-range equipment across the medical device market.
In such a large potential medical electronics industry, fighting for more market share for local brands will always be a core focus of the Chinese government creating an increasingly challenging environment for multinational suppliers.
Implementation of Stage 1 and 2
Following announcement of the planned catalog in 2014, the CAME launched the new medical device directive in select regions in May 2015 with support of the NHFPC. Medical equipment in the catalog is graded on parameters including; clinical need, product quality, competitive ranking and development potential of the company. The catalog will provide a central reference for purchasing decisions in healthcare institutions in China, especially among public hospitals providing support for local suppliers in the “value” market.
From the statement issued by the CAME, the initial selection program began at the end of 2013. The preliminary research, together with the drafts of the selection program and standards have now been finalized. The first catalog of selection program covers 22 digital radiography systems, 37 ultrasound systems and 37 automatic biochemical analyzers.
In September 2015, the CAME declared that it was preparing the second catalog of excellent medical devices which would be released soon. The second catalog will further supplement the whole ‘Excellent Domestic Medical Device Selection’ program. The second phase will cover more advanced medical devices including CT, MRI, Blood Cell Analyzers, Dialysis Systems, Ventilators and Anesthesia Equipment. Implementation of the second catalog further signals the government’s plans to support local device suppliers across the medical device industry.
Dominance of local suppliers in the “value” segment
According to the NHFPC, most public hospitals in effected regions must purchase equipment from the listed products when they have the clinical need. With the majority of growth in China currently focused on improving medical facilities in Tier-2 and Tier-1 hospitals this catalog has significantly benefitted local medical device manufacturers. Only Tier-3 public hospitals have the flexibility to purchase equipment outside of the list when they have a specific requirement that cannot be fulfilled by manufacturers in the catalog.
Key companies benefitting from this catalog are large, competitive local suppliers, including Wandong, Neusoft, Mindray, Anke, United Imaging, Landwind, SIUI and Sonoscape. Strong portfolios focused on “value” medical equipment has meant that following release of the first catalog, listed suppliers gained share in the Chinese medical device market.
Due to strong investment in Tier-2 and Tier-1 hospitals, the ‘Excellent Domestic Medical Device Selection’ program is expected to impact all product lines in the medical devices market from X-ray and ultrasound equipment to CT & MRI in the long term. However, in the segmentation of each product, greatest impact is expected in the low-end and mid-range categories.
Game over for multinational suppliers?
Previously a reliable, high-growth market for multinational suppliers the new ‘Excellent Domestic Medical Device Selection’ program creates a difficult environment for vendors in the “value” medical device market. Pushed out of investment in Tier-2 and Tier-1 hospitals greatest growth for multinational suppliers is projected to be seen in the high-end market as specialization in Tier-3 hospitals increases. It is very difficult for local suppliers to penetrate this market due to the high clinical and technical functionality needed. The new ‘Excellent Domestic Medical Device Selection’ is not expected to change this in the short term.