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China medical and healthcare markets: 2007 outlook.

According to a newly released report by the China Academy of Social Sciences, the average healthcare cost nationwide has been rising 14% per year since 1993 (after removing the inflation factors). "Difficult to see doctors; expensive to see doctors" has become the number one complaint cited by average Chinese citizens. In an effort to control escalating healthcare costs, improve health coverage and better manage medical markets, the Ministry of Health (MOH), State Food and Drug Administration (SFDA) and other Chinese government agencies are initiating new policies that will affect the medical and healthcare market in 2007 and beyond. A few noticeable trends are emerging.

MOH to Control Large Equipment Purchase. The MOH is reinstating a measure, which was in place during the 1980s and 1990s, to require hospitals that plan to purchase high-value medical devices such as computed tomography or magnetic resonance imaging equipment to submit an application to provincial health bureaus. These applications are to be reviewed based on the patient volume, disease prevalence and suitable applications of the equipment. The approving bureau also will look at the installation of currently available equipment in the hospital's geographic area. This measure is aimed to curb excessive purchases of large equipment and improve utilization rates of installed systems.

MOH to Issue Approved Product List. The MOH also will institute a program to validate medical products that will be sold to hospitals. This goal of the program is to evaluate products based on their features, performance and application to the Chinese market. The data derived from these evaluations will help generate a list of recommended products for hospitals to select from when purchasing their next medical equipment.

Anti-Corruption Movement. With some well-publicized arrests of high-level officials in the healthcare and regulatory agencies, China aims to further curb illegal activities that have been imbedded in medical and pharmaceutical sales, as these crimes are widely believed to have contributed to the high healthcare costs to patients. Law enforcement agencies, along with the MOH, SFDA and others, have launched campaigns to root out under-the-table activities in product sales, public tenders and other commercial transactions. For example, doctors who go on company-sponsored trips must present the academic exchange meeting agendas before being allowed to travel. More measures will be installed to improve the exposure of the governing offices as the year progresses.

SFDA's 2007 Initiatives

The SFDA suffered its largest public humiliation in 2005 and 2006 with arrests of three top officials--the head of the SFDA, the director of the medical equipment registration department and the director of the drug registration department. All were accused and convicted of accepting bribes from companies. Before and after these arrests, other officials in provincial FDA offices were found guilty of accepting money or other items with large cash values. The entire system went through a period of self-evaluation, correction and replacement of key positions. As result, activities at SFDA slowed to a halt with thousands of registration applications delayed for approvals.

After two years of scandals and indecisions, the SFDA seems to have found its confidence and directions for 2007. This year, the SFDA will focus more attention on market surveillance programs and on assessment of existing medical device manufacturers with the hope of eliminating unqualified producers and inferior products. There are a few signs worth noticing:

1. The SDFA has initiated a trial program to inspect quality systems of Class III sterile and implantable products. This program selected 10 product categories and manufacturers in Shanghai, Beijing, Tianjin, Zhejiang Province, Guangdong Province, Sichuan and Shanxi provinces. The program's kickoff meeting was held in December, and inspections either are in progress or will be completed by April.

This program is a follow-up of a July 2006 inspection that the SFDA performed on Chinese manufacturers of cardiac stents. Of 17 companies inspected, six were ordered to stop manufacturing immediately; six were required to correct issues within a set period of time; and only five were considered to have adequate quality systems and procedures in place. Besides quality system inspections, the China Clinical Inspection Center has been conducting regular checkups on products on the market and publishes its testing reports.

2. The SFDA is weighing whether to station inspectors at some pharmaceutical companies in the future, with the goal of better monitoring their operations to the established standards.

3. The SFDA has required medical device manufacturers to comply with ISO 13495. There have been talks about other good manufacturing practices guidelines as well. This move is facing resistance as manufacturers complain of increased costs in their regulatory affairs. It is worth noting that good manufacturing practices have been implemented widely in China's pharmaceutical industry for the past few years.

4. The SFDA drafted a regulation on product recall in December and is asking for public comments on the draft document.

Besides these activities, the SFDA is working hard in other areas. For example, the agency is working on implementing both national and industry standards pertaining to technical and safety product performance at the time of product registration. Close scrutiny on registration documentations and testing results have been observed by testing centers and by consulting firms such as my own.

The SFDA is not alone in its efforts to improve the healthcare system. Other Chinese agencies are joining the efforts on market and product controls. The Ministry of Information Industry implemented its first environmental protection law-China's regulation on hazardous substances, widely known as RoHS--on March I this year. And the China Administration of Quality Supervision and Quarantine, which controls the Chinese customs and CCC certification labs, has set food and medical devices as its focus areas for 2007 to improve the testing and incoming inspections.

Without doubt, 2007 will be another challenging year for medical companies. Besides the anticipated regulations, the entire healthcare market also will be modified based on MOH policies and the initiatives for better healthcare for the masses. High costs in product development and market approvals, as well as the shrinking market size, will drive some weak players out of the market, while the stronger ones will need to reinvent themselves and find a niche to weather through the market downturns.

The positive side of this adjustment, however, is a better managed, better regulated and ethical marketplace with players that follow best business practices, focus attention to quality and customer services as well as seek to expand their international markets. In turn, it is hoped that these improvements will establish a positive reputation for Chinese medical products and, therefore, sustain the Chinese medical device industry. If those of us who are still in the game can keep our faith, there will be a better future to which we can look forward. I will be more than happy to report the positive news in the months to come. Stay tuned.

Chang-Hong Whitney is president of Whitney Consulting Ltd. in Massachusetts. With an MBA from Babson College (Wellesley, MA) and undergraduate degrees in electronic engineering and international business, she has been consulting for western companies on doing business in China since 1994, focusing on the medical device market. Her services include China regulatory affairs, market research, sourcing and logistics programs and China business strategies. She can be reached at
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Title Annotation:CHINA NEWS
Author:Whitney, Chang-Hong
Publication:Medical Product Outsourcing
Date:Mar 1, 2007
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