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China's Healthcare Reform: A Bonanza for Medtech Manufacturers
May 20, 2009
U.S. and European medical equipment makers doing business in China say that the government's $120 billion plan to resurrect its health care system--largely dismantled in the late 1970s and 1980s--will translate to business opportunities.
While urban hospitals in Beijing and Shanghai, catering to a growing middle class and to party leaders, use the latest imaging equipment (replaced every two or three years), farmers in rural areas of the country are relying on equipment made 30 years ago. So, while thousands of urban hospitals will be upgraded under the government's plan, a big part of the revamp will go into rebuilding the rural health care infrastructure. (Seventy percent of China's 1.3 billion people are farmers.)
Speaking to DOTmed News about the burst of medtech activity happening inside China, Hong Kosalos, president of Tradeology USA, a company which represents U.S. firms looking for factories in China, or needing to patent their devices there, says the government is trying "to make the farmers happy" because it fears their unrest over the lack of available and affordable health care will lead to widespread protests.
To appease farmers, China has pledged to build thousands of rural hospitals and clinics over the next three years and to expand medical insurance. Part of the $120 billion initial phase of the government's stimulus package will be a construction boom that will give every village a clinic and every county at least one hospital by 2011.
Meanwhile, rural citizens will benefit from an innovation that allows the best urban doctors to examine rural patients remotely, Kosalos says. She says two or three software companies, employing the best doctors in the country, have developed telemedicine programs to examine patients on a website and then hold conference calls with patients.
"This is a great option for farmers who live in the mountains and have no reliable means of transportation to the good city hospitals," she says.
Multinationals Step Up
Moving to get a piece of the government's $120 billion health care stimulus program, announced in January, Medtronic formed a joint venture with China's Shandong Weigao Group Medical Polymer Co., to make orthopedic devices, including Medtronic's spine products and Weigao's spine, joint and trauma devices, says Karl Zhong, in an article for the Chinese Pharmaceuticals & Health Technologies Newswire, Interfax.
And GE China teamed up with Shinva Medical Instrument Co., starting Shinva GE Medical Systems, to make X-ray machines and auxiliary equipment and parts for Shinva and GE China's low- and mid-range X-ray systems for rural hospitals. Shinva will invest $5.1 million in the project, amounting to a 51 percent stake in the venture, Zhong reports.
Chinese Firms Have the Edge
Leading Chinese medical device firm Mindray Medical International is also investing and expanding operations to capitalize on the opportunities the health care overhaul is offering.
Mindray and other Chinese companies have the edge over Western companies, Kosalos says.
"This is because the Chinese government is supporting all the manufacturers in China, giving them money and land, and is spurring joint ventures all over China," she tells DOTmed News.
First, she says, Chinese manufacturers aim to produce medical equipment for domestic use at lower prices than Western companies make it for. But ultimately, the Chinese want to export high-tech equipment into the U.S., Kosalos says. "They're looking for the latest technology."
Even now, she says, "the Chinese are making ultrasound and patient monitors, which they sell to U.S. distributors at half the price of U.S.-made products, but you have to pay the shipping."
Currently, the Chinese still export mostly lower-tech items like bandages and wheelchairs, Kosalos says, so they have some way to go before they can undersell Western companies in the medtech sector.
Western Companies Undaunted
The Western multinationals who spoke to DOTmed News say they are not afraid of being undersold by Chinese competitors. Quite the contrary, Medtronic, Philips and Varian Medical Systems say they are innovators in one of the largest markets for medical equipment in the world. They say they are there for the long term and are eagerly sharing their newest technologies with their Chinese partners.
For example, Yvan Deurbroeck, Vice President, International Communications for Medtronic, tells DOTmed that "our devices--pacemakers, ICDs, the drug eluting stent Endeavor, spinal products, and cervical discs--all require extensive training and education of the physicians in China who implant them.
"Medtronic has invested heavily in state-of-the-art facilities in China including cath labs and certified internal trainers in China," who teach physicians the latest surgical techniques, Deurbroeck says. Medtronic also invites expert Chinese physicians, as well as European and American physicians from leading medical centers all over the world to provide hands-on training to Chinese physicians.
He adds, "As long as we keep our innovative edge and keep providing first-class training, Medtronic will continue to be a reliable business partner for the Chinese."
Speaking about Philips, Radhika Choksey, a spokeswoman for Philips in China, tells DOTmed that the Dutch company has insinuated itself into the Chinese marketplace since putting down roots there in the 1920s.
"Philips is as much a household word in China as it is in the Netherlands," she says.
She notes the company has a strong presence in cardiology, oncology, and women's health, and holds leadership positions in several technologies including color ultrasound, patient monitoring solutions, cardiovascular X-ray, digital radiography, resuscitation, defibrillators, as well as in oncology simulation and high-end MR and CT systems.
Philips also has partnerships and subsidiaries in China. In 2004, Philips established a joint venture with the Neusoft group, which designs and manufactures economy- to mid-range products for the large domestic market. And in April 2008, Philips acquired Shenzhen Goldway Industrial, China's second-largest patient monitoring manufacturer, Choksey says.
In addition, she notes that "Philips' acquisition of Respironics and Italian-based Medel provide the company with manufacturing facilities in China, so that Philips can enter into the under-penetrated home health care segment of the Chinese market, as the population ages. She adds that Philips has 12 R&D centers in China and is involved in an extensive range of innovative collaboration projects with top universities and research institutes.
Meanwhie, Varian Medical Systems, gleaning that dynamic opportunities were opening up in China, bought Pan-Pacific Enterprises, its long-time medical imaging tube distributor, in December 2007. Pan-Pacific was an American company, started in 1991 by Hsiao-Li Pan, a Chinese-American who sold new Varian replacement X-ray tubes into China. Pan is now Varian's China Country Manager for its X-ray Products Division.
Two of Varian's businesses, linear accelerators for oncology, and X-ray products including tubes and flat panel detectors for all makes of imaging equipment, are doing well, Pan says.
He notes the medtech sector in China is growing by 14 percent, versus 10 percent for the economy overall, except for this year when China's economy slowed to 8 percent due to the recession.
"With 1.3 billion people, the Chinese market for medtech is huge," Pan says.
The company's tubes range from those used in smaller machines in rural hospitals to the higher-end tubes used in the latest CT equipment installed in Chinese urban hospitals.
Varian works with Chinese OEMs and also sells new replacement X-ray tubes. Its customers are primarily local manufacturers, independent service organizations, or asset management groups supporting a wide variety of X-ray imaging equipment.
"The after-market business is a large market for Varian," Pan says. "Our customers can purchase new compatible replacement tubes at competitive prices, which helps to keep their maintenance costs down in these trying economic times."
Varian Pan-Pacific also supports the expanding digital X-ray market in China with its PaxScan flat-panel digital X-ray image detectors for digital radiography, fluoroscopy, and cone-beam CT imaging.
A Few Caveats
While the Chinese are relaxing their regulations so that new demand can be met quickly, there are still a few caveats to doing business there as an OEM.
"They want to accomplish their health care reform frugally," says AdvaMed's Nancy Travis, Vice President, Global Strategy and Analysis, who says the government has asked AdvaMed member companies to lower their medical equipment prices. "We're concerned that downward cost pressure will hurt our members," Travis told DOTmed. "We have a good dialog with the Ministry of Health and are going to be working with this agency to assure that any cost-cutting measures are done sensibly and respect the value of our members' technology," Travis says.
She says AdvaMed is also working with the Chinese government to streamline its cumbersome registration system.
The Chinese government is in a transition process, Travis says, gearing up to use ISO13485 standards, as Western companies do. The cornerstone of this quality management standard is to build quality into systems while they are being designed and continue to hone them even after they've hit the market.
"What most regulators do, in the U.S. and other developed countries, is accept test reports from manufacturers who they know use this system and then do factory inspections to verify the information," Travis says.
In contrast, "China still collects product samples from the companies and tests them themselves. Product testing can take a very long time. And some products are too advanced for China labs to test. So often times they'll try and do the test but may have to get back to the company, or the company has to help them. This can drag out the testing process for many months."
"China is somewhat receptive to changing this. They are willing to exempt some products from testing for re-registration, which takes place every four years. They've taken a partial step, but a step in the right direction," Travis notes.
Refurbished Goods Banned
Of note is the fact that refurbished imaging equipment was banned in China in 1998 because regulators didn't have the know-how to measure its quality. Perhaps this will change, as China gets up to speed on medical technology.
Refurbished equipment might be a good option for China's rural hospitals and clinics, since the government believes the cost of new medical equipment is too high for its rural population.
As reported in DOTmed News, the U.S. Department of Commerce confirms that China has eased some importation restrictions on used equipment, however, it is not clear whether the more liberal directives apply to medical technologies. Read more at www.dotmed.com/news/story/9127.
Also read about harmonization of standards at: