The sun is rising in the East with the dawn of a new decade that promises to cement China’s position at the forefront of healthcare innovation. While the Chinese New Year will understandably be dominated by the coronavirus outbreak, China has spent the last ten years building a reputation as a global powerhouse of science and technology – creating worldwide intrigue in a market rich in growth opportunity. So how did we get here and what does it all mean for global pharma?
China ended the decade as the world’s second largest medical market. The journey began with the introduction of medical insurance, which now covers around 95% of the population – extending from 100 million people in 2010 to 1.35 billion in 2018.
However, the large insured population presents great challenges to China’s medical payment and hospital systems. Medical insurance expenses have increased significantly while, on the demand side, the aging population and chronic disease have become growth engines in their own right. Serving the health needs of China’s huge population – the biggest in the world – is the baseline opportunity for pharma. However, the size, scale and diverse needs of that population present unique challenges.
The accessibility of medicines and devices has improved dramatically. On the one hand, greater reimbursement has increased patient access. On the other, there’s a dilemma between maintaining stability in the medical insurance fund and meeting the huge demand. The implications for pharma are clear: Rational, compliant and value-based promotional strategies are the only way to go.
Value-based negotiation has been introduced to control healthcare costs. In the first volume-based negotiation in 2009, Zocor entered the medical insurance directory with a huge price reduction – but it didn’t result in the expected sales growth.
In contrast, with a smaller drop in price, Lipitor maintained its large market share. The different outcomes suggested the patent cliff had still not formed in China at that time. A decade later, this is no longer the case. With centralized procurement and the introduction of the Generic Quality Consistency Evaluation, the patent cliff is steadily emerging.
In 2017, China became a full member of the International Council For Harmonisation, helping accelerate the introduction of new technologies. Innovative payment methods are also being explored, largely in public hospitals, with pilot projects in areas like paying by disease and clinical pathway.
The next decade will see further evolution of health policy and regulation, including:
The rise of domestic R&D
Medical companies in China are shifting their attention from generics to original drugs. However, since many lack experience in overseas markets, they know they must compete at home. The low price of domestic original products will benefit the Chinese market. Exploiting international markets with innovative products will be key to growth.
A focus on chronic disease
Chronic disease management is a national priority. Where it can, China will look to address the problems of evolving demographics and diets.
A focus on volume for value
Volume-based procurement will be rolled-out, but marginal revenue will shrink. The medical insurance market faces a dilemma: Lower prices lead to higher demand, while rigid demand has little effect on costs. National policy is also conflicted: Depressing prices ensures the stability of the medical insurance fund but stifles local innovation.
The growth of China’s pharmaceutical market will inevitably lead to further regulation around medical promotion, increasing compliance risks for pharma. Meanwhile, as health tech innovation advances at pace, the management and use of personal medical data will attract further scrutiny. It’s a question of balancing opportunity and risk.
China’s journey to healthcare transformation is advancing. As the decade unfolds, the size, growth and needs of its vast population will continue to present challenges in the delivery of universal healthcare. Opportunities for innovation are significant, not least in how behaviors are changed through the way we communicate with stakeholders.
Companies – and customers – need to pivot the technology creatively to leverage the local dynamics, nuances and needs that drive the market for their solutions. It’s the only way to transform health.
Dr. Yi Han is EVP market access at Sudler China