Our previous update1, Analysis of China’s First National Tender on Coronary Stents, discussed the first national-level centralized tender for a medical device. In this update, Veranex’s China team provides an update that is especially important for companies with established business in China whose products could be subject to such price controls.
First, it is important to understand that VBP is short for Volume-Based Procurement and not Value-Based Purchasing, which is a much-discussed topic in the US and European healthcare systems. But just as its name suggests, the Chinese VBP is all about volume, which amounts to a massive number when the national government is able to consolidate the volumes from its 31 provinces in mainland China (excluding Hong Kong, Macau, and Taiwan). When one is up competing with hundreds of bidders, including both foreign and Chinese suppliers, prices and reductions are the primary language at the negotiation table.
In the past 2 years, there have been 3 national-level VBPs for medical devices:
| Year | Product Involved | Cost Saving Achievement |
|---|---|---|
| 2020 | Coronary Stents | The average price cut is 93% – 93% for domestic products and 95% for imported products. Reportedly the estimated annual saving based on the intended purchase volume was 10.9 billion yuan (approximately US$1.56 billion). |
| 2021 | Artificial Hip and Knee Joints | The average price cut is 82%. Estimated saving was 16 billion yuan (US$2.29 billion) based on the intended purchase volume of 540,000 units. |
| 2022 | Spinal and Orthopedic Products | The average price cut is 84%. Estimated saving was 26 billion yuan (USD$3.71 billion) based on the intended purchase volume of 1.09 million units. |
To put those numbers into context, the total public medical insurance spending in China in 2021 was 2,404 billion yuan. So, the total savings from these 3 tenders alone make up approximately 2.2% of the country’s total medical insurance spending for that year.
There has been no national-level VBP for in vitro diagnostics (IVDs) thus far. However, in November 2022, 22 provinces formed a temporary alliance to run a tender on liver function tests that involves 26 analytes such as proteins, triglycerides and alanine transaminase. Like all the previous national tenders, the tender runs with a very narrow window of time – the tender result was published on December 30, 2022
A unique challenge for medical device and IVD players compared to their biopharma counterparts is that there tends to be more regional (multiple provinces) and provincial VBPs. Although losing a provincial tender may be less disappointing than losing a national one, a significant amount of resources must be available and deployed in order to respond each tender with very short notice.
Given the Chinese government’s ambition that 80% of the medical device expenditure must be spent through VBPs2 by 2025 companies are advised to not only take imminent actions to respond to individual VBPs, but also develop an organizational structure that can meet this increasingly new normal. Industry-wide lobbying efforts are also critical to shape the policies not just for mature products but also for innovative technologies.
We work with innovative medical technology and biopharmaceutical players to help clients unlock the value of innovation. Our in-market experts closely monitor the policy and market trends in strategic markets like China to stay on top of industry trends and develop strategies and action plans to capture opportunities and mitigate barriers. We will continue to monitor and provide updates on the further development of the national tenders in China. Please contact us to see how we can help.
Betty Su
Vice President & Managing Director (Asia-Pacific)
Betty Su specializes in market access and regulatory strategy in China, advising drug, device, and diagnostics companies on commercialization and business development opportunities.