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Medical Disposables & Consumables Players Face Challenge of Government-Initiated Price Cuts in China

2019-08-30T11:57:02-04:00August 29th, 2019|Categories: Recent News|

Winter Is Coming… Medical Disposables & Consumables Players Face Challenge of Government-Initiated Price Cuts in China

September 2019

When the Chinese government started to slash drug prices in 2018, it was only a matter of time before medical consumables would be affected. Then the payment reform – from the FFS payment model to DRGs is intended to change the providers’ behaviors in managing their finances by increasing their sense of cost ownership. Now the storms of direct price cuts on consumables initiated by local governments are expanding rapidly across the country.

The government-led price cut campaign started with Anhui province (a province in East China adjacent to Shanghai) in July where orthopedic implants (spinal implantation only) and ophthalmologic consumables (intraocular lenses) were chosen for applying the mechanism known as the “volume-based procurement”, which consolidates the annual volume from all the public hospitals in the province to only those tender winners. In the past, the provincial tendering process was merely a supplier and price registry process as procurement decision still largely sits with the individual hospitals.

It happened so quickly that many manufacturers didn’t have time to react. The news was released on July 3 and the results could be seen on July 30 with a dramatic price reduction of 53.4% on average with an estimated annual saving of RMB400 million (approximately $57 million USD). Further detail is provided in the table below.

Medical Disposables & Consumables Players Face Challenge of Government-Initiated Price Cuts in China

The Jiangsu province has chosen a slightly different approach from the Anhui province that, in addition to products selected for a price reduction on a provincial level, such as stents and pacemakers, cities are also encouraged to create their own plans for the remaining products. For example, Nanjing, the capital city of the Jiangsu Province, has initiated a procurement alliance with two nearby cities for injection-based products such as disposable precision infusion sets, peripheral intravenous catheters and implantable venous access ports with an average reduction of 72.61% equivalent of estimated annual saving of RMB413 million (approximately $59 million USD).

Even as we write this article, more provinces are preparing to launch their initiatives.

This is certainly very disruptive to the device industry because the manufacturers must fight the sudden surge of provincial and local governments’ price negotiations and on most occasions, there is nothing to negotiate when payers are determined to slash prices by 30% to 50%. While the provincial payers are excited about the rigorous price cuts on disposables and consumables, the central government is also doing the groundwork to increase its scrutiny on healthcare spending. The NHSA (National Healthcare Security Administration) created a national database with a standardized coding system for medical services and products as well as providers such as hospitals, pharmacies, and individual healthcare professionals, nurses and doctors. Understandably this database is designed to enable the payer to have a direct look into the behavior down to the individual level through data sets.

Currently, the database is ready for the registry for medical consumables. Suppliers or their appointed agents are required to register and validate the information of their CFDA (now known as NMPA – National Medical Products Administration) approved products by end of September 2019.

Implications for Innovators

Be prepared for a period of turmoil given the local and central policymakers’ intention to cut prices on medical supplies as one of the many attempts to control ever-increasing health care expenditures while the Chinese economy is expected to slow down.

Key Takeaways
  • Innovators with existing products in the China market should make sure that they or their partners register the products with the NHSA’s database prior to the September 30, 2019 deadline.
  • Work closely with your local colleagues and business partners to develop pricing plans both tactically and strategically to handle local price reductions. To compromise, or not, in the price reduction negotiation, is the question.
  • Innovators, as individual companies or as a group, need to work on a strategic and innovative plan and engage the various stakeholders to influence future policy settings that still recognize and encourage medical innovation amidst the ongoing pressure on payment.

Boston Healthcare has a deep understanding of the evolving healthcare landscape in China. Please contact us to see how we can help.

Possibility for Examination to be Included in the SHI Fee Scale Brings More Certainty for Reimbursement for New Diagnostics in Germany

2019-08-06T12:24:47-04:00August 1st, 2019|Categories: Recent News|

Possibility for Examination to be Included in the SHI Fee Scale Brings More Certainty for Reimbursement for New Diagnostics in Germany

July 2019

Manufacturers can now have more certainty about the process of inclusion of a new laboratory, new human-genetic, or new tumor-genetic diagnostics in the SHI reimbursement fee scale EBM.

In the past, the inclusion of new diagnostic tests in the EBM was not transparent, with unclear timelines and requirements and manufacturers were unable to drive the process. As of July 2019, organizations of medical professional associations and medical societies at the federal level, national associations of manufacturers of diagnostic services or medical devices, as well as the stakeholders in evaluation committees are now entitled to apply at the start of the consultation to accept new medical diagnostic services to the EBM. Available scientific evidence and expectations of budget impact and economic efficiency has to be submitted to inform decision making on the medical background and technical aspects of the test. The duration of the process is up to 24 months, with a one-time possibility for an extension of 6 months.

Within 4 months after the submission, the applicant will be informed about the status of the test: whether it is already included in the EBM, if the test can undergo the inclusion process, or if the new test is regarded as a new scientific method. In this case, a formal lengthy method assessment by the G-BA would be required.

If the diagnostic test is required as a companion diagnostic (CDx) on the label of a new a drug, the CDx has be included in the fee scale when the AMNOG early benefit assessment of the drug is completed, which is 6 months after the drug approval.

This new evaluation process supports manufacturers’ strategic planning and defines the criteria and requirements for positive decision making. The novelty of this standardized process implies that experience in practice is still necessary.

BHA can guide manufacturers through the process and forms. To learn more, please contact us.

Germany Healthcare News

Escalated DRG Payment Model Pilot in China Expected to Pose a Genuine Threat to Innovators

2019-08-06T12:23:45-04:00July 31st, 2019|Categories: Recent News|

Escalated DRG Payment Model Pilot in China Expected to Pose a Genuine Threat to Innovators

August 2019

As a critical element of accelerating the healthcare payment reform, the pilot of Diagnosis Related Groups (DRGs) in 30 major cities across China was officially announced in June by state administrations including National Healthcare Security Administration (the administration in charge of public health insurance), National Health Commission (aka Ministry of Health) and Ministry of Finance. The ambition is to switch from the current Fee-for-Service model to the DRG payment scheme in 2021 after a 3-year simulation from now on in those pilot cities.

Despite the overwhelming bias of the mainstream media to promote the benefits of DRGs as a more efficient way to spend healthcare resources, the industry, i.e., the medical suppliers, the manufacturers as well as the providers, i.e., the hospitals in China are seriously concerned, as this is just another cost containment measurement from the government payers among the very various attempts only that this is a much more radical and systematic change. We believe the policy makers’ intention to introduce the DRGs model to replace FFS is to push the cost ownership to the hospitals in order to slow down the ever-increasing healthcare expenditure.

Traditionally under the FFS model, the hospitals and the suppliers have shared interests in overuse of examinations, medications and disposables and pushing up the prices whenever possible. The Chinese government has purposely set the charges of medical services offered by the public hospitals superficially low in order to achieve the accessibility objective of a social healthcare system. Recognizing there is no sufficient funding from the government to the public hospitals to provide the needed medical care, a practical solution adopted by the previous healthcare reform was to allow hospitals to add a small markup on the purchase prices of medications and disposables they’ve used in the diagnosis and treatment process. That explains why the big hospitals in big cities have become the “sweet spot” for suppliers of medical technologies with premium price.

However, since 2009 when the current healthcare reform started, a series of cost control measurements and policies have been introduced as the government tried to expand the healthcare coverage in terms of population. Discontinuing the mark-up practice is an obvious first step taken by the government to stop encouraging public hospitals from using the more expensive medical products. Then introduction of quota on disposable and medication spending as well as annual healthcare expenditure growth, global budget, bundled payment, etc. all with a very clear goal, i.e., cost control.

Now finally the adoption of DRG payment model for the inpatient setting. The reason we are particularly concerned of this reform, from an industry’s perspective, is because it will turn hospitals to an opposite side of the industry as for the first time public hospitals will have direct financial losses if the costs of medical products needed to treat a particular patient exceed the payment cap set by the government. And there is no reason to believe or hope a government that has the obligation to provide health care to almost 1.4 billion people and try to stand by the equality principle has the willingness or ability to set that payment cap on a level desired by the suppliers, especially those in the premium category.

Exhibit: Select examples of bundled payment introduced by provincial government payers for lung disease procedures.

China Select Bundled Payment (aka case payment) Examples

This is an alarming new movement not only in terms of creating new challenges for the industry as customers’ (public hospitals) procurement behavior would change as a result of change of their financial model and probably more so from a patient’s perspective –  who are there to make sure quality of care are not compromised should the providers go to the extremes that they would only go for the cheapest available products to maximize their own financial gains.

Boston Healthcare Associates works for innovative medical technology players to help our clients unlock the value of innovation. Our in-market experts closely monitor the policy and market trends on the strategic markets like China to help clients stay on top of industry trends and develop strategies and action plans to tap into the opportunities or tackle the issues. Our involvement in China’s payment reform dated back as early as 2015 with a BHA branded international DRG forum co-hosted by the government stakeholders such as payers and health policy makers. BHA will pay close attention on the further development of DRG payment reform and its pilot in China.


First Meeting of the Italian Regional Purchasing Centers

2019-06-26T10:37:27-04:00June 24th, 2019|Categories: Recent News|

First Meeting of the Italian Regional Purchasing Centers

June 2019

Italian public healthcare structures can buy medical devices only via tenders. Up to 2016, competitive pricing was the main rule for tender winners. Since then, the Price/Quality criteria can be applied in the rate of 70/70, 50/50, usually 30/70. Quality is not anymore limited to the functional and esthetic products features and its handling use. The attention is now focused on the commercialization phase, innovative and efficacy features, profitability and usability of instruction for final users, as well as Eco-friendly features. Companies’ organization procedures and professional training can be also valued in tenders protocols.

How has quality declined in the regional tenders over the last 3 years? This was discussed in the first regional Purchasing Centers conference in May 2019 in Florence.

The main Italian regional purchasing centers, representing 78% of them (Azienda Zero- Veneto Region; SCR-Piemonte Region; Intercent-er Emilia Romagna Region; Soresa, Campania Region; Centro per gli Acquisti Lazio Region, SUA Abruzzo Region, Estar Toscan Region), under the framework of FARE (Federazione delle Associazioni Regionali Economi e Provveditori della Sanità), the Italian Association of purchasing managers, selected their subject for the conference from the National Catalogue of Medial Devices and compared protocols of performed tenders using the same template. Diabetes micro pumps, endoprosthesis, stents, stomia medical devices, and defibrillators were some the conference subjects.

Reading in parallel the results, it showed that tenders protocols were homogeneously drafted in some of their main chapters: medical devices need definition (mostly based on epidemiological or healthcare structures local database data collection/estimates), implementation of the companies hearing phase (mostly web-based or email based), application of the so-called Accordo Quadro.

This latter is widely chosen as tender strategy. It is a specific purchasing pattern in which Companies, selected on the basis of the tender protocol, can participate to a specific agreement with the Purchasing Centers defining only selling price and quality parameters: the next purchasing contract is locally defined. This agreement has the main advantage of not excluding any Companies from the “winners” and allows healthcare structures to provide to patients the appropriate medical devices they need in the framework of a tender.

A further common action is the presence Clinicians in the Technical Committees: they play a key role in the identification and definition of tenders’ minimum, potentials and not fungible criteria. Pharmacists, Purchasing Managers and Administrative Personnel mostly decline Clinicians requirements in technical items.

Diversity regarded timing to perform the tender which depended from the complexity of the medical devices to be discussed. Moreover, diversity regarded the specific task of the Purchasing Center. For example, Estar also has function of storage of medical devices and drugs. This is absolutely a great advantage in the estimation of products need due to the availability of data from the regional database.

More relevant is the different link with the Regions. Estar for instance must comply the purchasing assessment to the regional guidelines, if delivered: for example, the stomia medical devices tender was based on the regional guidelines. Others also work in perfect alignment with the regional government: Intercent-er could create ad hoc technical committees including regional politicians (example: endoprosthesis tenders), the Centro per gli Acquisti Lazio Region implemented the diabetes medical devices tender in agreement with the Region and Federfarma (i.e. the regional retail pharmacies network).

In conclusion, this first experience of networking of the regional Purchasing Centers was the first step to identify appropriateness and improvement areas in the Quality definition in the purchasing patterns of medical devices in Italy. Thus, it implies for Manufactures the possibility to better understand and interact with the Purchasing Centers and consequently align with their Quality requirements.

Boston Healthcare Associates assists our clients with market access challenges in Italy due to our long-term partnership with local consultants. To learn more, please contact us.

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Possibility for Examination to be Included in the SHI Fee Scale Brings More Certainty for Reimbursement for New Diagnostics in Germany

August 1st, 2019|Comments Off on Possibility for Examination to be Included in the SHI Fee Scale Brings More Certainty for Reimbursement for New Diagnostics in Germany

In the past, the inclusion of new diagnostic tests in the EBM was not transparent, with unclear timelines and requirements and manufacturers were unable to...