A swathe of anti-corruption government action stimulated by the GSK bribery case of 2013 has been launched and is predicted to significantly impact the medical device market in 2014.
The National Health and Family Planning Commission (previously the Ministry of Health) released a new regulation at the end of 2013 (coming into effect March 2014) to clamp down on corruption in the wake of the GSK corruption case. This regulation significantly penalizes device vendors in public tender deals that do not clamp down on corruption within their distribution networks. In the worst cases, vendors will be “blacklisted” and their products will be banned from sales to public Chinese hospitals.
This could cause some major headaches for many multinational suppliers importing devices into China that sell through third party distributors. The Chinese medical device market has been the strongest growth market in the last five years for many multinational medical device suppliers, offsetting market declines occurring in the Western Europe and North American market.
The impact of anti-corruption and weaker market demand slowing market growth appears to already be occurring, with initial reports of year-on year second half 2013 import revenue for medical devices significantly lower than first half 2013, with growth of almost 20%.
It should also be noted that there may be some agenda behind the most recent corruption legislation. The Chinese government is keen to promote the burgeoning domestic Chinese medical device manufacturing sector. Therefore the new anti-corruption legislation is viewed by many in the industry as a roundabout way of the Chinese government providing more support to the local medical electronics suppliers. This is especially apparent in the high-end market, where multinationals dominate.
The impact of the GSK corruption case is also having far wider impact than just pharmaceuticals and medical device purchasing. The three key areas highlighted by the anti-corruption legislation include:-
- Medical staff payment
- Hospital budgeting and income
- Separating healthcare clinics and pharmacies
Targeting the core provision of healthcare demonstrates the Chinese healthcare market has some deep-set problems, with further regulation widely expected to follow in the short term future. While this will cause some problems for the Chinese government and vendors alike in the short term, our view is that this is a necessary process.
Strong opportunity still exists in China, especially in the new government drive to establish hospital centers of excellence in rural regions. Moreover, the combination of anti-corruption and rural healthcare reform will help to balance medical resources in China, providing a more sustainable market for medical devices long-term, something multinational vendors are depending on.