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Opportunities and risks in the world's second biggest medical device market, China

Article-Opportunities and risks in the world's second biggest medical device market, China

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China’s 14th Five-Year National Medical-Security Plan targets universal healthcare coverage, reveals Omdia analyst Sally Ye.

Released on September 29, 2021, by the State Council as part of the 14th Five-Year Plan period (2021–25), the National Medical-Security Plan is a continuation of the initiatives “Health for all” (part of the 13th five-year plan) and “Healthy China 2030.”

There are three types of state medical insurance in China: rural resident, urban resident, and employee health insurance. In 2020, 95% of the Chinese population (including children) benefited from inclusion in the three state medical insurance categories. Nearly 330 million Chinese people (23% of the total population) are covered by employee health insurance.

Accessible to all, rural and urban resident health insurance are the two major forms of state cover for over 1 billion people (73% of total population). They charge very low premiums, up to ¥400 per year, and cover major illnesses; 60% of medical treatment expense is reimbursed by the government. 

With government goals of increasing healthcare accessibility across China, the 14th Five-Year National Medical-Security Plan aims to achieve the following targets by 2025:

  • State medical insurance coverage for at least 95% of the total Chinese population.
  • Medical expenses incurred by patients will be lower than 27% of total treatment cost. Between 2014 and 2019, the compound annual growth rate (CAGR) for the overall national health spending was estimated to be 13%. Estimated personal medical expenses grew at a CAGR of 9.5% over the same period, representing a decline as a proportion of overall national health spending from 33.2% in 2014 to 28.4% in 2019.
  • By 2025, drugs purchased through volume-based orders should account for more than 90% of total drugs purchased by public hospitals. For medical consumables, the centralised procurement target is 80% of total spending by hospitals.
  • More than 70% of trans-provincial hospitalisation bills will be settled on the spot via medical-insurance accounts and online services. 
  • Facilitate commercial health insurers will provide services to China’s healthcare market by issuing supportive policies and improving governance. 
  • As part of the “Internet + Healthcare” initiative, a national-level medical information platform to connect healthcare providers will be built so that data can be shared and retrieved across organisations and regions. 

The government push to hit the above targets in the National Medical-Security Plan will significantly impact the healthcare market of China. Omdia foresees the ongoing evolution will lead to a number of changes that are discussed below. 

China’s medical device market will maintain double-digit revenue growth through 2025, supported by universal health insurance coverage. Driven by a growing middle class and aging population, Chinese medical equipment revenue growth was estimated a CAGR of 13.6% between 2016 and 2020 and is projected to maintain a CAGR of around 15% between 2021 and 2025.

Universal health insurance coverage will further boost the medical equipment market, and soaring medical demand will accelerate technology adoption and digital transformation of healthcare provision in China. 

As per the United Nations forecast, nearly 363 million people in China will be aged 60 or older by 2030, accounting for 25% of the total population. This is projected to increase to 450 million people and 32% of the population by 2045.

With a rapidly aging population and universal healthcare access, demand for medical equipment and healthcare provision is projected to soar over the next 10–20 years, which will pose a big challenge to China’s healthcare system in terms of financial resourcing and providing trained healthcare professionals.

Emerging medical technology innovations, including the implementation of telemedicine, robotic process automation, and artificial intelligence (AI), will improve operational efficiency and clinical results. These medical technology innovations, alongside cost reduction, will also help

China’s healthcare system to alleviate challenges related to the shortage of healthcare professionals and to address the uneven distribution of medical resources by region to improve the quality of care in less developed areas. Data sharing and interoperability among healthcare organisations is a must to enable the continuum of care among different healthcare providers and the reimbursement process of healthcare costs incurred by individuals.

Digital transformation, a top priority for China’s healthcare system, will increase implementation as China has good infrastructure, such as 5G adoption, to support this transition. Of all 5G base stations globally, 59% are located in China. 5G smartphone users in China reached 419 million in August 2021 (30% of the Chinese population).

Government-led initiatives, including “Internet + Healthcare” and state-level AI strategy, will propel the digital transformation of China’s medical sector. Omdia projects the medical AI market in China to reach $6bn in 2025, a CAGR of more than 20% over the next four years. China is likely to become a global leader in medical technology innovation.

Another foreseeable trend is the shift of China’s healthcare system from an overreliance on public hospitals to a system supported by multiple pillars consisting of private hospitals and commercial health insurers.

China’s current healthcare system is overly reliant on high-grade public hospitals. Cost containment measures like bulk procurement of medical equipment and supplies will be more widely implemented (as highlighted earlier) to maintain financial stability. The major winners of volume-based procurement will be suppliers of generic drugs and basic-level medical devices.

As patient numbers and hospital attendance increase, medical services in public hospitals will very likely degrade as demand exceeds capacity. More affluent patients will likely seek better and quicker service in private hospitals. The number of private hospitals has outgrown public hospitals.

Even though today China’s private hospitals only account for 16% of outpatient visits, the number of outpatient visits in private hospitals grew at a CAGR of 12% between 2014 and 2019, three times the CAGR of 4% for public hospitals.

Currently, the state’s healthcare insurance is not sufficient to meet increasing demand, so the National Medical-Security Plan explicitly encourages the wider use of commercial health insurers. Between 2011 and 2020, premium revenue for commercial health insurance products grew at a CAGR of 31.57%. Omdia forecasts that further government policies will be introduced to promote a wider offering of commercial health insurance. Private health insurers will become more visible players in the sector, offering an alternative to state healthcare insurance policies.

With a rapidly aging population, healthcare is a pressing topic in China. Universal healthcare coverage will further boost China’s healthcare market growth in the short and longer terms. China’s medical equipment market will maintain its growth momentum. Digital transformation will accelerate China’s health system, supported by multiple pillars of commercial health insurers, private hospitals, and state and national medical policies.

Sally Ye is a health care technology analyst at the Healthcare Technology division of Omdia, a sister research brand of Omnia Health. Located in the US, Europe and China, Omdia’s health care team produces a wide range of syndicated and customised reports, including a monthly China Healthcare Market Update, the Healthcare IT Topical Report, and the Healthcare Equipment Database, as well as in-depth reports and analysis on the medical imaging industry.

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