Starting with coronary stents, the volume-based procurement (VBP) of high-value medical consumables has been carried out in China since 2020. The VBP policy integrates a larger purchasing volume with a lower price, to suppress the inflated prices of high-value medical devices. According to an announcement of the procumbent results, it has led to an average price reduction of nearly 80%, and a maximum of 97.9%, for the covered devices. The high-value medical devices market that has been traditionally dominated by multi-national companies (MNCs), is experiencing dramatic changes.

GlobalData expects trends of VBP in 2022 include the increase of device types, expansion of geographic coverage, and improvement of procurement rules in China. The number of devices on the national or provincial VBP lists will be continually expanding in 2022. The biggest project of VBP, that began in 2021, was the national procurement of hip and knee implants. Other provincial VBP programs included surgical staplers, intraocular lenses, hemostatic materials, adhesion barriers, and dental implants. Trauma fixation devices and spinal implants are on the national procurement list in 2022. Other devices with high pricing and volume will be likely targeted by VBP programs, such as interventional cardiovascular and neurovascular devices, surgical energy devices, dialysis disposables, and central venous catheters.

Some devices listed in the VBP programs of certain cities or provinces will be added to larger geographic regions at the multi-provincial and national levels. Specific rules of VBP have been updated to ensure that better products with reasonable prices are used clinically, not only considering the lowest bidding price. For example, products were divided into two groups according to hospital demand, manufacturer’s capability, and product materials in the national procurement of hip and knee implants. Manufacturers in the same group completed with each other, preventing malicious competition using extremely low pricing with unqualified implants and service.    

While VBP caused a sharp drop in device prices, it increased the device penetration in the market. According to GlobalData analysis, the percentage of cases of symptomatic osteoarthritis of the knee undergoing a knee replacement procedure was approximately 1.0% in China 2021. The percentages were 2.4% and 7.7% in Japan and the US, respectively. One major reason for the lower procedure penetration is the high prices of implants. The average selling price of a total knee replacement system was nearly $5,000 before VBP. As the prices of knee implants has dropped to less than $800 on average, some patients who were reluctant to undergo surgical treatment because of financial constraints are now able to undergo the procedure.

High-value device manufacturers face serious challenges due to VBP. MNCs needs to optimise the supply chain and control operation costs to gain advantages during VBP bidding. Additionally, creating a diverse product portfolio and product differentiation strategies helps meet product requirements in VBP. At the same time, manufacturers need to keep investing in R&D to improve technology and develop new products, especially for devices that are not on the VBP list. Small manufacturers have to lower prices to a minimal profit margin to win the VBP bidding. Without profit for a long time, most are unlikely to survive under VBP. While manufacturers integrate their sales forces and sell to healthcare facilities directly, a large number of distributors who sell the high-value devices on VBP lists are being forced out.

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By GlobalData