The gradual implementation of centralized procurement will accelerate the "domestic substitution for imported products" in the medical device sector!

Recently, the China Government Procurement Network released the "Tender Announcement for the Centralized Procurement Project for Some Class B Large Medical Equipment in Fujian Province (2022)" (hereinafter referred to as the "Announcement"). Fujian Province plans to purchase 15 units of large medical equipment (CT, MR) with a budget of 150 million yuan. The "Imports Allowed" option was set to negative for all items. In other words, only domestic equipment is permitted to participate in the bidding for these 15 units.

Coincidentally, a previous "Public Tender Announcement for the Medical Magnetic Resonance Imaging System Project at the Cancer Hospital, Chinese Academy of Medical Sciences" indicated that the hospital intended to purchase a medical magnetic resonance imaging system with a budget of 23 million yuan, explicitly stating that "imported products are not accepted."

From an industry perspective, with the gradual deepening of medical insurance payment system reforms and the thorough implementation of national volume-based procurement policies, the in-hospital market once dominated by imported drugs and medical devices will inevitably face increasingly fierce market competition under the influence of policy support and cost-reduction needs. The implementation of centralized procurement for large medical equipment has disrupted the old market distribution pattern, granting domestic companies entry tickets. Fields previously "monopolized" by imported pharmaceutical and device products will face unprecedented challenges.

Accelerated Implementation of Provincial Centralized Procurement Localization of Large Medical Equipment

In recent years, policies such as the "14th Five-Year Plan for the Pharmaceutical Industry Development," the "14th Five-Year Plan for Bioeconomy Development," the "14th Five-Year Plan for National Health," and the "14th Five-Year Plan for Medical Equipment Industry Development" have explicitly encouraged high-quality development of the pharmaceutical industry, supported domestic enterprises in accelerating innovation to achieve domestic substitution, and promoted industrial transformation and upgrading.

The medical device industry, long dominated by imported brands, has also become a key area for promoting domestic products. Provinces have increased restrictions on permitting the procurement of imported medical products, resolutely prioritizing domestic products when they meet equivalent requirements.

According to the latest "Management Measures for the Configuration and Use of Large Medical Equipment," Class A large medical equipment is managed by the National Health Commission, while Class B equipment is managed by provincial health administrative departments. Among these, PET/CT, surgical robots, CT scanners with 64 or more slices, MRI scanners with 1.5T or higher, X-knives, and gamma ray equipment are classified as Class B large medical equipment. Centralized procurement of large medical equipment benefits companies with comprehensive product lines, enabling them to accelerate the substitution of imported products with domestic alternatives.

Currently, while centralized procurement of large medical equipment has not yet been widely adopted, Fujian Province has actively explored this area since 2020. As a pioneer in "healthcare reform and drug reform," Fujian's every move has sparked industry discussion.

In August 2021, the winning bid announcement for the centralized procurement project for some Class B large medical equipment in Fujian Province (first batch of 2021) showed that Suzhou Langrun's 1.5T and above MRI system won with a bid price of as low as 2.93 million yuan. According to public information, the end-user price for domestic 1.5T MRI systems is around 3 to 4 million yuan, while imported 1.5T MRI systems cost around 5 to 6 million yuan.

Such low prices for large medical equipment sparked widespread attention and discussion within the industry. Industry insiders believe that with the implementation of centralized procurement for large medical equipment and more regions joining in, the development of companies in this sector will accelerate differentiation. On one hand, companies with strong R&D innovation capabilities and diverse product lines will further benefit from the accelerated domestic substitution; on the other hand, it will force traditional equipment distributors to accelerate transformation and innovate business models, otherwise facing the risk of being eliminated.

In this instance, Fujian Province's centralized procurement includes 3 units of 1.5T and above MRI systems, with a total budget of 12 million yuan, translating to a per-unit budget of 4 million yuan. Compared to the 3.2 million yuan per unit budget in 2021, this is an increase. Given the historical procurement price of 2.93 million yuan, whether this year's procurement price for 1.5T and above MRI systems will hit a "new low" is worth watching.

In fact, besides Fujian Province, many domestic provincial-level entities or medical institutions have recently begun to support the procurement of domestic medical devices. "Restricted to domestic" is by no means an isolated case:

In October 2021, Peking Union Medical College Hospital commissioned China National Machinery Import and Export (Group) Corporation to issue a tender announcement for the procurement of laboratory equipment for key discipline development, including high-performance liquid chromatography-tandem mass spectrometry, inductively coupled plasma mass spectrometry, automated flow fluorescence diagnostic systems, and nucleic acid mass analyzers, with a total budget of 9.25 million yuan. Note: Only domestic equipment was procured.

In December 2020, the Anhui Provincial Healthcare Security Administration solicited opinions on the provincial-level centralized procurement of Class B large medical equipment. The document explicitly stated: "Leverage economies of scale, exchange volume for price, and encourage the procurement of domestic equipment." "For municipal and above public hospitals, the second and subsequent configurations of large medical equipment should, in principle, be domestic; for public hospitals at the county level and below, even the first configuration should be domestic." A year earlier, the Ministry of Industry and Information Technology and the State Council had also issued similar policies encouraging and supporting the adoption of domestic equipment in hospitals.

Additionally, the Guangdong Provincial Health Commission issued the "Notice on the Configuration Plan and Technical Evaluation Standards for Class B Large Medical Equipment in Guangdong Province (2018-2020) (Trial)," encouraging public medical institutions to prioritize the configuration of domestic self-brand Class B large medical equipment and gradually increase the proportion of domestic medical equipment used.

Previously, a tender document in Yunnan Province worth 270 million yuan also stated that imported products would not be accepted, and all required equipment must be domestic.

With policy support across various regions, a broad market stage has been built for domestic medical equipment. As the pace of medical procurement reform accelerates, large medical equipment has finally reached the crossroads of volume-based procurement. Currently, multiple regions across the country are implementing concrete actions to exchange volume for price and support domestic equipment. It is believed that in the near future, the market landscape for large medical equipment in China may enter a new chapter.

"Domestic Substitution" is Now the Time! Seize the Opportunity to Overtake on the Curve

The goals are to save medical insurance funds while ensuring quality and supply, ultimately benefiting patients. "National centralized procurement" focuses on unmet clinical needs. The "triple healthcare reform" drives adjustments in payment policies, gradually making drugs, medical devices, and consumables cost centers for medical institutions. Therefore, "domestic substitution" and "replacing the old with the new" have become key terms for the development of China's pharmaceutical industry in the new era.

Today, centralized procurement in China has become normalized and institutionalized, achieving significant social benefits. As national volume-based drug procurement progresses steadily, not only a wide range and variety of drugs are being included, but also imported drugs with "high clinical usage and high procurement value" are gradually being covered.

Some industry experts predict that based on past experiences and policy requirements, the upcoming eighth round of national centralized procurement will likely focus on chemical drugs and biosimilars, followed by traditional Chinese medicine, medical devices, and consumables.

In fact, unlike drug procurement, domestic substitution in areas like medical devices and consumables has progressed slowly due to technological bottlenecks. Some medical institutions, for complex reasons or economic considerations, are often reluctant to procure domestic consumables and equipment.

However, on one hand, a group of excellent domestic medical device brands are continuously striving to catch up, breaking through technological constraints and beginning to shine on the world stage. On the other hand, national policies are consistently being introduced to support and encourage this trend. Since the beginning of this year, the momentum for domestic substitution in the consumables sector, driven from the top down, has never ceased.

In January 2022, a State Council executive meeting decided to carry out centralized volume-based procurement for drugs and high-value medical consumables on a normalized and institutionalized basis, further reducing patients' medical burdens. In February, Chen Jinfu, Deputy Director of the National Healthcare Security Administration, stated at a State Council policy briefing that volume-based procurement for medical consumables would further extend to spinal consumables, thereby basically achieving coverage of the largest segment of consumables—orthopedic consumables.

Subsequently, the National Medical Consumables Joint Procurement Platform released the "Announcement on the National Centralized Volume-Based Procurement for Orthopedic Spinal Consumables." Following coronary stents and orthopedic artificial joints, orthopedic spinal consumables officially became the third category of high-value consumables included in national centralized procurement.

In addition, various inter-provincial procurement alliances have also joined the effort, attempting to "overtake on the curve" through centralized procurement and seize the optimal opportunity to achieve localized substitution in their respective sub-sectors.

In October, the Fujian Provincial Pharmaceutical and Medical Consumables Joint Procurement Center issued the "Announcement on the Inter-Provincial Alliance Centralized Volume-Based Procurement for Cardiac Electrophysiology Medical Consumables (No. 1)." This procurement garnered widespread industry attention due to the participation of 27 provinces and the fact that electrophysiology consumables were included in an inter-provincial volume-based procurement list for the first time.

The cardiac electrophysiology market is one of the few sub-sectors where domestic substitution has not yet been achieved, with imports still dominating the mainstream. Therefore, how much this will impact domestic brands, how domestic medical device companies can accelerate breakthroughs in technological bottlenecks, and comprehensively advance domestic substitution are key reasons for the high level of industry interest.

Additionally, last month, Jilin Province led a 21-province (region, city) inter-provincial alliance in centralized procurement for neurointerventional consumables, specifically coils. Coils are a primary consumable in the neurointerventional field. This area has also long been dominated by imported products, and no inter-provincial alliance procurement had been conducted previously.

Market analysts believe it is evident that the demand for domestic products is gradually increasing. Compared to the past, domestic brands have developed the capability to compete with imported products. Fields once "monopolized" by imported pharmaceutical and device products will face unprecedented challenges.

Today, China is witnessing an endless stream of new medical technologies, materials, products, and business models. The scale and efficiency of China's medical industry are experiencing explosive growth, and the industrial ecosystem possesses the strength for international competition. Medical institutions' recognition of domestic products has further deepened.

The industry generally believes that with the gradual deepening of medical insurance payment system reforms and the thorough implementation of national volume-based procurement policies, the in-hospital market once dominated by imported drugs and medical devices will inevitably face increasingly fierce market competition. The choices made by medical institutions also align with the trend of the "triple healthcare reform." "Domestic substitution" is indeed the right time!