Edelman China Public Affairs Update
Like many things in China, the state of healthcare is changing at a breathtaking rate.
Recent estimates put the nation's healthcare spending at an estimated US$1 trillion by 2020, making it one of the most appealing markets for local and multinational companies (MNCs). In response, the government has introduced a reform plan focused on improving healthcare quality and access.
While this brings significant opportunity, it also raises many questions: What does reform look like? How much it will change China's healthcare? Can the government actually deliver? This month's issue addresses these questions with a closer look at China's healthcare market, the key drivers, and the basics of China's reform plan.
As always, we hope you enjoy this issue and welcome your feedback.
Edelman China Public Affairs
Healthcare Reform in China: Picking up a New Momentum
Just days into the New Year, some of China's top thought leaders attended the 12th plenary session of the State Council's leading group on healthcare reform.
The meeting, led by Chinese Vice Premier and Standing Committee member Li Kequiang, is a telling sign that healthcare sits as a top priority for China's new leadership and, based on a speech from Li, the country's current reform will change to focus on "enhancing service and quality" in care.
- Li Keqiang asks a rural doctor to go be-fore him after his meeting with rural doctors in Beijing, Jan. 5, 2013 - image by China Daily
Healthcare reform is nothing new in China, but these most recent pronouncements indicate a significant increase in momentum in the pace of change for the country.
In 2009, China's government initiated a healthcare reform plan to continue changes already introduced in the 1980s. The plan laid a foundation for addressing a new host of health issues and structural problems in the healthcare system. It was focused on providing affordable and accessible healthcare by: expanding access to basic medical insurance; establishing a national drug supply system; upgrading basic public health services in both rural and urban areas; and improving China's overall healthcare infrastructure.
Healthcare reform has since been addressed numerous times, most notably through the Plan on Deepening the Reform of Medical and Health System During the Period of the "Twelfth Five-Year Plan", issued by the State Council, and through Healthy China 2020, a research report outlining key reform areas and measurement goals.
Statistics released in a whitepaper by China's State Council Information Office in December 2012 show that healthcare has indeed made some progress: mortality rates have decreased, while life expectancy has increased, and more people have received treatment in better-equipped facilities and with better-trained doctors in both rural and urban areas. Most importantly, access to medical insurance has expanded, with 1.3 billion Chinese people joining the three basic medical insurance schemes for both urban and rural residents by 2011.
However, the State Council has also acknowledged that reform has "fallen short" on meeting increased healthcare demands and more must be done.
Several issues remain: first, medical insurance needs to be expanded for rural residents – under China's current system, 95% of rural residents receive some form of basic insurance, but would benefit from even broader coverage.
Second, China's Essential Drug List (EDL) and National Drug Reimbursement List (NDRL) need to be updated to include newer drugs. Currently, the EDL reimburses more than 300 "essential" drugs and Chinese medicines provided by all government-funded hospitals and clinics, while the NDRL reimburses essential and non-essential drugs through other medical plans. Since the lists are not updated frequently, patients are not reimbursed for newer and more expensive drugs not considered to be "essential."
Healthcare Reform in China, cont'd
Adding to this is a long history of drug sales serving as a major source of income for almost all hospitals and a severe shortage of qualified doctors serving rural populations.
Combined together, these factors have contributed to a strained doctor-patient relationship where the focus has been on enthusiastically prescribing medication, rather than improving quality or access of care.
With the recent healthcare meetings, the government has pledged to address these issues with a new wave of reform driven by:
- Increased public health spending to maintain current levels of coverage, with at least 95% of China's rural population receiving medical insurance
- The development of a new cooperative medical care system designed specifically for rural residents
- An upcoming update of the EDL to include newer medications, with the aim of achieving reimbursement rates of 70% (up from the current 55%)
- Close monitoring of prescriptions and follow-up exams to reduce over-prescribing
- The development of a new critical illness insurance program and an emergency aid system in rural areas for people who can't afford to pay medical bills
- Additional drug price cuts to make more drugs affordable
- Encouraging different government departments to develop new policies for improving the conditions of rural doctors
Most importantly, the government has said it will focus on closing the "rural-urban gap" through increased investment in the drug industry, and in the management and delivery of healthcare services in both rural and urban areas. Delivering these priorities will be even more important as the country focuses on urbanization as an economic strategy and new health issues inevitably arise as a result.
The current situation also presents significant opportunity for multinational companies (MNCs) entering into or expanding in China.
However, this opportunity should be approached with a clear understanding of China's expectation for MNCs – the fact that China's new leadership has already addressed healthcare so early into its tenure indicates reform will be a top priority and, if a MNC wants to be a part of this, it needs to be serious about helping China deliver.
For a company to be successful, it should align its business objectives with China's own development priorities. This might mean local partnership to develop new products, investing in local R&D, helping to build new healthcare facilities or training schools, or further strengthening on-the-ground resources.
Above all, for a company to benefit from China's changing landscape it needs to make investments for the long-term. China's success in reforming healthcare in the coming years would present more opportunities for many companies to succeed.
KOL of the Month
Who: The former vice-president of the Chinese Academy of Sciences from 2000 – 2007, Chen is currently the Health Minister of China.
What: When Chen was appointed in 2007, he was the only minister without any political membership. He has since joined Chinese Peasants and Workers Democratic Party and is currently Chairman. A leading medical expert, Chen is also an outspoken supporter of China's healthcare reform.
Keep an Eye on: As a key policymaker of healthcare, Chen plays an important role in drug price cutting and spear- heading increases to doctor's salaries to improve quality of care and minimize over-prescriptions. It will be important to keep an eye on Chen's role after the National People's Congress (NPC) in March with anticipated major restruc- turing of government ministries.
- 陈竺 (Chen Zhu)
Understanding China's 12th Five Year Plan on Healthcare Reform
In 2015, China is expected to become the world's second largest pharmaceutical market, while the generic drug market, estimated to be worth US$57 billion by 2014, is showing no signs of slowing as many patents for blockbuster drugs teeter on the edge of expiration. China's medical device market is also one of the fastest-growing in the world and is expected to be worth about US$46 billion by 2015.
Introduced by China's State Council in March 2011, the 12th Five Year Plan on Healthcare Reform has been a key driver behind this market growth with specific policies focusing on the biomedical industry (including drugs, vaccinations and medical devices) as a strategic sector for investment and growth. A few key areas of focus include:
- R&D: Increased investment in "innovative" and generic drugs, especially the production of monoclonal antibodies, vaccines, gene drugs and traditional Chinese medicines. This investment will be sure to drive China's drug market.
- Higher Standards: The government will introduce stricter drug manufacturing and quality control standards for all companies.
- Increased Capabilities: Smaller drug companies will be encouraged to consolidate to maximize resources and improve local capabilities, while the government will also encourage more local companies to go global or to engage in partnerships/Joint Ventures with MNCs
So what does it all mean? The drug industry will remain a key area of ongoing investment for China as the market is expected to be worth US$369 billion by 2020.
In return, Chinese companies will benefit from increased government support as they also wait to capitalize on the end of patent protection for many big-name drugs. At the same time, many MNCs will face stiffer competition and will have to start thinking about how to work closely with local companies to keep a safe footing in the market, and about how to support China's priorities in the long-term.
Drivers of Change: Demographics & Disease Burdens
Specific public health issues and demographic changes continue to drive China's evolving healthcare landscape. Top health issues include:
- HIV/AIDs: Estimates have decreased since 2001, but China's current HIV/AIDS rates are at critical levels, with a rise in certain geographical regions and age groups.
- Cancer: China has the highest incidences of cancer in the world, followed by the U.S., with 2.2 million new patients diagnosed each year. Most common are liver, lung and stomach cancers.
- Infectious Diseases: Carrier rates for hepatitis B in China are among the highest in the world, while more than 40 million people in China carry hepatitis C.
- Tuberculosis (TB): China has the second highest rate of TB in the world, although it has been on a decline since the 90's
Demographic changes and increased urbanization have also led to new dietary habits, reduced physical activity and increased smoking, all of which are all linked to chronic conditions such as:
- Diabetes: In 2010, China had more than 92 million diabetic patients (more than five times than that of the U.S.) and another 150 million pre-diabetics.
- Hypertension: By 2020, it is estimated the number of deaths due to cardiovascular disease will account for two- thirds of all deaths in China. As a result, the market for hypertension drugs is expected to significantly increase.
With the general public also becoming more involved in their personal health, diagnoses for respiratory diseases, age- related dementia (e.g. Alzheimer's) and depression also have the potential to increase in the coming years.
- On November 30, 2012, Xi Jinping celebrated World AIDS Day and shook hands with a patient. - image by People's Daily