China County Level Hospitals Present New Opportunities

The majority of China’s healthcare resources have long been controlled by top-level hospitals in urban areas. These major facilities, categorized as “san jia yi yuan” (三甲医院), have naturally been the priority target for foreign drug and medical devices manufacturers wanting to score sales in China. But recent moves by China’s National Health and Family Planning Commission (NHFPC) signal that primary hospitals in rural areas should be playing a larger part in companies’ commercial strategies.

By Wang Fangqing

Last week, the NHFPC released a list of 500 county-level hospitals across the nation as the first batch of the country’s more than 11,600 such hospitals that have been designated to improve their “overall capabilities”.

The move was in accordance with a policy announced by the NHFPC in August last year, under which the 500 selected hospitals will have to reach a number of goals by the end of 2017. The priorities are improving healthcare services, training doctors in existing departments, and adding departments to cover more diseases.

Some of the new departments will be in the cardiology, endocrinology, respiratory, neurology, orthopedics and general surgery areas. By 2020, the standards will have to be adopted by 90% of all county-level hospitals, which will in turn have to treat 90% of patients from the local county area, compared with less than 80% currently.

More patients and departments is expected to lead to rising demand for more drugs and medical devices, pointing to a new opportunities where companies will be able to seek sales growth. According to the NHFPC, county-level hospitals will have to choose “low cost and safe drugs” at the provincial-level procurement platform.

“Sooner or later, every drug company will have to go to county-level hospitals, or even village-level hospitals, so we’d better be the first,” said Hunter Yu, medical director at Sanofi China, at a forum on clinical studies in China held recently in Shanghai.

Indeed Sanofi is one of the first few multinationals reaching out to rural areas. It even has a dedicated department – primary care – to manage its rural business. So far, the French group has expanded to over 1,000 Chinese counties since 2012, when it started to reach out to hospitals in counties in Shandong province.

Sanofi also is an active participant in government-led healthcare projects targeting rural areas. For example, it sponsored the NHFPC’s “China initiative for Diabetes Excellence”, a program launched in 2011 to train diabetes doctors in rural areas. Sanofi’s Lantus (insulin glargine) is already one of the most prescribed treatments for type 2 diabetics in Chinese urban areas (Also see "Sanofi Looks To BEYOND To Win China Diabetes Battle" - Scrip, 5 Sep, 2014.).

Sanofi’s rivals Merck & Co. Inc. and Pfizer Inc. however, have taken a different approach by establishing joint ventures with local partners Simcere Pharmaceutical Group and Hisun. The two JVs manufacture generics targeting not only hospitals in small cities and rural areas, but also the national essential drug procurement scheme that usually favors low-cost drugs.

Reviving Reforms

Yu also said developing hospitals in rural areas is a new strategy that the Chinese government is using to push the stagnant, 15-year long national healthcare reform program, which used to target mainly top-level hospitals in urban areas.

“It didn’t go well because these big hospitals are powered by all the resources – experts, devices and bed numbers - to attract patients, they don’t really have to the incentive to reform themselves. The new strategy shows the government aims to weaken their power step by step,” Yu said.

He added that other signs include the official decisions to encourage the development of private hospitals, allow foreign-owned hospitals, and to allow physicians to practice at multiple hospitals, although detailed regulations are not yet in place (Also see "Key China Regulatory Agenda For January" - Scrip, 14 Jan, 2015.).