On September 23, 2021, the General Office of the State Council issued the Fourteenth Five-Year Plan for Universal Medical 阿Security, which clearly stated that by 2025, the varieties of high-value medical consumables purchased by each province and in each provincial centralized volume-based procurement should reach more than 5 categories.

 

       Just a few days before the issuance of the Plan, the centralized volume-based procurement of artificial joints organized by the National Healthcare Security Administration officially kicked off in Tianjin. This is the second high-value medical consumables centrally purchased by national organizations after the cardiac stent last year.

       

       Last year, the average price of cardiac stents decreased from RMB 13,000 to about RMB 700. According to the proposed winning result this time, the average price of hip joints decreases from RMB 35,000 to about RMB 7,000, and that of knee joints from RMB 32,000 to about RMB 5,000, with an average price reduction of 82%. Such a large drop has won the praise of patients for centralized procurement by the state. However, whether the drugs and medical equipment consumables reduced in price through centralized procurement are accessible to the patients in time is also affected by a key factor, that is, whether the circulation enterprises can deliver the drugs and medical equipment consumables to the medical service institutions in time under the limited profit distribution.

 

       In this interview, we invite Deng Xuejing, General Manager of Sinopharm, to introduce the the distribution industry of medical equipment and consumables, as well as the development of Sinopharm Medical from the national policy environment of volume-based procurement.

 

 

       Deng Xuejing, who has been engaged in the management of medical equipment industry for more than ten years, is the General Manager of Sinopharm Sichuan Medical Technology Co., Ltd. (hereinafter referred to as "Sinopharm Medical"). Sinopharm Medical, a holding subsidiary of China Medical Equipment Co.,Ltd. (hereinafter referred to as "Sinopharm Equipment"), is committed to providing customers with professional, high-quality and efficient one-stop technical services. It has established a business system including medical equipment product services such as hospital direct selling, commercial distribution and logistics distribution, It also acts as an agent for a number of domestic and foreign medical equipment orthopedic brands, as well as artificial intelligence 5g orthopedic surgery robots, 3D external fixed printing, ultrasonic instrument, endoscopes and other products, and has built a sales network covering the whole province of Sichuan.

 

 

       Since the state organized the pilot work of "4+7" centralized urban drug procurement in 2018, five batches of centralized drug procurement have been carried out, and the sixth batch will also be carried out.

 

       The data show that up to now, the drugs purchased through centralized volume-based procurement organized by the state has exceeded 200 varieties, and the average price drop of the selected products has reached 54%. Since the establishment of the National Healthcare Security Administration, the catalogue of medical insurance drugs has been adjusted for three consecutive years. At present, 2800 kinds of drugs have been included in the catalogue.

 

       Compared with the volume-based procurement of drugs, the national volume-based procurement of medical equipment is a little late. At present, the state is focusing on promoting the centralized volume-based procurement of high-value medical consumables, and the centralized procurement of cardiac stents and artificial joints has been completed.

 

       Why can the centralized procurement organized by the state cut down the price?

 

       Deng Xue explained that the starting point of this measure is to ensure that people can afford to see a doctor, save medical insurance expenses and invest more funds in industrial innovation. Firstly, it is because of the large quantity of purchase, which can give full play to the role of "group purchase". Secondly, through volume-based procurement, manufacturers have a clear idea of market consumption, and on the premise that the payment collection is guaranteed, they will actively cut off the unnecessary expenses incurred in the intermediate links during quotation.

 

       At this point, the era of "middlemen earning price difference" in the field of medical equipment has come to an end.

 

       The recently completed centralized procurement of artificial joints accounts for 90% of the annual consumption of medical institutions across the country. The data show that the number of artificial joint replacement operations is increasing at a rate of 20% every year, and some patients who need to replace artificial joints cannot afford the relevant expenses. Under this measure, the unreasonable price moisture of high-value medical consumables is effectively squeezed out, and the medical insurance reimbursement further increases the benefits enjoyed by patients. According to Deng Xuejing's calculation, the sharp price reduction can also save nearly 16 billion medical insurance expenses for the country.

 

       The centralized procurement organized by the state covers from the bid opening to the implementation, supply and use of the bid-winning results, each of which is nonnegligible. The health department should be responsible for supervising medical institutions to give priority to the selected products of centralized procurement, the medical insurance department should ensure the payment of medical insurance reimbursement, and the drug supervision department should effectively conducting the work concerning quality supervision. The bid-winning manufacturers should not only ensure excellent product quality, but also ensure stable supply. With the joint efforts of relevant national departments and enterprises, people have actually enjoyed the benefits of people's livelihood brought by volume-based procurement.

 

       When it comes to the variety selection of centralized procurement products by the state, Deng Xuejing said that when the National Healthcare Security Administration conducted market research, it has been fully demonstrated that the varieties for centralized procurement are not only the most urgent needs of the people, but also the key products of local enterprises that can realize domestic substitution.

 

 

       When talking about some high-end pharmaceutical products and devices, limited by technical barriers, the R&D and production costs are still high, it is impossible to improve their feasibility through national volume-based procurement in the short term. For these cutting-edge and special drugs and medical consumables, the state also has corresponding systems to scientifically standardize their procurement process, but at present, such products are not the mainstream of the market.

 

       Deng Xuejing always believes in the scientificity of the volume-based procurement policy. He also holds that with the increasing independent innovation capability of China, it is not far away for the innovation subjects of enterprises to achieve technological breakthroughs in some high-end categories in the field of biomedicine, and the scope of volume-based procurement will also be increasingly expanded with it.

 

 

       In the past, medical equipment manufacturers had to go to various hospitals to compete for market share, but now, with the implementation of volume-based procurement, manufacturers only need to launch bidding under the unified organization based on the procurement volume statistics made by the National Healthcare Security Administration. This mode also optimizes the resource integration of the "numerous, small, scattered and unorderly" pharmaceutical industry.

 

       Volume-based procurement stimulates the pharmaceutical industry to pursue scale economy and concentration ratio, and provides an opportunity for leading enterprises with outstanding R&D and resource integration capabilities to expand the market size. It also screens out products with better quality through competition mechanism, which raises the threshold for the medical equipment market. With the expansion in the scope of volume-based procurement, some enterprises that cannot adapt to the development requirements and market environment in the new period will be eliminated, which effectively cooperates with the supply-side reform and avoids product homogenization competition and overcapacity.

 

       Currently, the state's volume-based procurement is gradually entering the deep water zone, which not only significantly reduces the burden of people seeking medical treatment and medicine, but also reshapes the interest pattern of the pharmaceutical industry. Before bidding farewell to the high price of high-value medical consumables, suppliers could provide accurate services to doctors, replenish supplies at any time, and actively carry out post-maintenance. However, due to the sharp drop in the prices of cardiac stents, artificial joints and other products, suppliers have lost high returns, and their service motivation has also decreased significantly.

 

       From the perspective of circulation enterprises, centralized procurement reduces the price of relevant varieties by 70-80%. As the distribution cost is related to the total product price, centralized procurement also has a certain impact on the profits of circulation enterprises.

 

       For small and medium-sized enterprises in the circulation industry, this is undoubtedly a big blow. Deng Xuejing said that large enterprises, especially subsidiaries of central enterprises such as Sinopharm Medical and regional private leaders such as Kelun Pharmaceutical, Kanghong Pharmaceutical and JOINTOWN, will persist in striving forward with heavy burden, shoulder social responsibility, respond to the state's advocacy, cooperate with reducing circulation links, further reduce the artificially high price of medical equipment, provide convenient distribution services to reduce the burden of medication.

 

       Thanks to sound self-development conditions, large circulation enterprises have not only a sound circulation system and sales network, but also compliant internal management system. They have sufficient funds to support the innovation and reform of business model after carrying out volume-based procurement, and further expand the market share of their own business.

 

       Sinopharm Medical is expanding its development direction in line with the changes in the industry. In addition to its continuous efforts to promote informatization and big data integration in logistics and distribution, it has also carried out a series of agents of high-end precision medicine and wisdom medical products, such as surgical robots, 3D printing products. In the future, the business development of Sinopharm Medical will continue to move towards the new technology and new materials supported by the state, and find a new positioning for the company in the centralized procurement environment.

 

 

       The development in medical equipment industry is changing rapidly, and relevant policies and regulations are constantly updated and refined. The past few years have witnessed the successive implementation of the management and use methods of medical consumables in medical institutions, the deepening of the reform of consumables governance, the cancellation of consumables plus, the implementation of the two-invoice system, the beginning of the cost-control and price-reduction of in vitro diagnosis, the focus on life-cycle management of medical equipment, the beginning of volume-based procurement and the start of medical equipment UDI work.

 

       Deng Xuejing has been engaged in the industry for more than ten years, witnessing the continuous contribution of policy changes to the rapid change of medical equipment supply chain, and the step-by-step development towards standardization, scale and specialization. Among them, a refined service - in-hospital supply chain extension service mode (referred to as SPD mode) has emerged everywhere in hospitals in recent years, extending the simple distribution service in the past into a full-process, lean and intelligent in-depth service for hospitals.

 

 

       To be more specific, the SPD mode is to select a service provider to provide in-hospital supply extension services of consumables for the hospital according to the agreement on the premise of maintaining the independent selection and bidding procurement right of hospitals for consumables and maintaining the purchase and sales contract relationship with the consumables supplier. The main services include assisting the hospital to complete the summary of consumables plan, assisting in purchasing, stocking, acceptance, warehousing, distribution and other work.

 

       Under the SPD mode, the hospital can realize post-use settlement, zero inventory management and refined management, reduce logistics management costs and waste, and be traceable in the whole process. Enterprises selected as SPD suppliers are often large circulation enterprises with relevant qualifications.

 

       Among them, Sinopharm Equipment, in line with the needs of hospitals and policy orientation, Sinopharm Equipment launched a self-designed full-process, lean and intelligent SPD service project - "FLI+" innovative service programme (hereinafter referred to as "FLI+") in 2019, striving to build a number of benchmarks of regional and even national new patterns of hospital medical equipment supply chain management. "FLI+" has spread rapidly under the action of various factors such as the advancement of medical reform, hospital cost control and consumption reduction, and has been recognized by many hospitals.

 

       So far, "FLI+" has been successively launched and implemented in Beijing, Shanghai, Shandong, Inner Mongolia, Guangdong, Jilin, Hunan, Liaoning, Ningxia and other places, and it has also won the bid in tertiary hospitals in Sichuan, including 363 Hospital, Chengfei hospital, Pengzhou People's Hospital and Yibin First People's Hospital. Today, in the face of medical circulation giants stepping up and accelerating the layout of SPD business, Sinopharm Equipment, with its independent intellectual property SPD system, is not only a pioneer, but also a powerful promoter of the development of the industry, continuously endowing its services with more connotations and extensions, gradually showing its competitive advantage in terms of model and leading the industry.

 

 

       As a subsidiary of a central enterprise, Sinopharm Medical has been carrying out its work in accordance with the requirements and strategic deployment of the Party Committee of Sinopharm Group. In addition to undertaking the logistics and distribution tasks assigned by the headquarters and its own distribution business, it also has a 2200 m2 third-party warehouse to provide third-party warehousing and distribution services for other enterprises.

 

 

       When it comes to the development environment of regional medical equipment industry, Deng Xuejing, who has served in Chengdu for many years, felt that the High-tech Zone in Chengdu and even in Sichuan Province have relatively strong support for the medical industry, and the concentration of medical equipment enterprises is high, which has formed the advantage of intensive industrial development. The High-tech Zone has built Tianfu Life Science Park and Chengdu Advanced Medical Science Center, and cooperated with Shuangliu District to build Chengdu Tianfu International Biotown, cultivating and introducing a number of influential, in-depth and obvious driving effects.

 

       However, when talking about the local high-end medical equipment industry in Sichuan, Deng Xuejing mentioned that there are indeed few local manufacturers in the business agency. Especially, when compared with the eastern coastal areas, the policy environment, industrial environment and talent environment are not prominent enough, so the ecological environment of the high-end medical equipment industry needs to be further improved. Benefiting from its openness, local governments and parks in coastal areas are more flexible in policy support and more attractive to some cutting-edge innovation teams. Moreover, there are enough high-tech workers in front-line production.

 

       Now, some areas in Chengdu have begun to take the lead in the construction of systems, mechanisms and external environment in Southwest China. For example, some parks have begun to carry out agent registration and implement tax rebate policies. He believes that in the future, the industrial ecosystem of the High-tech Zone will be gradually improved, which will provide a more favorable development environment for the take-off of the pharmaceutical industry.