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Orthopedics recently got its first taste of price reductions arising from China’s national volume-based procurement policy for hip and knee replacement products. The procurement policy previously brought the price of coronary drug-eluding stents down 96% from the headline price of Medtronic’s Resolute Integrity product. In mid-September 2021, Chinese officials met in the northern city of Tianjin to determine the results of bids from 48 companies that make hip and knee replacement products.
Forty-four companies, 30 domestic and 14 foreign, had at least one product selected for inclusion in the national program. Hip implants were evaluated in three categories: metal on polymer, metal on ceramic and ceramic on ceramic. Knee implants were consolidated into a single category. The average price that Chinese public hospitals will pay for hip implants went down 80%, while the average price reduction for knees is just over 84%. The central procurement office in China expects to purchase nearly 550,000 artificial joints in the first year of the policy.
Late Year Surge
The unique structure of the Chinese market is the main driver of the extreme price outcomes. The price of high-value medtech consumables, like artificial joint implants, has historically been high relative to the rest of the world. Much of that cost is borne by the hospitals and ultimately, patients. More than 30,000 healthcare institutions and 2,500 level 3 trauma centers in China had been making purchasing decisions at the individual surgeon level. That arrangement bred a whole cottage industry of market access to the physicians, burdening the supply chain with more headcount and therefore, more cost. The country’s national volume-based procurement for large joint implants is designed to cut across the need for an army of market access personnel and simplify things to a straightforward volume commitment.
We don’t believe that any of the major orthopedic joint players who sell in China were knocked out of the market due to the new policy. However, Zimmer Biomet recently scaled back guidance based in part on their exposure in China. Smith+Nephew cited headwinds in China even before the policy took effect as distributors forewent orders ahead of the policy resolution. Chinese player AK Medical came out a winner from the tender process, at least in terms of volumes. From our conversations with sources in the Chinese market, AK Medical initiated a “race to the bottom” with their price bids and picked up around 10% market share. Likewise, MicroPort Orthopedics previously ramped up production capacity in anticipation of gaining new volume.
We expect similar policies to eventually impact segments across orthopedics in China. In general, the better reimbursed and more mature segments will be higher on the priority list to convert to a volume-based procurement scheme. Spine could be the next orthopedic segment addressed by the Chinese market if the new joint replacement policy doesn’t significantly work to the detriment of the market.
Orthopedics recently got its first taste of price reductions arising from China’s national volume-based procurement policy for hip and knee replacement products. The procurement policy previously brought the price of coronary drug-eluding stents down 96% from the headline price of Medtronic’s Resolute Integrity product. In mid-September 2021,...
Orthopedics recently got its first taste of price reductions arising from China’s national volume-based procurement policy for hip and knee replacement products. The procurement policy previously brought the price of coronary drug-eluding stents down 96% from the headline price of Medtronic’s Resolute Integrity product. In mid-September 2021, Chinese officials met in the northern city of Tianjin to determine the results of bids from 48 companies that make hip and knee replacement products.
Forty-four companies, 30 domestic and 14 foreign, had at least one product selected for inclusion in the national program. Hip implants were evaluated in three categories: metal on polymer, metal on ceramic and ceramic on ceramic. Knee implants were consolidated into a single category. The average price that Chinese public hospitals will pay for hip implants went down 80%, while the average price reduction for knees is just over 84%. The central procurement office in China expects to purchase nearly 550,000 artificial joints in the first year of the policy.
Late Year Surge
The unique structure of the Chinese market is the main driver of the extreme price outcomes. The price of high-value medtech consumables, like artificial joint implants, has historically been high relative to the rest of the world. Much of that cost is borne by the hospitals and ultimately, patients. More than 30,000 healthcare institutions and 2,500 level 3 trauma centers in China had been making purchasing decisions at the individual surgeon level. That arrangement bred a whole cottage industry of market access to the physicians, burdening the supply chain with more headcount and therefore, more cost. The country’s national volume-based procurement for large joint implants is designed to cut across the need for an army of market access personnel and simplify things to a straightforward volume commitment.
We don’t believe that any of the major orthopedic joint players who sell in China were knocked out of the market due to the new policy. However, Zimmer Biomet recently scaled back guidance based in part on their exposure in China. Smith+Nephew cited headwinds in China even before the policy took effect as distributors forewent orders ahead of the policy resolution. Chinese player AK Medical came out a winner from the tender process, at least in terms of volumes. From our conversations with sources in the Chinese market, AK Medical initiated a “race to the bottom” with their price bids and picked up around 10% market share. Likewise, MicroPort Orthopedics previously ramped up production capacity in anticipation of gaining new volume.
We expect similar policies to eventually impact segments across orthopedics in China. In general, the better reimbursed and more mature segments will be higher on the priority list to convert to a volume-based procurement scheme. Spine could be the next orthopedic segment addressed by the Chinese market if the new joint replacement policy doesn’t significantly work to the detriment of the market.
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ME
Mike Evers is a Senior Market Analyst and writer with over 15 years of experience in the medical industry, spanning cardiac rhythm management, ER coding and billing, and orthopedics. He joined ORTHOWORLD in 2018, where he provides market analysis and editorial coverage.
