1、How COVID-19 is reshaping Chinas medtech industry May 2020 By Sizhe Chen, Franck Le Deu, Florian Then, and Kevin Wu With COVID-19 accelerating the underlying trends in Chinas medtech industry, new business models are likely to emerge. As the COVID-19 pandemic sweeps across the globe, it is leaving f

2、ew industries untouched. In China, as the medtech industry starts to emerge from the crisis, leaders are anticipating and preparing for the trends that will reshape the sector. This article draws on McKinseys experience helping clients navigate the international medtech landscape, as well as convers

3、ations with company executives and a survey of around 23 general managers (GMs) leading medtech businesses in China.1 Medtech companies still find China an attractive market and are confident in its growth outlook. But many aspects of the way in which they operate have changed profoundly, and perhap

4、s permanently. These key themes are set out below, together with McKinseys views on what it will take to succeed. A different outlook The global COVID-19 outbreak is firstly a humanitarian challenge, but it is also having a marked and growing impact on the world economy. Many forecasters say the glo

5、bal economy is already in recession and policymakers in multiple countries are taking steps to support industries and job markets. While China is in a stronger position than many, as the worlds largest exporter of goods, it will feel the impact of the downturn. As it emerges from the pandemic, China

6、 GDP is forecast to grow at a rate of between 1.0 percent and 2.3 percent this year, down from 6 percent in 2019, according to analysts consensus.2 Contracting government funds will affect healthcare spending. Among the China medtech GMs that we interviewed, a clear majority expects a near-term decl

7、ine in healthcare budgets, with price pressure on medical products likely to exert a direct knock-on effect. Looking at events from a healthcare providers point of view confirms this notion. Most hospitals we surveyed expect a reduction in their procurement budgets this year, and there are anecdotal

8、 reports of freezing capital equipment procurement for 2020. Physicians also said usage of high-value consumables would be negatively impacted this year. The outbreak is affecting medtech companies in different ways. On one hand, it generated high demand for related products, such as CT and Ultrasou

9、nd, ventilators, Extracorporal Membrane Oxygenation (ECMO) equipment, and nucleic acid detection kits. Unsurprisingly, manufacturers of such devices saw high demand and turnover in the first quarter, and are anticipating a similar effect throughout 2020. On the other hand, a sharp decline in electiv

10、e medical procedures has caused disruption in many other areas. According to the GMs we interviewed, demand for interventional devices has contracted by between 40 percent and 80 percent in the first quarter. While a gradual recovery for elective procedures is anticipated, this will be constrained b

11、y hospital and physician capacity, meaning a “catch up” of lost volumes is unlikely to occur. Even companies making high-volume consumables expect a volume contraction of around 20 percent for their products in 2020. Chinas response Tightening healthcare budgets will coincide with a shift in priorit

12、ies for healthcare spending. For example, in response to the COVID-19 pandemic, China is now pondering the need for healthcare infrastructure that can serve as a first line of defense during communicable disease outbreaks, including in-patient care. In other words, there will be less money to spend,

13、 while the allocation of budgets will change at the same time. As a result, the net impact will range 1 Survey carried out during the early recovery phase in mid-March 2 Analyst forecasts from UBS, Bloomberg, Barclays, Deutsche Bank, BAML, and World Bank in March 2 How COVID-19 is reshaping Chinas m

14、edtech industry from increased demand for certain types of medical equipment to steeply accelerated price erosion on commoditized consumables. Data connectivity will also be a key spending priority to build a system that creates first alerts on pandemics and real-time visibility into medical data. C

15、onsidering these effects in greater detail, there are four policy trends that were already in train prior to COVID-19, and will likely speed up as a result of the outbreak: 1. Volume-based procurement (VBP) Leading up to 2020, VBP had made it to the top of the agenda of Chinas medtech leaders. In Ja

16、nuary 2020, the scope and impact led many to wonder if established business models were still sustainable. Nine regions had piloted tendersimplemented at both city and province levelwhile 16 had ongoing or announced tenders. The average price cuts brought about by the tenders were steep, with many c

17、ategories having price cuts between 30-50 percent (and some up to 80 percent). A host of products were affected, from high-value consumables like orthopedic implants and cardiovascular stents to high-volume consumables like infusion sets and intravascular catheters. With the arrival of COVID-19, pri

18、orities shifted sharply as the response to the outbreak took center stage. The clinical management of patients relies first and foremost on medtech, highlighting the importance of high-quality products and resilient supply chains to manufacture and deliver them. Some observers reckoned that this wou

19、ld result in the Chinese government easing off the VBP agenda. However, the latest announcements suggest the opposite: a more nationally endorsed push on VBP, with an expanded product scope. On March 5, 2020, Chinas State Council announced guidance on deepening reform in the healthcare security syst

20、em, pushing for a more comprehensive implementation of VBP. On March 18, the National Healthcare Security Administration (NHSA) encouraged exploration of VBP on high-value consumables at the provincial level. Around 80 percent of the medtech leaders surveyed believe the scope of the program will be

21、expanded (Exhibit 1). And while most said they think the VBP will come back at its previous speed, evidence suggests the pace might be faster, as the government reinforces its determination to decrease prices. 2. Provider reforms Chinas government has been investing in tiered healthcare for some tim

22、e, but with limited success. More than half of the patient flow is still in large class III hospitals. Bed utilization numbers are revealing, with class III hospitals consistently over 90 percent and class I hospitals under 60 percent. As COVID-19 took hold, travel restrictions and healthcare resour

23、ce redistribution forced patients into local and lower-tier healthcare facilities. With travel restrictions between cities, patients could no longer seek treatment in leading hospitals in big cities. While it will take some time to shift patients perceptions of the superior medical capabilities of t

24、op hospitals, there are many reasons to believe that we are at a crossroads with regards to tiered healthcare. First, there is evidence that lower-tier hospitals returned to normal operations faster than large hospitals in March. This may be partially due to the larger drain of resources to COVID-19

25、 care in class III hospitals as most of the 40,000 healthcare professionals deployed to Hubei originated from class III facilities, and their full return to work will be gradual. Also, class III hospitals are in the middle of the still-ongoing attempts of treating and quarantining suspected and conf

26、irmed COVID-19 cases. 3How COVID-19 is reshaping Chinas medtech industry Healthcare officials have also taken note of the limitationseven risksof class III hospitals being the frontline of primary patient care, which led to quick exhaustion of capacity and perhaps also challenges to contain in-facil

27、ity spread in an epidemic situation. The government is now encouraging patients to get treatment in Community Health Centers (CHCs). For example, Shanghai is going to establish more than 180 fever clinics, and Beijing required advance appointments for visits to class II or class III hospitals except

28、 for emergency care. Overall, the government will very likely use the pandemic to double down on tiered healthcare, establishing more mechanisms to make such treatment a reality. In parallel, healthcare is going online, with digital platforms such as online consultation and internet hospitals being

29、endorsed during the pandemic and further built out in the aftermath. 3. Greater localization A full-fledged localized medtech supply chain was already one of the governments priorities. COVID-19 has likely heightened the concerns around dependency on global supply chains for medical products. For ex

30、ample, the absence of local manufacturers of ECMO was seen as a supply risk by many observers. China will potentially increase its efforts to localize manufacturing of medical products. Local companies will be beneficiaries, but multinationals may likewise see policies designed to make it easy for t

31、hem to localize manufacturing in China. While in the past it could take years to register new products after transferring manufacturing lines to China, the National Medical Products Administration (NMPA) has issued a draft regulation to fast-track Exhibit 1 Healthcare budget is negatively impacted b

32、y COVID-19 and price pressure remains post-outbreak % of medtech GMs interviewed Source: McKinsey China medtech GM Survey, 2020 Healthcare budget is negatively impacted by COVID-19 and price pressure remains post outbreak How will VBP implementation be impacted by COVID-19? (N=23) What is the impact

33、 of COVID-19 on governments funding of healthcare in 2020? (N=23) expected short-term government funding constraint due to slowdown of GDP expected VBP would come back at previous speed post-COVID-19 outbreak mentioned that the scope will be expanded in VBP and expect larger price pressure expected

34、positive or neutral impacts on investments on critical areas, such as ICU and infectious disease related facilities 80%80%80%60% 4 How COVID-19 is reshaping Chinas medtech industry the process: multinationals can locally manufacture products that are already approved for import, with drastically sho

35、rtened timelines for re-registering such products.3 As an example, the manufacture of imported products could then be registered using materials that have undergone prior clinical trials or assessments for imported product registration. Preferred market access for locally made products, for example

36、in public tenders, has been common practice in the past and such rules could get even stricter for products that are perceived as strategic in nature. Of course, many nations around the world are facing similar challenges, and the dependence on global supply chains for a range of medical products su

37、ch as protective gear and ventilators caught healthcare systems around the globe off guard. Calls for localized production of essential medical products are the unsurprising consequence. If this is followed through, it might lead to a de-globalization of medtech in some categories. For the time bein

38、g, those medtech leaders that are operating in China take the view that localization of manufacturing will be accelerated in the wake of COVID-19, and that it will become even more important as a success factor in the market. Moreover, local innovation through R Franck Le Deu is a senior partner in

39、the Hong Kong office; Kevin Wu is an associate partner in the Beijing office. The authors wish to thank the 23 China medtech GMs who shared their insights with us. We would also like to thank Yvonne Xu, Jennifer Liang, and Jason Zhang for their contributions to the research and writing of the report. 8 How COVID-19 is reshaping Chinas medtech industry