China Healthcare OutlookA newsletter on regulatory and policy developments of China’s healthcare sector

2019 Issue III

HEALTHCARE IN NUMBERS: IN 2018, THE CENTER FOR DRUG EVALUATION ADDRESSED THE MAJORITY OF REVIEW BACKLOGS; WITH OVER 90 PERCENT REGISTRATION APPLICATIONS BEING REVIEWED ON TIME.

China has a long history of using fee-for-service methods to pay healthcare providers, which has inevitably led to profit-based incentives for physicians to over-prescribe drugs and recommend unnecessary medical tests. This type of physician misconduct and poor management of public hospi-tals has increased the financial burden on both patients and the medical insurance system. According to China’s annual healthcare statistic reports, the total healthcare expenditure in 2018 is approximately RMB 5.8 trillion, which has tripled since 2009.

In 2017, China’s health authorities initiated a new round of health-payment reform, in which diagnosis-related groups (DRGs) are viewed as a category-based payment method to resolve the aforementioned problems.

A DRG is a patient classification system that a medical insur-ance payer uses to standardize hospital reimbursement and determine how much to pay for a patient’s hospital stay. Rather than paying the hospital for the healthcare services it provides, the medical insurance payer pays the hospital a fixed amount according to the patient’s DRG. Under the DRG-based payment method, hospitals would no longer view extensive services to patients as a source of revenue, but instead, as a source of cost. Hospitals would then have incen-tives to explore cost-effective treatments to lower medical expenditures, contributing to the government’s dual aims of cost containment and better patient outcomes.

Since 2017, government agencies at both the central and local levels have stepped up their efforts to explore the DRG payment methods through launching multiple pilot projects and standardizing the medical insurance system.

• In May 2017, the State Council released the 2017 Work Tasks to Deepen Healthcare Reform, in which it explicitly mentioned its plan to promote the DRG payment method.

• In May 2019, the National Healthcare Security Adminis-tration (NHSA) released the list of 30 pilot cities (Figure 1) that will implement three-year DRG payment system pilot programs.

Pilot cities are required to improve their DRG payment

INSIGHT: Diagnosis-related Group System Gradually to Develop in China

information system on the basis of the unified coding of health-related items, such as coding for disease diagnosis, surgery operations, and healthcare services.

Business implications

The development of the DRG payment method demonstrates China’s firm dedication to reducing medical expenditure and improving the efficiency of medical insurance fund use. In this case, hospitals may be reluctant to use high-priced drugs. Given this context, it is important for pharmaceutical manufacturers, which produce high-priced innovative drugs such as orphan drugs, to advocate their use from a social and ethical perspec-tive. Since China is accelerating the development of the health technology assessment (HTA) and will host the 2020 HTA international (HTAi) Annual Meeting, pharmaceutical manu-facturers may benefit from leveraging the HTA to emphasize the value of high-priced drugs.

Pharmaceutical manufacturers may need to adjust their marketing strategy. Up until now, companies have been selling their products by therapeutic areas. After the implementation of the DRGs, they may consider marketing their products according to diagnosis groups.

However, the implementation of the DRG-based payment system in China may encounter a series of hurdles. For instance, one issue may involve medical information, where diagnosis and surgery data in hospitals are isolated from each other.

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Figure 1: 30 DRG pilot cities

China Healthcare Outlook is a North Head publication. If you have questions or wish to receive in-depth policy analysis, please contact us at info@northheadcomms.com.

China Healthcare OutlookA newsletter on regulatory and policy developments

of China’s healthcare sector

Overall policy

• State Council releases 2019 Work Tasks to Deepen Healthcare Reform

On May 23, the State Council released the Notice on 2019 Work Tasks to Deepen Healthcare Reform, which includes 15 policy documents to be developed, and 21 key tasks to be promoted and implemented for medical and healthcare reforms. The main goal is to focus on patient-centric health promotion and disease prevention. Compared with the 2018 Work Task, the 2019 Work Tasks emphasized several tasks, including 1) developing Healthy China Action Plan (2019-2030); 2) releasing the catalogue of drugs that are encouraged to develop generics; 3) promoting cancer prevention and treatment, screening, and early diagnosis and treatment.

Insurance

• NHSA aims to develop a national unified standard medical insurance system

On June 20, the NHSA released the Guidance on Standard-izing Medical Insurance System, which aims to 1) develop and implement unified coding standards of 15 key health-related categories by 2020; and 2) formulate a list of national standards for medical insurance by 2025. The Guidance prioritizes four categories of standards including disease diagnosis and surgery operation, healthcare servic-es, drugs on the reimbursement list, and medical devices.

Pharmaceuticals

• CDE releases the first real-world evidence application policy in China for public com-ment

On May 29, the Center for Drug Evaluation (CDE) released Key Considerations in Using Real-World Evidence to Support Drug Development for public comment. The Notice defines real-world evidence (RWE) and introduces the scenarios in which RWE can support drug R&D and regulation. Some scenarios include cases involving the treatment of rare diseases, clinical trial guidance, and post-marketing evaluation. Public comments can be submitted to zhaojun@cde.org.cn, or gaoll@cde.org.cn by August 29.

• NHC releases the first catalogue of drugs that are encouraged to have generics developed

On June 20, the National Health Commission (NHC) released the Catalogue, which will be updated annually. It contains 34 drugs whose patents have expired or are expir-ing. In the Catalogue, eight are orphan drugs, six are anti-cancer drugs, and four are used for HIV/AIDS.

POLICY & REGULATORY TRACKER

Medical Devices

• NHC and the NMPA aim to administer customized medical device On July 4, the National Medical Products Administration (NMPA) and the NHC released the trial version of Regula-tions on Supervision and Management of Customized Medical Devices. The Regulation clarifies the definition, design, manufacturing, use, and supervision of customized medical devices. The Regulation will be effective from January 1, 2020.

Hospitals

• NHC releases 2019 Handbook of Perfor-mance Evaluation System of Tier-III Public Hospitals

On May 31, the NHC released the 2019 Handbook, which contains four categories including quality of medical services, operation efficiency, the capacity of sustainable development, and evaluations from patients and medical staff. According to the Handbook, notable trends include the increase of the proportion of essential and procured drugs to be used; increase of the frequency of referred patients to lower-tier hospitals; and reduction of the average inpatient and outpatient payments per visit.

• NHC initiates pilot programs to develop hospital alliances and hospital township alliances

Recently, the NHC issued the Notice on Initiating the Pilot Program of Hospital Alliances in Urban Areas and the Notice on Promoting the Construction of Hospital Town-ship Alliances in Counties. The Notices aim to 1) establish hospital alliances in 100 cities, and hospital township alliances in 500 counties; 2) increase the visiting rate at local grassroots medical institutions to at least 65 percent, and the visiting rate within local counties to at least 90 percent.

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Strategic counselor to

Global Times

North Head is a strategic communications and public affairs consultancy that supports stakeholder engagement through tracking developments related to the healthcare sector in China.

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