DRW Monthly
June 2008
Issue No. 19

Revisions to China's Medical Device Regulatory System and Reimbursement Issues Impacting Importers

China's current medical device regulatory system, established eight years ago with the passage of the Regulations for the Supervision and Administration of Medical Devices (2000), has undergone many modifications in an effort to become more transparent and coherent. The most recent draft revisions, issued in September 2007 by China's State Food and Drug Administration (SFDA), provide a comprehensive and unified document that incorporates amendments introduced over the past several years. The 2000 version which contained five chapters and 47 articles pertaining to general administration; the administration of medical devices; manufacturing distribution and usage of devices; supervision; and penalties for violations has been updated by a draft consisting of 11 chapters and 126 articles. Major changes in these chapters address medical device import and export management; medical device advertisement management; medical device supervision; and technical management and supervision for quality management system (QMS) assessments and product testing.(1) In accordance with the newly revised Regulations, in February 2008, the SFDA also selected a team of medical device evaluation experts to implement a standardized, scientific procedure to examine medical devices. The agency's formation of this medical device expert group was followed by a request for comments in May on its draft "Interim Requirements for Further Intensifying and Standardizing the Registration of Medical Devices" as well as a notice stating that 73 industry standards for medical devices have been released.(2) Among these standards, 33 are considered to be mandatory and 40 are recommended; the standards will be implemented December 1, 2009 and June 1, 2009 respectively.(3)

Although these revisions have simplified the registration for Class I (low risk and regulated by provincial governments) medical devices, Class II (modest risk and regulated by provincial governments) and Class III (high risk and regulated by the SFDA) devices must now undergo a more complicated registration process. More specifically, Class I domestic product registration will now be reviewed by a provincial SFDA office instead at the city level, and the review time for imported Class I registrations will be shortened to 40 days. For Class II and III devices, however, particularly implantable and sterile products, a provincial SFDA office will be required to perform an initial technical review prior to submitting registration applications to the state office. In addition, the entire review timeframe for Class II and III products has not been specified, but will be impacted by the new import and export product testing and registration requirements to be jointly developed by the SFDA and the General Administration of Quality Supervision Inspection and Quarantine (AQSIQ). Moreover, in June 2007, the AQSIQ released a policy requiring imported products to be tested prior to importation which became effective in December 2007. The AQSIQ and SFDA are still in the process of compiling the list of products that must be tested at importation. Companies that operate Chinese manufacturing facilities are also anticipating a more difficult and lengthier application process to obtain manufacturing permits and product registrations, as they will need to deal with provincial FDA offices for design review before approaching the SFDA for final registration.(4) Not only have these amendments put more pressure on importers, but they are also expected to increase manufacturing production costs.

Furthermore, due to the new emphasis on quality management and tracking requirements, manufacturers and distributors, as the designated primary parties under the revised Regulations, are now also required to maintain product records (including adverse event reports and product recall notices) for two years beyond the life of the product. Broadly speaking, the SFDA is determined to increase supervision throughout all stages of medical device product development to ensure safety and compliance. The agency has also instituted higher penalties for violations and non-compliance. "For example, any manufacturer violation (i.e., manufacturing without a proper license, without passing QMS inspection or without product registration) will carry a penalty of 10 to 20 times the product's value based on severity of the violation. Distributors that sell products without product registration or proper distribution permit will face a fine of five to 10 times the product's value and possibly have its distribution permit suspended."(5) On a more positive note, the term of product registration has been extended from four years to five years with the requirement to begin the renewal process beginning six months prior to expiration.

These elements have typically appeared in voluntary risk minimization action plans (RiskMAPs) that have been submitted by drug manufacturers to the agency since 2005. FDA's implementation of FDAAA's REM provisions has formalized the drug industry's practice of submitting these voluntary plans. In addition, under the FDAAA, a REMS may include a Medication Guide, a patient package insert, a communication plan for health care providers, an implementation system, restrictions on distribution or use, and a timetable for an assessment of the REMs(3). However, a drug or biological manufacturer who submitted only a Medication Guide prior to the approval of the FDAAA provisions, but provided no "elements to assure safe use", will no longer be "deemed to have a REMs" according to the act's provisions.

China's current reimbursement system has also had a significant impact on medical device importers due to the country's complicated health insurance and hospital systems. Although both systems are undergoing major reform, some of the fundamental problems center on a lack of uniformity in policies and procedures from region to region and a lack of cooperation among participating agencies. The majority of hospitals are public and administered by China's Ministry of Health (MOH), or other government agencies at the provincial or local level. A gradual shift has occurred in which hospitals have been receiving less central government funding in exchange for greater operating autonomy in which user fees, drug mark-ups, and medical tests have become the main source of revenue. The combination of reduced government income and oversight has resulted in hospitals overprescribing medicines and sanctioning unnecessary and expensive medical testing to cover costs. These hospital system challenges are compounded by the lack of adequate health insurance coverage provided to rural and urban constituents. Under both the rural and urban insurance systems, patients pay the majority of medical expenses out-of-pocket.(6)

Given the limited funding available from health insurance, China has been trying to limit medical device prices by introducing several reimbursement schemes that put the greatest cost burden on hospitals. "Since 1999, the Chinese government has required a formal tendering process for all imported products in order to strengthen the transparency of the purchase process and to reduce the price paid by the end user."(7) The National Development and Reform Commission (NDRC) who is responsible for determining economic and social policies and generating the guiding five-year healthcare plan and associated budgets, has worked with the MOH for several years in an effort to hold down the cost of medical technologies. The Commission is in the process of implementing sweeping changes to the country's healthcare system by providing a safety net through a system of non-profit public hospitals and advanced care through private health providers. The MOH has simultaneously reinstated control over purchases of high-end medical equipment to curb hospital spending, increase the use of technology already installed, and demand public bidding for each new purchase with the primary goal of containing corruption within the distribution chain.

The current changes in both China's healthcare and medical device regulatory systems require that importers stay as well as informed as possible. It is also recommended that importers work closely with an in-country distributor or agent to ensure that they comply with all the necessary registration, testing and documentation requirements to import their device products successfully.

This article is an update of the May 2006 Research Spotlight column I wrote for RAPS' RA Focus publication entitled, "Import Hurdles Medical Device Companies Confront When Establishing a Presence in China."

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