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China probing device pricing, but what does the action mean for medtech firms?

A survey of device pricing and business practices sent by the Chinese government to local and foreign companies isn't as worrisome as some think.

September 16, 2013

2 Min Read
China probing device pricing, but what does the action mean for medtech firms?

Last month, Reuters published a story that revealed that a Chinese industry body had sent out a survey on device makers' pricing and business practices.

The story hinted that industry sources viewed it as unusual in the detail it sought from both foreign and Chinese device manufacturers. It also said that the survey was an attempt by the Chinese government to see whether device firms were violating the country's anti-monopoly law by price fixing.

The fear is that China may investigate the industry in the same way it has probed into the pharmaceutical sector that has revealed bribery by companies like GSK

But one medtech expert based in China with consulting firm L.E.K. Consulting believes that the medical device survey is not nearly as "severe" as the scrutiny faced by the pharmaceutical sector.

"The device manufacturer survey is led by State Administration of Industry and Commerce (SAIC), generally thought to be more administrative, and being passed to the local industry association CAMDI (Chinese Association of Medical Device Industry) to conduct," said Helen Chen, partner and co-head of L.E.K's China practice, in an email. "That said, they are asking about the manufacturer’s cost basis, including CIF. This is not dissimilar to the draft 2009 National Development Reform Commission proposal (not implemented) which called for similar type of price reporting for the invasive/implant products."

Chen said that she had advised her clients in China to engage with local authorities, clarify what is being asked and be cooperative.

"That doesn’t mean just fill out all the blanks and reveal your trade secrets. It does mean ascertain what is the intent of the survey questions and negotiate a level of answer that could be considered sufficient, particularly given any potential data collection challenges presented for the deadline," she said.

This is a bit of a risk given that providing detail to be cooperative can also create the genuine specter of those details finding their way to local competition. Chen also warns of this.

Still, for those worried about an investigation, she provides welcome words.

"We don’t expect this one action signals the government’s intention about foreign medical device manufacturers. Firstly, this is being issued by an administrative part of the government. Second, it targets both domestic and foreign manufacturers. The issues raised are not necessarily new, as prices of medical devices and of healthcare overall has been concerns all along," she concluded.

Yet, device firms would do well to keep abreast of what is happening with their counterparts in pharma and keep their noses clean. After the Chinese government accusations regarding GSK, the U.S. government is also probing the pharma company to see if it has violated the Foreign Corrupt Practices Act.

The danger of a Chinese investigation is not limited to China, as the GSK case appears to reveal. a

-- By Arundhati Parmar, Senior Editor, MD+DI
[email protected]
 

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