China rolled out a volume-based procurement (VBP) policy in November 2018 to force pharmaceutical companies into lowering drug prices. Then they came for medical device manufacturers in 2019.

Earlier this year we saw the impact of volume-based procurement on Medtronic, the world's largest medical device company. Then, ZimVie, the dental and spine company that spun out of Zimmer Biomet last year, announced in March that it would pull its spine business out of China due to the country's VBP policy.

Now, VBP is expected to hit the Chinese ophthalmic market. The ophthalmic space has already been confronted with the VBP policy for a few years, but at a smaller, more provincial scale, and primarily within the monofocal intra-ocular lens (IOL) segment.

Medtech analysts at BTIG recently hosted Zhengyu Song, MD, director of the ophthalmology department at Shuguang Hospital Shanghai University, to discuss the impacts of volume-based procurement within cataract surgery in China. Song confirmed that a national volume-based procurement program is expected to be enacted sometime between June and July with implementation later in the year. Song estimated that IOL prices is ¥500 per lens today and the national VBP program is expected to lower price to a range of ¥300-¥400 per IOL, BTIG's Ryan Zimmerman noted in a report following the call.

Song is a retinal specialist by training but treats a variety of patients across multiple areas including cataracts, refractive, and glaucoma, Zimmerman noted. About 60% of Song's patients are true monofocal IOL patients and the rest choose either toric or multifocal IOLs. Song told the analyst during the call that he expects multifocal IOLs to continue to gain share, and he expects an even split between monofocal IOLs and multifocal IOLs in a few years, followed by multifocal IOLs taking the majority of share in 2027 and 2028.

Zimmerman notes that the adoption of premium IOLs has increased in China over the past decade or so. Song told the analyst that 10 years ago monofocal IOLs averaged ¥3k to ¥4k and a multifocal IOL was priced at ¥15k to ¥20k, which priced many Chinese citizens out of the multifocal market. The doctor noted that medical insurance used to cover only 10% to 30% of the cost of a multifocal IOL. For a ¥20k lens, consumers would typically pay ¥14K while insurance covered only ¥6K.

"Today VBP is causing IOL pricing to decrease," Zimmerman wrote. "Today, in Shanghai, the government is covering a fixed cash payment of ¥3k per lens regardless of IOL type."

China has enacted a series of provincial volume-based procurement programs for IOLs to date, beginning with Anhui province. Zimmerman noted that the first round of VBP caused a 20% pricing decline, and that the second and third rounds of VBP caused IOL pricing to drop 26% and 38%. This was followed by a fourth round, which caused IOL pricing to drop 53% in 2020, followed by a decrease of 84% in 2021.

"Overall, we expect the VBP programs to be limited in impact as the majority of the cataract procedures take place in private hospitals," Zimmerman wrote. "Companies such as [Alcon] have limited exposure in the public hospital market."