By Simin Wen
In mid-June, outside a county hospital in a central province of China, the weather had become somewhat hot, but there were still many women holding parasols waiting in line to receive the recently completed results of breast cancer screenings. In the queue, there was an unremarkable-looking bus, and its interior had been modified to accommodate a digital breast examination machine that integrates screening, diagnosis, and localization, provided by GE Healthcare. To fit this equipment, which stands over two meters tall, into the bus, the body space of the bus was redesigned.
This special bus had traveled from the provincial capital, a journey of four hours. To advance breast cancer screenings at the grassroots level, leading cancer hospitals in the provincial capital adopted this mobile breast examination approach. During weekends, they conducted “street-to-street” patrols in affiliated “medical consortiums,” providing relief to situations where local medical resources were insufficient. A medical consortium consists of different levels of medical institutions, including tertiary hospitals, secondary hospitals, and community hospitals, collectively forming a regional aggregation of medical resources.
In the past two and a half years, this bus has visited more than eighty counties. Calculating based on a daily screening volume of 70 to 100 individuals, it has served nearly 30,000 women—many of whom had not undergone breast cancer screening before.
In urban hospitals, a breast examination machine is a standard feature in the radiology department of a secondary Class A hospital. However, for most grassroots hospitals below the county level, such proactive preventive screening services often take a backseat to basic disease or emergency medical tasks. Therefore, leading hospitals within medical consortia take the initiative to assist grassroots hospitals in implementing screenings, representing a form of public assistance and a response to the “dual-cancer screening” mission.
In April of last year, the National Health Commission released a list called the “Thousand Counties Project,” requiring that within five years, at least 1000 hospitals nationwide reach the medical service level of tertiary hospitals, with a total of 1233 county hospitals making it onto this list. During this year’s “Two Sessions,” there was again a clear signal from the authorities—medical resources need to be decentralized to the grassroots medical system to enhance the diagnostic and treatment capabilities at the grassroots level. According to the National Health Commission’s statement on April 13, the goal is to “promote the expansion and sinking of high-quality medical resources and achieve a balanced regional layout.”
Looking at it in layers, upgrading and replacing equipment is a necessary condition for improving diagnostic and treatment capabilities. In contrast, China’s large market for grassroots medical care increasingly plays the role of the “second growth curve” for various medical equipment companies. However, breaking into this market is not an easy task. In most cases, the procurement of equipment by hospitals is a lengthy and complex process that requires hospital review. The performance and price range of the required equipment must be thoroughly demonstrated before entering the bidding stage. “The procurement of equipment for medical institutions below the county level largely depends on the overall planning of the country, and the timing of procurement follows the national budget,” said a marketing professional in the pharmaceutical industry who preferred to remain anonymous.
The Gradual Relaxation of the Market
To sell medical resources to county-level public medical institutions, the “relaxation of equipment configuration licenses” is a crucial milestone. A hospital planning to purchase medical equipment must have the necessary funds and, concurrently, possess the required licenses. China has long implemented strict approval management for the configuration of large medical equipment. Medical institutions must obtain a “Large Medical Equipment Configuration License” before purchasing such equipment. Class A equipment is approved by the National Health Commission, while Class B equipment is approved by provincial health administrative departments. In the past, the approval process for a configuration license took as long as 2 to 3 years, objectively limiting many hospitals’ autonomy in equipment procurement.
The last round of relaxation for configuration licenses at the national level occurred in 2018. The configuration permits for large medical equipment, such as gamma knives, were downgraded from Class A to Class B, and the approval process was significantly streamlined. Since then, each spring, the National Health Commission has released the “Catalog of Large Medical Equipment Configuration Permit Management,” gradually canceling or downgrading the approval levels for some important equipment.
In March of this year, the National Health Commission issued the “Catalog of Large Medical Equipment Configuration Permit Management (2023),” removing CT and 1.5T and above magnetic resonance imaging systems (MR) from the Class B category. Some radiotherapy equipment also received downgraded management. In the future, CT and MR below 30 million RMB belong to the category of independent procurement, making the purchase of these devices more accessible to hospitals with the criteria of “needing it, affording it, and being able to buy it.”
“Many hospitals will change their procurement strategies because of this. After the relaxation of configuration licenses, hospitals will consider from a longer-term perspective, such as the development of their disciplinary capabilities. They will hope to use equipment that aligns with their development plans after investing in this money,” said a marketing professional from the solutions department at United Imaging Healthcare to CBN Weekly.
In addition to the relaxation of configuration licenses, the People’s Bank of China’s policy of discounted loans also stimulates the desire of county hospitals to replace old equipment. For example, from September of last year to March of this year, the People’s Bank of China established a special loan for equipment renewal and transformation, with an allocation of 200 billion RMB related to the medical industry. The actual loan interest rate is less than 0.7%, and health and wellness are among the ten industrial sectors supported by this policy, considered the largest interest-free benefit in the industry in recent years. Therefore, the entire discounted loan cycle has provided strong positive stimulation to the domestic medical equipment market.
The direction for using this loan is limited to “the purchase of medical equipment for diagnosis, clinical testing, critical care, rehabilitation, and research transformation.” It is estimated by industry insiders that the scale of funds available for “imaging equipment” is in the tens of billions of RMB.
The sales team at United Imaging Healthcare interviewed a group of customers and found that this round of loan policies had limited stimulating effects on “from scratch” purchases, with only about one in ten orders being generated. What it more easily stimulates is the existing purchasing demand of hospitals—equipment that may have been considered unaffordable or not urgently needed but perhaps necessary for long-term development. Loans help these purchasing plans to be implemented ahead of schedule.
Zhengrong Pu, Vice President of Siemens Healthineers in the Greater China region and Head of Clinical Treatment Business, observed that this type of low-interest loan is highly attractive to hospitals in central and western regions. “We see an increase in the construction of operating rooms, including the establishment of some stroke centers and chest pain centers,” said Zhengrong Pu.
Many market opportunities in China’s healthcare sector are policy-driven. Siemens realized around 2015 that it needed to rely on the grassroots market to drive business growth. That year marked the beginning of the comprehensive reform of county-level public hospitals led by the State Council’s Health Care Reform Office. The national goal was to achieve “major diseases not leaving the county” by 2017. For this, the State Council required direct participation of county governments, responsible for determining the construction needs of key departments in county-level public hospitals. At the same time, they also formulated performance assessment methods for county-level public hospitals.
“Some diseases, such as cardiovascular diseases, have a higher incidence rate in rural areas and counties than in urban areas. This also means that there are market opportunities in the sinking market that we should seize,” said Zhengrong Pu to CBN Weekly. Starting around 2015, based on national policy guidance and market demand, Siemens separated business areas related to county-level markets, such as clinical treatment, to achieve more targeted operations.
Challenges Faced by County Hospitals
When mentioning “county-level hospitals,” it’s challenging to provide a simple definition. These hospitals include the top 100 county hospitals that can rival tertiary hospitals in major cities, as well as ordinary regional hospitals that only serve the local population of several hundred thousand in the county. Differentiated by region, population, and development level, the challenges in terms of samples and equipment updates vary greatly among China’s county hospitals. The general perception among medical equipment industry professionals is that “the needs of each hospital are unique.”
According to a survey report released in 2022 by the Rural Development Institute of the Chinese Academy of Sciences, the proportion of people aged 60 and above in the rural population has reached 20.04%, with those aged 65 and above accounting for 13.82%. The degree of aging far exceeds the national average. Therefore, the construction of emergency and critical care systems in grassroots county and township hospitals across the country is urgently needed.
For diseases like chest pain and stroke, which race against time, critical patients often cannot make it to large hospitals in other areas. Therefore, for financially constrained county-level hospitals, the most crucial task at hand is to have the capability to promptly handle sudden diseases in the region, such as chest pain, stroke, trauma, critical maternal care, and newborn treatment.
In addition, hospitals at this level need to pay special attention to some local endemic diseases. For example, in certain areas in the southwest where there has been water or air pollution, local hospitals need the capability to treat diseases specific to the region, such as mercury poisoning caused by pollution.
A strategist from United Imaging Healthcare shared a positive cycle that county hospitals could achieve through equipment upgrades: “The hospital will consider whether buying an ultra-high-end device can solve the problem of improving diagnostic capabilities at once, driving patients to prefer the hospital for treatment. They will strive to complete emergency treatment locally, and if it cannot be treated, refer through a collaborative system. When cerebrovascular and tumor diseases turn into chronic diseases, later-stage rehabilitation and health management can be completed in the county hospital.”
During the equipment purchasing process, hospitals typically face two pressures: first, whether the funds are sufficient for procurement, and second, how to sustain business with these new devices immediately after acquisition.
Ou Qi, an imaging department doctor from a tertiary hospital at the municipal level in North China, explained that the usage cycle of large medical equipment such as CT and MR often exceeds 10 years. If properly maintained, the lifespan can range from 15 to 20 years. From the perspective of an ordinary county hospital in the central and western regions, a 64-slice CT is sufficient, and the cost of purchasing equipment is around 5 to 10 million RMB, with an additional annual maintenance cost of approximately 1 million RMB.
“If it’s difficult to recover the cost over the entire usage cycle, the hospital will definitely be unwilling to buy. It needs to consider how many examinations can be performed in a day to recoup the costs,” Ou Qi told CBN Weekly.
What level of equipment is the best solution for a county hospital? The market professional from United Imaging Healthcare mentioned that “simply replicating the equipment model of municipal-level hospitals” is not feasible. Hospitals need to evaluate their own capabilities. If they lack both technology and personnel, they cannot carry out business operations.
Operating equipment is not a difficult task; doctors can learn it after a few days of training. More crucial is whether they have the capability to diagnose patients based on the examination results provided by the equipment.
“The same disease may have different manifestations, or the same manifestation may correspond to different diseases—this diagnostic capability for doctors may take several years or even longer to accumulate. In other words, the medical diagnosis process is a systematic process, and changing equipment alone cannot solve these problems. The same equipment, in the hands of doctors and professionals at different levels, has completely different effects,” Ou Qi told CBN Weekly.
He gave an example of a cerebral infarction. In a tertiary hospital, an experienced doctor using CT equipment with AI intelligent software or other auxiliary tools can complete a brain function assessment in about 5 minutes, promptly providing a reasonable emergency treatment plan—either conservative treatment, surgery, or referral to a hospital with better medical skills. However, the same case in some county hospitals may take “half an hour, or even an hour.” Fundamentally, most county hospitals’ diagnostic and treatment systems are not as complete as those in higher-level hospitals, and the doctors may not have enough experience. Even with the same equipment, the therapeutic effects may vary.
If county hospitals want to improve their diagnostic and treatment capabilities, they need to walk on “two legs” simultaneously: raising funds for new equipment and building supporting talent.
Some county hospitals may also try to recruit high-level talent from municipal or provincial hospitals, or even doctoral graduates from medical colleges. However, once they believe that the hospital’s equipment level is low and unable to carry out operations, they will ultimately choose to leave. “So from the perspective of talent introduction, hospitals also want to provide a platform and equipment configuration for the talents they attract,” said the market professional from United Imaging Healthcare.
According to the reimbursement ratio policy of inpatient expenses in various places, generally, the reimbursement ratio for residents in designated county-level medical institutions should not be less than 70%. Medical insurance constitutes a significant portion of the hospital’s income. However, if patients are sent to the hospital but cannot be treated, over time, local residents will develop a sense of distrust in the hospital’s competence.
The market professional from United Imaging Healthcare also discovered in a province with millions of people in the central region that the local hospital’s annual volume of stroke treatments was less than 50 cases, while according to the national average, such a county should have around 3000 cases of stroke each year. In other words, the vast majority of stroke patients in that county did not have the option of local treatment.
Continuous outflow of patients for extended periods will cause a loss of local hospital medical insurance income, leading the entire development of county-level hospitals into a vicious cycle—low visit rates lead to poor performance, government assessments of the medical system do not meet standards, incomes of medical staff decrease, further hampering the improvement of diagnostic and treatment levels.
Capturing the Downsizing Market
In recent years, influenced by multiple policies, one significant change in the operational chain of county-level hospitals to enhance diagnostic and treatment capabilities is the increased involvement of administrative forces.
Previously, the development plans of county hospitals were crafted by the hospital directors, managing everything internally. Now, the upgrading and transformation of county-level hospitals are often centrally coordinated by provincial and municipal health committees. Operating as a medical alliance, they collaborate with grassroots hospitals, comprehensively planning human, financial, and material resources related to medical and health services in the region. This approach guides grassroots medical institutions towards more intensive and efficient development. “Integrated solution models that converge various resources such as equipment configuration, information systems, intelligent applications, capacity training, and service expansion will become a new opportunity supporting the high-quality development of county-level medical services,” predicts a market professional from United Imaging Healthcare.
In this context, what sales strategies should medical equipment providers adopt to successfully tap into this market?
“Those devices need to have complete functionality because, for these county-level hospitals, their clinical applications will be relatively extensive. At the same time, the prices must be affordable for them—this is also a crucial factor,” analyzes Zhengrong Pu.
Companies are also willing to develop customized equipment and service solutions for hospitals. GE Healthcare excels in providing such customized products. An unnamed sales team member from a medical equipment company confirmed to CBN Weekly that GE tailors equipment for the downsizing market by making flexible choices in terms of functionality and offering a flexible pricing system.
Taking into account various pain points in equipment procurement at county-level hospitals, companies like Johnson & Johnson adopt core market strategies, such as assisting hospitals in talent development and even directly helping them recruit talent. Additionally, introducing support modules such as remote tools and remote experts is a common strategy. Mainstream manufacturers have already established online service platforms where grassroots doctors can connect with remote engineers and experts for real-time guidance when facing any operational questions or difficulties.
Siemens emphasizes its role in two aspects when promoting sales: helping grassroots hospitals improve equipment management and usage capabilities and guiding them in performing surgeries to achieve the downsizing of medical resources, assisting grassroots doctors in enhancing diagnostic and treatment capabilities. Siemens calls this service solution tailored for the downsizing Chinese medical market the “Double Direct Access.”
Previously, the sales process for medical equipment companies was focused on selling devices to customers. However, now they are proposing various comprehensive strategies, such as providing diagnostic and treatment equipment solutions for diseases like stroke and chest pain. “We not only provide equipment but also offer follow-up image automatic analysis, providing quantitative judgment results for clinical purposes,” explains a market professional from United Imaging Healthcare. This is to help grassroots hospitals deal with the issue of insufficient manpower.
Products with intelligent capabilities and AI applications at the platform level have become the current focus of research and development for medical companies. “If I directly use AI to analyze results, for example, determining whether this is ischemic or hemorrhagic and using a rating method to predict its severity, and then providing doctors with an intuitive diagnostic report, they can quickly make diagnostic decisions based on clinical guidelines,” says the market professional from United Imaging Healthcare. The application of AI technology can largely replace doctors in reviewing images and analyzing conditions—these capabilities often have a high learning curve.
In recent years, a trend observed is that county hospitals are increasingly inclined to prioritize the procurement of advanced equipment. In the bidding and tendering public service platforms of various provinces, announcements of winning bids by county hospitals for high-end equipment such as ultra-high-end CT and 3.0T magnetic resonance imaging systems are frequently seen. According to the aforementioned market professional, “The definition of the level of medical equipment is becoming increasingly blurred.”
In December 2022, Xiyi County People’s Hospital in Henan Province publicly announced the bidding results for the procurement of a 3.0T magnetic resonance imaging system, with Siemens winning the bid at a price of 22.8 million RMB. In the same month, another county-level hospital in Lingbao City, Henan Province, the First People’s Hospital, also released a similar procurement bid-winning announcement. GE’s 3.0T magnetic resonance imaging equipment won the bid at a price of 23.496 million RMB. The procurement list includes supply, transportation, installation testing, training, as well as subsequent technical support and maintenance services.
Xiyi County People’s Hospital’s procurement is self-funded, while the procurement announcement of the First People’s Hospital in Lingbao City mentioned “financial funds, already implemented” in the “fund source” section.
In the two equipment procurement transactions of over 20 million RMB each by these two Henan county-level hospitals, according to the bid announcement, the two participating agents charged service fees of approximately 160,000 RMB. Large medical equipment companies usually adopt a combination of distribution and direct sales, with a predominant focus on distribution. The proportion of direct sales to key hospitals is higher. As the market extends downward, the proportion of agent distribution gradually increases. Especially in recent years, large medical equipment companies, in order to capture the downsizing market, have become more attentive to recruiting partners in county-level areas.
The role of these agents has become indispensable: on the one hand, they are more familiar with the supply chain management of medical equipment than the hospitals themselves and are more professional in dealing with various policy restrictions in response to government procurement; on the other hand, these local agents are closer to the hospitals than equipment manufacturers and therefore are more likely to understand the existing diagnostic and treatment levels of the hospitals and their specific upgrading needs.
However, returning to the essence, equipment is still just an auxiliary tool. Whether diagnostic and treatment capabilities can be improved still depends on the hospital’s “enterprising spirit.” “Hospitals with an enterprising spirit do see an increase in patient flow after updating equipment. Doctors undergo further training and then launch new projects. It’s evident that the number of patients will increase. However, there are also some hospitals without an enterprising spirit. The practices of doctors remain the same. Even if they buy new equipment, they cannot introduce new technologies and new diagnostic and treatment methods, and nothing changes,” says Ou Qi.
Yanjun Lu(Internship) also contributed to the interviews.