New Regulations: Medical Distribution

Monday, May 15, 2006 8:39
Posted in category Red Tape, The Big Picture

Introduction
To combat corrupt practices and price gauging in the Chinese system, the National Development and Reform Committee recently introduced new regulations that will change the margin structure for medical consumables distributed in China. While equipment such as MRI, CT Scanners, and ultrasound machines will not be affected by the new rules, the distributors will be as the standardization of margins will force many distributors to change their business models.Prior to the release of the regulations, distributors historically held significant inventories on behalf of manufacturers, often paid the transportation related costs from the manufacturer to distributor, and would deliver equipment to the hospital and wait for the equipment to be returned. Often the prices offered to hospitals would be inclusive of all these value added services and transportation costs.

Following the release of these though, as distributors will only be allowed to charge a fixed margin on the product sold, many of these value added services will be cut or be billed separately to reduce overall costs and maximize the amount of profit from the sales of medical consumables..

As these rules were only effective June 1, it is still unknown what the true implications will be or how effective the enforcement will be, however it is sure to change the nature of medical consumable distribution. The below are potential implications and opportunities of this catalyses as identified by China SDP through interviews and study of the regulations

Implications
1) Distributors will look to reduce costs immediately and will begin to charge for value added services seperately.
2) Smaller distributors will close or merge together as margins decrease
3) China based warehousing requirements will increase for multinational manufacturers as distibutors reduce inventory level and increase delivery frequency
4) With the number of shipments increasing throughout the system, the need for visibility will increase to ensure proper stock levels are being maintained

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One Response to “New Regulations: Medical Distribution”

  1. All Roads Lead To China » The Corruption Police Take a Medicated Break says:

    February 9th, 2007 at 12:11 am

    […] One of what I consider to be China’s pillars of stability, healthcare in China is a core component of the stability of the masses. Last summer, Beijing passed new regulations related to the distribution of medical equipment, and they are continually investigating healthcare professionals for promotion of graft within the system (i.e. patients being forced to give red envelopes of cash before they are approved for surgeries). […]