Survival Amidst Volume-Based Procurement: How Small and Medium-Sized Medtech Firms Are Defying the Odds
In recent years, we have seenA series of key factors—including normalized centralized procurement, anti-corruption campaigns in the pharmaceutical sector, technological iteration, intense involution, and collective global expansion—have impacted the market, bringing about significant changes to the industry., and has influenced the market environment and competitive landscape.
Among these, it is widely believed that the centralized procurement of medical consumables has promoted an increase in market concentration:This improvement will benefit leading enterprises, while small and medium-sized enterprises will face greater survival challenges.。
However, industry insiders recently told VCBeat that this shift in concentration has had an impact onThe operating environment for small and medium-sized medical device enterprises remains largely unaffected; they continue to generate profits, pursue growth, and drive innovation as appropriate.
Ning Zhuo, a veteran in the healthcare industry, stated, “From the current perspective,”The market share previously held by small and medium-sized medical device enterprises has remained essentially unchanged and continues to the present.。”
Why Has This Narrative Emerged? What Is the Current Landscape? Are Small and Medium-Sized Innovative Medical Device Companies Struggling to Survive, or Are They Rising Rapidly?
In recent years, the most significant factor influencing the consumables market has undoubtedly been centralized volume-based procurement. By negotiating prices and committing to purchase volumes, this policy has directly squeezed out the commercialization margins and room for maneuver of medical enterprises.
Currently, all provinces across China have implemented centralized procurement of medical consumables, either independently or through alliances. The consumables covered include guide wires, staplers, surgical meshes, imaging films, coronary balloons, intraocular lenses, and orthopedic implants, among others.
Regarding the centralized procurement of medical consumables,Industry insiders stated, “Provincial and municipal volume-based procurement of medical consumables will eliminate 80% of enterprises, while national-level volume-based procurement will eliminate more than 90% of enterprises.”。”
This perspective likely applies the outcomes and impacts of centralized drug procurement to centralized medical consumable procurement. Previously, Jiang Changsong, Assistant to the President of the National Healthcare Security Administration Research Institute and Director of the Price and Procurement Office, stated in an article: “Following centralized drug procurement, the combined market share of the top eight enterprises by clinical usage volume for selected drugs increased from 36.5% in 2018 to 48.4% in 2021, indicating that segmented drug markets under centralized procurement have shifted from a fully competitive structure toward an oligopolistic one, thereby generating scale-development effects in the generic drug industry.”
However, do centralized procurement of medical consumables and pharmaceuticals follow the same logic? Are the corresponding arguments sufficiently substantiated? At least current market conditions have not borne out this view.
Ning Zhuo, an industry veteran, stated, “To date, no medical consumables company has gone bankrupt, shut down, or been deregistered due to centralized procurement. Companies that did not win bids can still sell their products in provinces and cities where volume-based procurement is not yet implemented, or they can manufacture and market other products. They have not collapsed as a result of centralized procurement; in fact, many are thriving.”
Data released by Tonglu County and Changting County substantiate this point. According to the government work reports of both localities: In 2023, Tonglu County, known as the “China Medical Endoscope Industry Base,” saw a 17.6% increase in the output value of its life and health industry; Changting County’s medical device industry achieved an output value and trade volume of RMB 2.62 billion in 2023, representing a year-on-year growth of 29%.
As can be seen, these small and medium-sized medical device enterprises located in county-level cities are still experiencing steady growth.This is because small and medium-sized enterprises have a very high bid-winning rate in the normalized centralized procurement.. For example, in the fourth round of national centralized procurement of high-value medical consumables, which covered items such as intraocular lenses and sports medicine products, 128 companies submitted bids, with 126 winning the bids, resulting in a success rate of 98%. Nearly all bidding companies were successful, and the proportion and number of winning bids from small and medium-sized domestic enterprises were higher than in previous rounds.
Similar to the situation observed in the fourth round of national centralized procurement, small and medium-sized enterprises (SMEs) also achieved high selection rates in centralized procurement conducted by various alliance levels, including the Southwest Henan Regional Alliance, the Hunan Inter-City Alliance, the Beijing-Tianjin-Hebei “3+N” Alliance, and the Fujian 15-Province Alliance.
Among these, the volume-based procurement of "wound dressing and implantable drug delivery device (port-a-cath) dedicated needle-type medical consumables" led by the Sanmenxia Municipal Healthcare Security Administration under the Southwest Henan Regional Alliance saw 157 enterprises submit bids, with 131 selected, resulting in a selection rate of 83.44%.
In the centralized volume-based procurement of low-value medical consumables conducted by the Hunan Provincial Inter-City Alliance, 61 out of the 67 leading enterprises with substantial supply volumes in Hunan Province were selected, resulting in a selection rate of 91%.
The volume-based centralized procurement of ultrasonic scalpel medical consumables conducted by the Beijing-Tianjin-Hebei “3+N” Alliance stipulates that all declaring enterprises meeting the corresponding quotation requirements shall be selected as winners.
Inter-provincial Alliance Volume-based Procurement for Endoscopic Cutting Staplers/Suturers, Led by Fujian Province and Covering 15 Provinces, Autonomous Regions, and Municipalities: A total of 139 manufacturers submitted bids, with 136 selected, resulting in a selection rate of 97.8%.
Overall,The vast majority of small and medium-sized medical device companies rely on high bid-winning rates to firmly defend their market share, still generating tens of millions in annual revenue.。
It is worth mentioning that,Volume-based procurement has, to some extent, constrained small and medium-sized medical device enterprises without historical sales volumes.. For example, in the Beijing-Tianjin-Hebei “3+N” centralized volume-based procurement of ultrasonic scalpel tips, hospitals were first required to report their demand based on historical usage, specifying brands, products, and quantities. Once a reported brand was selected as a winning bidder, the hospital could procure products from that winning (reported) brand according to its allocated quota, and fulfill the shares allocated to other brands under the agreement as stipulated by regulations.
“This means that small and medium-sized medical device companies without prior sales history have lost the opportunity to enter this market,” added Li Ningyu, a veteran of the medical device industry. “Following the volume-based procurement (VBP) of ultrasonic scalpel heads in the Beijing-Tianjin-Hebei region, market shares have been allocated. It is now difficult for companies to penetrate competitors’ established territories, just as it is hard for outsiders to break into their own markets. Only innovative enterprises with new technologies can gain hospital access by leveraging their innovative products.”
In addition to small and medium-sized medical device companies that are striving to maintain their existing market share, a small number of such enterprises possess certain competitive advantages and have joined forces with leading industry players.Quietly Seizing the Original Market Share of Imported Brands Amid Centralized Procurement。
Li Ningyu stated, “The primary beneficiaries of these volume-based procurement programs are the ‘viable’ companies, namely competitive domestic medical device enterprises. Through volume-based procurement, the state has forcibly reduced the prices of imported products and reshaped their market share. For most small and medium-sized medical device enterprises, their market shares remain unchanged. However, for a select few with strong market competitiveness, their market shares are on an upward trend.”
For instance, in the centralized procurement of spinal consumables, domestic manufacturers such as Weigao Orthopaedics, Double Medical, and Sanyou Medical ranked high among the winning bidders, whereas Johnson & Johnson and Medtronic barely secured bids, ranking near the bottom. Similarly, Blue Sail Medical’s subsidiary, Jiwei Medical, benefited from the centralized procurement of coronary stents and the increased sales volume of new products, achieving a 92% year-on-year revenue growth in 2023.
Some domestic companies have stabilized their market share, while others have seen their market share increase. So, whose share is declining? Without a doubt,Domestic companies are capturing the market share originally held by imported brands.. Following the implementation of centralized procurement, the market share of certain imported brands has declined significantly, with some even choosing to exit the Chinese market altogether, thereby ceding their entire share.
Taking the national centralized procurement of spinal implants as an example, 173 companies submitted bids in this round, with 152 provisionally selected, resulting in a success rate of 89%. Among them, ZimVie, an international giant in the spine and dental sectors, became the only manufacturer to lose its bid in the intervertebral disc system category due to insufficient price reductions. Affected by this national procurement, ZimVie ultimately withdrew its spine business entirely from the Chinese market. Similarly, Stryker failed to secure bids in the volume-based procurement for spinal products and also exited China’s spinal business segment. The market share relinquished by these companies was reallocated to domestic enterprises.
Furthermore, the results of the second batch of centralized volume-based procurement for medical consumables organized by the Southwest Henan Regional Alliance revealed that foreign brands such as Johnson & Johnson, 3M, Smith & Nephew, Medtronic, and Coloplast, which had previously dominated the high-end medical dressing market, either ranked low in terms of the number of participating products or failed to win bids. In contrast, all top 10 enterprises by the number of participating products were Chinese manufacturers.
To date, one of the effects of centralized procurement in the medical consumables sector has been to accelerate domestic substitution and raise the level of localization. The next phase may well involve internal competition among Chinese brands, weeding out less competitive firms.
Nowadays, a number of alliance-based centralized procurement initiatives have taken the lead.Pilot the "last-place elimination system" in selected niche sectors。
For example, the “Beijing-Tianjin-Hebei 3+N” centralized procurement of 28 categories of medical consumables, covering approximately 15% of China’s market, announced its winning bid results in March 2024: 202 product varieties were selected as winners, while 546 were not, resulting in a win rate of only 27%.
For another example, the results of Qujing City’s fourth batch of centralized volume-based procurement for medical consumables, covering six categories, were announced on April 1. A total of 24 companies were selected as winners, 18 were designated as alternate suppliers, and 126 companies were excluded. Among these, 45 companies participated in the bidding for urinary stone retrieval baskets, with only three selected as winners and two as alternates, resulting in a success rate of 7%. (If a provisionally selected company is disqualified, alternate suppliers will fill the vacancies in descending order based on their corporate capability construction scores.)
A lower selection rate signifies higher market concentration, more brutal market competition, and a faster pace of elimination.
Taking the “Beijing-Tianjin-Hebei 3+N” centralized procurement of 28 categories of medical consumables as an example, this procurement round includes distal access guide catheters, thrombectomy stents, intracranial stents, and otherNeurointerventional ProductsIncluded in the scope. According to the bid award results: In the distal access catheter group, 57 products were submitted for competition, with three manufacturers selected in Group A and two in Group B, resulting in a selection rate of only 10%. In the intracranial thrombectomy stent group, 29 products were submitted for participation, with six selected, yielding a selection rate of 20%.
A sales representative from a winning bidder stated, “Failure to win the bid means no sales in the centralized procurement regions for two years.”
A neurosurgeon in Beijing also told VCBeat, “Doctors have no say in choosing products from other brands; they simply use whatever the hospital provides.”
A 10%-20% selection rate in the neurointerventional field means that 80%-90% of non-selected products will be banned from sales in centralized procurement regions for two years. Companies that fail to win bids can only choose to enter other regional markets or sell products not included in this round of centralized procurement. Regardless, the partitioning of 15% of the national market poses a significant blow to traditional small and medium-sized enterprises in the neurointerventional sector.
On the other hand, small and medium-sized medical device enterprises that win bids in centralized procurement are expected to accelerate their market share growth. For example, the initial annual reported volume for "distal access guiding catheters" was 20,000 units. Zhongtian Medical’s distal access guiding catheter (length > 100 cm) won the bid in Group A, with a reported volume of 2,500 units. However, due to the low bid-winning rate in this round, winning bidders such as Zhongtian Medical have gained access to a free-market volume of nearly 10,000 units.
In addition to the neurointerventional field, small and medium-sized enterprises in the in vitro diagnostics (IVD) sector are also facing severe challenges.
According to statistics, there are more than 2,000 IVD companies in China, and the market concentration is relatively low. Several senior industry insiders told VCBeat: “The first impression of attending exhibitions in the IVD field is that product homogenization is very obvious. Against the backdrop of significantly increased concentration, small and medium-sized enterprises in the IVD sector will face increasingly difficult conditions.” Some even stated: “The wave of bankruptcies among IVD companies has already begun. Within ten years, 50% of IVD manufacturers will be eliminated.”
Why is this the case? On one hand, medical insurance cost containment and volume-based procurement (VBP) price reductions have squeezed the profit margins of in vitro diagnostics (IVD) companies; the era when they could thrive complacently by relying on a few hospital accounts no longer exists. On the other hand, the ongoing anti-corruption campaign in the pharmaceutical sector has fostered a fairer and more transparent competitive environment, making non-compliant practices increasingly difficult and leading to the elimination of firms that previously relied on personal connections.
Taking the volume-based procurement of in vitro diagnostic (IVD) reagents led by Anhui Province and covering 25 provinces (autonomous regions, and the Xinjiang Production and Construction Corps) as an example, only products from 120 companies were selected in this centralized procurement. Compared to the 2,000 manufacturers in China, the number of 120 winning bidders is by no means large. Meanwhile, this centralized procurement covers 25 provinces, accounting for approximately 73.5% of the national market share, with a procurement cycle of two years.
This undoubtedly signifies a substantial increase in market concentration, but it also means that the majority of small and medium-sized enterprises (SMEs) are being excluded from the market. For the products/items included in this volume-based procurement (VBP), companies that did not win bids will find it nearly impossible to achieve sales within the VBP regions. SMEs with single-product portfolios and a severe lack of market competitiveness may face bankruptcy. Other enterprises will need to undergo strategic transformation.
Furthermore, the anti-corruption campaign in the pharmaceutical and healthcare sector continues to advance, with the chairman of an IVD company being placed under investigation for suspected violations of discipline and law. This signals that past illicit practices are no longer viable. IVD companies must now compete openly and fairly by leveraging product quality, service, pricing, technology, and brand strength.
Large enterprises often hold advantages in products, services, and branding, giving them a dominant position in centralized procurement and sales. Over time, small and medium-sized enterprises (SMEs) with homogeneous offerings will either transform, be acquired, or go out of business. More importantly, after accumulating substantial profits in recent years, large companies have begun to expand their presence across the board by broadening their product portfolios. This will further intensify market competition and squeeze the survival space of homogeneous SMEs.
Currently, many in vitro diagnostics (IVD) companies are facing operational difficulties. In January 2024, BioDa Biotechnology initiated bankruptcy liquidation proceedings. Industry insiders have also revealed that two other IVD companies filed for bankruptcy within a single week. These insiders further believe that this may only be the beginning, with more companies expected to face similar risks.
Overall, the market is not showing a one-sided trend. Since the normalization of centralized volume-based procurement (VBP), many domestic manufacturers have benefited, with accelerated import substitution and a significant rise in the localization rate. Of course, facing the challenges of this new phase, domestic enterprises will encounter fierce competition. Companies with strong innovation capabilities and core competencies are bound to gain greater favor, while traditional small and medium-sized enterprises with homogeneous products and limited growth potential will see dwindling opportunities.
(Ning Zhuo and Li Ningyu are pseudonyms.)