New Opportunities Emerge in China's Healthcare Price Reform: Innovators in AI Diagnostics and Early Screening Poised for Growth

Generally, the scarcity of resources and the finiteness of demand determine the pricing and allocation of resources based on their value. However, in the healthcare sector, rent-seeking sales practices for pharmaceuticals and medical devices distort the pricing of various components of medical services. The outcome is evident: medical procedures heavily associated with pharmaceuticals and medical devices capture the vast majority of profits across the entire care continuum, while surgical procedures, as a core medical intervention, appear comparatively undervalued.

Taking Shanghai as an example, prior to the centralized procurement of high-value medical consumables, for a stent procedure costing RMB 30,000, the stent itself accounted for half of the cost, while diagnostic tests such as angiography comprised one-quarter. The remaining component, percutaneous coronary stent implantation, had a standard price of only RMB 2,000. Under this fee allocation mechanism, physicians, as service providers, were inclined to rely on medical consumables rather than their professional services as the primary source of income.

Distorted pricing structures require correction. In recent years, the accelerated implementation of policies such as zero markups on drugs and consumables, centralized procurement, national reimbursement negotiations, and Volume-Based Procurement (VBP) has addressed inflated prices for pharmaceuticals and medical devices, as well as the non-standardization of medical services, by reducing costs and standardizing clinical pathways. However, to fully resolve healthcare challenges, the next step is to align the pricing of medical services with their true value.

From this perspective, in September 2021, eight national ministries and commissions jointly issued the Pilot Program for Deepening the Reform of Medical Service Pricing (hereinafter referred to as the “Pilot Program”), steering the course of healthcare reform toward the direction of medical service pricing. The sharp decline in medical prices following reforms such as centralized volume-based procurement of drugs and consumables has created an ideal window of opportunity for reforming medical service pricing.

Overall, the Pilot Program aims to establish a system that adapts to economic and social development, better leverages the role of the government, ensures full participation by medical institutions, and reflects the value of technical and labor services.Pricing Mechanism for Medical Services, with key participants comprising innovative life sciences companies, hospitals, and physicians; patients are a significant influencing factor.

The formation of a pricing mechanism for medical services is not merely about making incremental adjustments to the number of service items and their price levels. More importantly, it requires transforming the incentive structures of public hospitals, identifying more rational and refined clinical practices, clarifying the components of medical service prices, and breaking down the historically blurred boundaries between various stages of medical care. In terms of specific content, the Pilot Plan summarizes this framework as “5+3+4”.

“The 5” refers to the establishment of five mechanisms that constitute a regulatory framework for medical service pricing: first, establishing a more sustainable mechanism for aggregate volume control to strengthen macro-level management of medical service prices,Balancing the Needs of Healthcare Development with the Affordability Capacity of All StakeholdersSecond, establish a standardized and orderly price classification mechanism. For commonly performed general services, the government shall set benchmark prices; for complex procedures with high technical difficulty, the government shall “set the rules and act as the referee.”Reflecting the Value of Technical and Labor Services3. Establish a responsive and well-calibrated dynamic price adjustment mechanism,Stabilize Price Adjustment ExpectationsFourth, establish a goal-oriented management mechanism for priced medical services, and build a system of priced items with clearly defined scopes, adapted to clinical diagnosis and treatment, and conducive to evaluation and regulation, so as to gradually eliminate regional disparities and promote the innovative development and clinical application of medical technologies. Fifth, establish a rigorous and efficientPrice Monitoring and Assessment Mechanism, strengthen the evaluation of the implementation of medical service price reforms, establish incentive and constraint relationships and transmission mechanisms between monitoring, assessment, and evaluation on the one hand and medical service prices on the other, and ensure the stable operation of the pricing mechanism.

“3” and “4” provide support for the maintenance of existing mechanisms. Among the three supporting measures, the first is to optimize the configuration of management authorities, enabling the medical service price management system to betterMeeting the Needs of Macro-Level ManagementSecond, improve the price-setting and adjustment procedures.Maximize the Use of Rules to Replace Discretion, to better meet the management requirements of standardization, orderliness, sensitivity, and appropriateness, and to better balance efficiency and equity. Third, strengthen capacity building in management. The “4” refers to the coordinated advancement of four supporting reforms, including deepening the comprehensive reform of public hospitals, improving comprehensive regulation of the healthcare industry, refining the government funding mechanism for public medical institutions, and aligning with reforms of the medical security system.

The new pricing mechanism emphasizes balance, rather than favoring any single party—hospitals, pharmaceutical companies, or patients. In other words, the elimination of markups on drugs and medical consumables, coupled with the implementation of centralized volume-based procurement, has reduced hospitals’ non-service-related revenue. The most effective way to compensate for this loss is to increase the prices of medical services. Specifically, while ensuring an overall downward trend in patients’ total treatment costs, hospitals may appropriately raise fees for outpatient visits, surgeries, and other procedures, thereby achieving a win-win outcome for both hospitals and patients.

The Pilot Scheme also emphasizes the separation of technical labor from material consumption, enabling independent accounting, evaluation, and supervision for each process. Under the new mechanism, regulatory authorities can manage medical service processes in a standardized manner and promptly identify any irregular practices concealed within them.

Certainly, price increases for medical services should ideally be underpinned by new technologies that deliver added value. To facilitate the adoption of high-value novel medical technologies, the Pilot Program stipulates that regulatory authorities will establish a fast-track approval pathway for technologies enabling medical services that can effectively optimize diagnosis and treatment protocols for major diseases or fill gaps in current clinical practice, thereby accelerating their inclusion in the pricing catalog.

From a longer-term perspective, healthcare service price reforms are effectively guiding a shift in the focus of clinical practice: whereas patients previously sought medical attention only after their conditions had become severe, under the new system, regulators aim to establish a prevention-oriented healthcare service model to minimize the need for subsequent surgical interventions.

An industry expert discussed this trend, stating: “The ultimate objective of the state’s push to realign medical service prices with their intrinsic value may not be singular. On one hand, the high premiums on pharmaceuticals and medical devices have incentivized physicians to overprescribe them, which harms both the national health insurance system and patients. The establishment of a new pricing mechanism for medical services will reshape the incentive structures for doctors and hospitals, enabling physicians to benefit from delivering high-quality care. On the other hand, under the broader trend of early diagnosis and screening, the state is inclined to upgrade diagnostic methods to provide treatment at the earliest stages of disease. By substituting non-invasive examinations and pharmacological interventions for downstream surgical treatments, this approach aims to fundamentally reduce the high costs associated with surgery.”

From this perspective, can cancer early screening technologies and AI-assisted diagnostic technologies—centered on the core philosophy of “screening for prevention” and capable of optimizing existing medical workflows—usher in a new phase of development?

Taking early screening for colorectal cancer as an example, this type of tumor often presents with obvious symptoms in its early stages, such as fecal occult blood. However, traditional diagnostic methods typically require patients to undergo colonoscopy. For most people, colonoscopy is not an ideal testing method due to discomfort or aversion, which may lead some patients to refuse the examination. This refusal can result in tumor progression and significantly increase the difficulty of treatment.

Therefore, non-invasive liquid biopsy has emerged as an effective alternative. Taking New Horizon Health’s Colotect Plus as an example, this approach detects DNA mutations in stool samples, thereby replacing invasive colonoscopy with a non-invasive test and significantly improving the detection rate of colorectal cancer. In 2020, New Horizon Health obtained China’s first approval for early cancer screening with Colotect Plus, underscoring its significant value.

AI-supported FFR provides a more intuitive example. Professor Shi Changzheng’s research team from the First Affiliated Hospital of Jinan University published a paper in *European Radiology* titled “A 2-year investigation of the impact of the computed tomography–derived fractional flow reserve calculated using a deep learning algorithm on routine decision-making for coronary artery disease management.” The trial results demonstrated that “DeepVessel FFR (DVFFR),” developed based on an artificial intelligence deep learning algorithm, could reduce unnecessary coronary angiographies by 72% without increasing major adverse cardiovascular events (MACE). Previously, the US-based company HeartFlow also showed in the PLATFORM study that FFRCT, developed based on computational fluid dynamics, could reduce unnecessary coronary angiographies by approximately 60%. These findings indicate that CT-FFR developed using AI deep learning algorithms can more accurately identify patients who are appropriate candidates for coronary angiography.

Coronary angiography, which involves the use of guidewires and vasodilators, is gradually declining due to the emergence of CT-FFR. This may explain why the first Class III medical device approval for AI-assisted diagnosis was granted to Keya Medical’s AI+CT-FFR solution (DeepVessel FFR® DVFFR).

Currently, Keya Medical’s CT-FFR has been implemented by being included in the medical service pricing catalog and has been approved for inclusion in the list of newly added medical items in seven provinces across China. The implementation of the Pilot Program further validates its strategic layout.

If this technology can, as demonstrated in experiments, improve diagnostic and treatment workflows, it will provide hospitals with the flexibility to increase their service prices.

To some extent, medical service pricing may offer innovative life sciences companies new pathways for commercialization. If more AI products (such as AI for pneumonia diagnosis) can subsequently generate revenue for hospitals by reshaping clinical workflows, could empowering medical services through inclusion in official price catalogs replace traditional tendering and bidding processes, becoming the mainstream route for AI adoption in hospitals in the future? Regardless of the approach, these developments present both opportunities and challenges for AI-driven healthcare innovation enterprises.