Navigating Regulation in China's Internet-Plus Healthcare Sector: Compliance as the Key to Market Entry

Sep 08, 2015 08:08 CST Updated 08:08

The development prospects of China’s internet healthcare industry are remarkably promising. It is projected that by 2017, China’s internet healthcare market will become the second largest in the world, trailing only the United States. This explains why BAT (Baidu, Alibaba, and Tencent) have been actively positioning themselves within the internet healthcare sector. However, such strategic moves are not arbitrary, as many segments of China’s internet healthcare industry remain partially closed. Even in open sectors, entrepreneurs must obtain certification and qualify before operating. In other words, to capture a share of this lucrative market, one must first gain a thorough understanding of the relevant regulations.

According to VCBeat’s analysis, the internet healthcare categories that currently require official approval mainly include telemedicine, online pharmacies, mobile medical devices, and medical apps. As these fall under different sub-sectors, the applicable regulations vary by category.

Telemedicine

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Broadly speaking, current telemedicine services can be divided into two categories: one isTelemedicine Between Healthcare Institutions, i.e., medical institutions with limited capabilities use information technology to seek treatment guidance from more specialized or comprehensive hospitals with advanced expertise for their patients; the second type isMedical institutions leverage information technology to directly provide diagnostic and therapeutic services to patients.

However, in light of the current booming telemedicine deployments on the market, this generally refers to the second category. But in accordance with the provisions of the “Opinions of the National Health and Family Planning Commission on Promoting Remote Medical Services in Medical Institutions,”Currently, only the first type of telemedicine service is permitted in China, while the second type is prohibited.In other words, in China, telemedicine services can only be conducted between medical institutions that hold a "Medical Institution Practice License." However, since online consultations are not classified as telemedicine, there are many health consultation websites on the internet, such as Haodafu and Chunyu Yisheng. These platforms primarily operate through internet-based healthcare models, including tiered diagnosis and treatment, appointment registration, and post-diagnosis follow-up. Of course, there are restrictions on establishing such health consultation platforms; to qualify for operation, one must apply for and obtain the "Approval Letter for Internet Medical and Health Information Services."

Pharmaceutical E-commerce

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Currently, the main transaction models of pharmaceutical e-commerce in China are B2B, B2C, and O2O. The first two models developed relatively rapidly in the first half of 2015.

According to statistics from the China Food and Drug Administration (CFDA), as of mid-August, a total of 447 enterprises had obtained qualifications for online transactions, including 332 in B2C, 99 in B2B, and 16 in O2O. In addition, B2B sales accounted for 90% (excluding the O2O model). This is because the B2B model is less affected by policy factors and has a clearer profit model. In contrast, B2C is influenced by the timeliness of consumer demand, as well as restrictions on online sales of prescription drugs and barriers to integration with medical insurance systems. Although it has experienced rapid growth, its profit margins are slim, and most platforms are operating at a loss.

Due to its unique nature, pharmaceutical e-commerce in China is subject to far stricter regulation than general e-commerce. According to the Interim Provisions on the Approval of Internet Drug Transaction Services, enterprises applying to provide internet drug transaction services to individual consumers (B2C) must meet the following conditions:

(1) Legally established chain retail pharmaceutical enterprises;

(II) The website providing internet drug transaction services has obtained the qualification to engage in internet drug information services;

(3) Possess sound network and transaction security measures as well as a complete management system;

(4) Possessing the capability, facilities, and equipment to fully preserve transaction records;

(5) Possess basic transaction service functions such as online consultation, online inquiry, order generation, and electronic contracts;

(6) There are complete management systems and measures for varieties traded online;

(7) Possess a drug distribution system compatible with the varieties traded online;

(8) Licensed pharmacists shall be responsible for providing real-time online consultations, and facilities, equipment, and relevant management systems shall be in place to ensure the complete retention of consultation records;

(9) Entities engaged in medical device transaction services shall be staffed with full-time professionals who hold academic qualifications in medical device-related fields and are familiar with relevant medical device regulations.

As can be seen from the above regulations,To launch a pharmaceutical e-commerce business, companies must at least clear the following thresholds:

It is itself a legitimate pharmaceutical chain retailer;

GSP-certified pharmaceutical distribution system;

Able to arrange for licensed pharmacists to provide real-time consultation services to customers.

In addition to the above conditions,Enterprises must also obtain the “Internet Drug Transaction Service Qualification Certificate” and the “Internet Drug Information Service Qualification Certificate”; both certificates are indispensable for eligibility to operate an online pharmacy.。

Although the draft for public comments of the Measures for the Supervision and Administration of Online Food and Drug Operations, released on May 28 last year, proposed for the first time to lift the ban on online sales of prescription drugs, Wang Guoqiang, Deputy Director of the National Health and Family Planning Commission and Director of the State Administration of Traditional Chinese Medicine, clearly stated on March 27 this year that,No Online Prescription Drug Sales Plan to Be Issued in the Short Term. Therefore, to date, only over-the-counter drugs may be sold, and the sale of prescription drugs via telephone solicitation, mail order, or online transactions is prohibited.

Mobile Medical Devices

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From a market perspective, mobile medical devices are primarily used for remote patient monitoring and on-site professional medical care. According to GSM’s measurement standards for the mobile health industry, manufacturers of medical devices and content/application providers account for approximately 39.83% of the market. It is projected that by 2017, the sales volume of China’s mobile medical device market will approach RMB 5 billion.

Due toCurrently, China has not issued a separate classification standard for mobile medical devices., therefore, enterprises need to determine the category of their products based on product characteristics in accordance with the "Medical Device Classification Rules," or they can directly consult the CFDA.

According to the "Measures for the Supervision and Administration of Medical Device Production" (Order No. 7 of the China Food and Drug Administration):

On the Establishment ofClass I Medical DevicesManufacturing enterprises are subject to relatively few requirements; they need only submit the documentation specified for review to the municipal-level food and drug administration in their respective districts with subordinate districts to complete the filing for Class I medical device manufacturing. The food and drug administration will verify the completeness of the submitted materials on-site, and if the conditions are met, the filing will be accepted and a Class I Medical Device Manufacturing Filing Certificate will be issued.

On EstablishmentClass II and Class III Medical DevicesManufacturing enterprises are subject to numerous requirements and must submit the materials specified by regulations to the food and drug administration department of the province, autonomous region, or municipality directly under the Central Government where they are located to apply for a production license. Within 30 working days from the date of accepting the application, the said department shall review the application materials and conduct an on-site inspection in accordance with the Good Manufacturing Practice for Medical Devices. If the applicant meets the prescribed conditions, a written decision granting the license shall be made in accordance with the law, and the Medical Device Production License shall be issued within 10 working days; if the applicant fails to meet the prescribed conditions, a written decision denying the license shall be made, with reasons provided.

Qualification review requirements vary slightly across different regions. Enterprises may be required to obtain either ISO 13485 or YY/T 0287 certification, and in some cases, GMP certification may also be necessary. Specific requirements should be confirmed with the relevant local authorities. It is particularly important to note thatSince 2014, medical devices have no longer required CCC certification.。

After obtaining the Medical Device Production License, enterprises can manufacture their own medical products in China. However, to sell these products in China, enterprises must also register or file their products with the relevant authorities in accordance with the Measures for the Administration of Medical Device Registration, thereby obtaining certification from the China Food and Drug Administration (CFDA).

Medical App

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Compared with other internet healthcare products, medical apps have become the most rapidly developing and largest category due to factors such as lack of regulation and low industry entry barriers. According to statistics, there are currently over 2,000 medical apps in China. They mainly cover five areas: e-commerce for pharmaceutical products, platforms for professionals to access specialized information, services meeting needs for medical consultation and diagnosis, appointment registration and patient guidance, and platforms for consultation and reviews.

Even as market forces pressure the introduction of policies, China has so far enacted only one departmental regulation with limited legal effect—the “Measures for the Administration of Internet Healthcare and Health Information Services,” issued by the Ministry of Health in 2009. This regulatory vacuum has hindered effective protection of intellectual property, led to severe homogenization among medical apps, and posed threats to personal privacy and security.

However, after Premier Li Keqiang first proposed the “Internet Plus” action plan at the Third Session of the 12th National People’s Congress this year, China is expected to soon enact relevant laws to fill the regulatory gap for medical apps.

Therefore, for enterprises to capture a share of the internet healthcare market, in addition to obtaining the requisite qualifications in accordance with regulations, they should also secure certain certifications. The following section examines some of the more significant certifications available both domestically and internationally.

Domestic and International Certifications/Regulations

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◆CFDA Certified
CFDA certification is the procedure for granting medical devices legal status,All medical devices sold in China must obtain CFDA certification.. For imported medical devices, regardless of their classification, registration must be handled with the National Medical Products Administration (NMPA). For domestically produced medical devices, Class I and Class II devices are registered with the provincial or municipal Medical Products Administration, while Class III devices are registered with the NMPA.

◆ ISO 13485 Certification
ISO 13485 certification is an internationally recognized standard for evaluating quality management systems for medical devices. InMany countries require ISO 13485 certification when applying for licenses to manufacture and sell medical devices.. Obtaining ISO 13485 certification is tantamount to securing a passport to the international market, thereby enhancing product competitiveness.

◆ HIPAA Act
Whether it is telemedicine, online consultations, or health management via medical apps, all involve issues of user privacy and security. Unlike China, which currently lacks specific legislation in this area, the United States enacted the HIPAA Act as early as 1996. This law is a U.S. statute specifically designed to safeguard the security of healthcare information exchange. Compliance with HIPAA by health insurers and healthcare providers can significantly help curb rising healthcare costs.

◆RoHS Certification
The full name of RoHS is the “Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment” (Restriction of Hazardous Substances). It is a mandatory certification established by the European Union. Electronic medical devices must obtain this certification to be circulated in the European market.

◆CE Certification
AtCE marking is also a mandatory certification for the EU market.Whether products are manufactured by companies within the European Union or in other countries, they must obtain CE certification to circulate freely in the EU market; even emerging products such as medical apps are not exempt. However, compared with the United States, the EU adopts a more open-minded approach to the approval of internet-based medical products. For instance, when reviewing medical apps, the EU currently defaults to classifying them as Class I medical devices, which carry the lowest regulatory requirements. Only when evidence indicates that an app poses significant safety risks is it classified as a Class III medical device, subject to the most stringent approval requirements. Furthermore, the EU certification process is simpler and less time-consuming than the U.S. FDA approval process. Consequently, many companies choose to first obtain CE certification to enter the European market, using the resulting revenues to subsidize the costs associated with securing FDA approval.

◆ FDA Approved
As in the European Union, regulation of the internet healthcare industry in the United States covers all aspects. The FDA has long included emerging entities such as telemedicine platforms and medical apps within its regulatory scope. Like other medical devices, these internet-based healthcare products must obtain FDA clearance or approval before they can be marketed in the United States.

Compared with the European Union, the U.S. Food and Drug Administration (FDA) has adopted a highly cautious stance toward internet-based medical products, resulting in an exceptionally lengthy approval process. As a result, the FDA has faced persistent criticism from external stakeholders, who accuse it of hindering the development of the digital health industry. However, readers familiar with VCBeat may have noted from our previous reports that the FDA is attempting to ease regulatory constraints on the internet healthcare sector.

This January, the FDA released two draft guidance documents on mobile medical devices, introducing new regulations for the classification of mobile medical devices and medical apps. Only those mobile medical devices and medical apps directly related to treatment are classified as Class III medical devices, while other mobile medical devices used for purposes such as recording body weight or improving the lives and symptoms of patients with chronic diseases are categorized as Class I medical devices. Like China, the United States classifies medical devices into three categories based on safety risk: Class I carries the lowest risk and is subject to the least regulatory oversight, whereas Class III poses the highest risk and faces the most stringent regulation.

Under the draft regulations, many mobile medical devices and healthcare apps that have not yet received FDA clearance can be classified as Class I medical devices. This reclassification increases their likelihood of obtaining clearance, which in turn means that the number of new mobile medical devices and healthcare apps launched in the U.S. this year will rise.

The following set of data illustrates this trend: In 2014, a total of 16 medical apps received FDA clearance; in the first half of this year alone, 10 medical apps have already been cleared, surpassing last year’s figure on a proportional basis. (VCBeat has provided detailed coverage of these apps:Detailed Analysis of the 31 Mobile Health Products Approved by the FDA in 2014；10 Medical Apps Approved by the FDA in the First Half of 2015）

Although some entrepreneurs are dissatisfied that certain mobile medical devices and healthcare apps are still classified as Class III medical devices, this is not necessarily a bad thing. In fact, it indicates that the FDA recognizes these mobile medical devices and healthcare apps as therapeutic tools, rather than merely simple auxiliary aids.

Based on the above, China’s current regulatory framework for the internet healthcare industry remains inadequate. As internet technology continues to advance, internet healthcare products will become increasingly mature. This progression requires coordinated and consistent industry regulation to mitigate obstacles, disputes, and other issues arising from a lack of standardized norms among institutions, between patients, and across interactions involving physicians, patients, and platforms during the delivery of medical services.