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Cablegate: Pushing for Transparency On Medical Device

VZCZCXRO6028
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #2897/01 2070914
ZNR UUUUU ZZH
P 250914Z JUL 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 8801
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHBS/USEU BRUSSELS
RUEHGV/USMISSION GENEVA 2267

UNCLAS SECTION 01 OF 02 BEIJING 002897

SENSITIVE
SIPDIS

STATE FOR EAP/CM, EEB
STATE PASS TO USTR
USDOC FOR 4420/ITA/MAC/CEA/RKARNAK
USTR FOR STRATFORD/WINTER/MCCARTIN/GRIER
USTR FOR GRIER
TREASURY FOR OFFICE OF INTERNATIONAL INVESTMENT
TREASURY FOR OASIA/ISA - DOHNER AND HAARSAGER
GENEVA PASS TO USTR

E.O. 12958: N/A
TAGS: ECON ETRD CH KIPR WTRO EFIN EINV EIND PGOV
SUBJECT: PUSHING FOR TRANSPARENCY ON MEDICAL DEVICE
TENDERING AND BIDDING PROCESS

THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE
ACCORDINGLY. NOT FOR DISTRIBUTION OUTSIDE USG CHANNELS.

1. (SBU) Summary. Embassy FCS officers and Econoff met
with Ministry of Health (MOH) Department of Planning and
Finance Director General Zhao Zilin and MOH International
Health Exchange and Cooperation Center (IHECC) Centralized
Purchasing Office Director Li Ling on July 24 to push for
greater transparency in the medical device tendering and
bidding process in China. DG Zhao explained MOH and NDRC's
regulatory role in the medical device tendering and bidding
process and suggested further technical discussions be held
by experts on both sides at a later unspecified date. End
Summary.

----------
BACKGROUND
----------

2. (SBU) United States Department of Commerce (DOC) Under
Secretary (U/S) Christopher Padilla sent a letter dated
June 5 to China's Vice Minister of Health Chen Xiaoheng
requesting MOH postpone its June 10 scheduled national
tender for medical devices in lieu of United States
industry concerns regarding lack of clear and transparent
guidelines in the tendering and bidding process. VM Chen's
June 19 dated response letter indicated MOFCOM would not
postpone its scheduled national tender, but referred
Embassy staff to meet with Ministry of Health officials to
discuss United States industry concerns further.

--------------------------------
Same Equipment, Different Prices
--------------------------------

3. (SBU) Ministry of Health (MOH) Department ofPlanning
and Finance Director General Zhao Ziin admitted to FCS
officers and Econoff on July 24 that China's current
tendering and bidding process is not "perfect", and
acknowledged that different prices for medical products
with the same specifications sold in different hospitals
across varying regions, and challenges in regulating that
market is a concern not only for United Sates industry, but
also for MOH. He cited for example, that the same
radiation knife sold for RMB 35,000 (USD 5,147) in a
hospital in Shanghai is sold for RMB 50,000(USD 7,353) in
Guangxi Province, a difference of RMB 15,000 (USD 2,205).
Zhao stated that MOH IHECC's centralized purchasing of high
value medical devices started only half-a-year ago, that it
is the first time MOH has conducted a centralized tender,
and that MOH is interested in continuing to learn from the
United States and industry on best practices. Zhao
welcomed Embassy staff recommendations that further
technical exchanges occur between experts on both sides to
discuss how the United States enforces and ensures
regulatory transparency in the tendering and bidding
process.

4. (SBU) Zhao explained that IHECC is tasked with
centralized purchasing of high value medical devices and is
responsible for formulating methodologies to ensure that
appropriate price controls are in place to prevent
manufacturer?s from exorbitantly marking up the price of
medical devices. Complicating the process in China,
however, is the requirement that regulations adhere to
three separate laws - the Tendering and Bidding Law,
Government Procurement Law, and MOH's Medical Equipment
Purchasing Measures, and the challenge to ensure measures
adhere to all three, falls under the International Health
Exchange and Cooperation Center (IHECC), Zhao said. He
stated that the results of MOH's centralized tender would
be released to the public soon and that there would be a
standard nationwide price for high value medical devices
published and released to domestic hospitals in the near
future. He explained that MOH's Medical Equipment
Purchasing Measures classify large-scale and high-end

BEIJING 00002897 002 OF 002


medical equipment into two categories (A and B). Category
A includes new technology and equipment valued over RMB 5
million (USD 735,294) while Category B includes equipment
such as MRI, Cat Scanners, Accelerators, and other devices
that fall under the various provincial-level departments of
health jurisdiction.

5. (SBU) Zhao said NDRC is responsible for monitoring
prices and controlling the mark-up of prices at the
hospital level whereas MOH is responsible for ensuring
sufficient price controls are in place at the
manufacturer's level. Zhao stated it would be worth
discussing regulatory procedures for ensuring standard
pricing practices are used across the board and across
regions to avoid inordinate mark-ups for medical equipment
in the future. When asked about a RMB 1500 (USD 221)
tendering fee per item that companies must pay each time
they want to sell their product, Zhao stated the fee is
usually a one-time fee charged by intermediary agents and
brokers. Zhao stated that in the future only operational
costs should be charged. Embassy staff emphasized that
such "hidden" transaction fees have nothing to do with the
price of the equipment itself, unfairly raises the price of
equipment, and hence cost of medical services to consumers.

------------------------------
Non Transparent Review Process
------------------------------

6. (SBU) MOH International Health Exchange and Cooperation
Center (IHECC) Centralized Purchasing Office Director Li
Ling stated the method in which they develop a reference
price for the tendering process is through a randomly
selected review panel of experts that score products. She
said before determining product price, the expert panel
reviews general quality of products, past sales history,
post-sales services and technical support, and scientific
advancement. However, she did not specify the composition
of the expert committee, what specific "scientific"
criteria were being used by the committee to determine
price, nor revealed how expert committee scores and
evaluations for determining product price were being
collected and reviewed.

7. (SBU) Zhao stated that in October, MOH plans to hold a
large-scale medical equipment exhibition in Beijing
including a technology show in which it plans to discuss
regulatory proposals. He also stated that MOH would like
to hold a seminar inviting domestic and foreign
participants including his MOH counterpart officials at the
local level, industry, United States government, and the
expert committee to discuss the tendering process further
and explore ways to improve it for the future.

#Randt

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