The direction of Chinese medical system reform is fundamentally clear. The government will increase the investment in the constructions of public hygiene systems, community systems in urban areas and rural grass-root medical hygiene systems. It can be predicted that Chinese medical instrument market will be in a period of rapid growth in two to three years.

At present, the overall world faces the serious strikes of financial crisis. But investment opportunities still exist under international financial crisis. Because the developed countries are affected by the international financial crisis, they are bound to reduce the public welfare budgets and they have reached the agreements to find excellent quality and reasonable price substitutes, which provides growth opportunities for Chinese medical instruments.  

From the part of previous history, medicine industry showed their resistance to reduction in the economic depression period because of its fixed consumers. China was a large production and export country of medium and low quality diagnostic equipments, medical dressing and low and medium valued consumables in the world. Many varieties occupied comparative advantages in the international market. Some products had dominated a certain market share in the international market. It was impossible to replace them with substitutes from other countries in a short time. So far, Chinese medicine industry is comparatively steady under the influence of international financial crisis, keeping comparatively high profits in medical instrument industry. It is predicted that more attentions from domestic and international investors will be paid to Chinese medical instrument industry.

The author of this report paid attention to the development of Chinese Medical Instrument Industry for a long time and investigated into Chinese Medical Instrument Industry to write this report citing abundant valuable second -hand information.

More following information can be obtained in this report:

- Production of Chinese Medical Instrument Industry

-Analysis on the Domestic Demands of Chinese Medical Instrument Industry

- Imports and Exports of Chinese Medical Instrument Industry

- Development of Sub-sectors in Chinese Medical Instrument Industry

- Competitions in Chinese Medical Instrument Industry

- Major Competitive Manufacturers and Their Operations of Chinese Medical Instrument Industry

- Influences of International Financial Crisis on Chinese Medical Instrument Industry

- Development Trends of Chinese Medical Instrument Industry

Summary

At present, Chinese medical instrument industry is in its fast growth period, annual growth speed higher than the whole development level of medicine industry. China has been the third largest medical instrument market after America and Japan. In 2008, the market scale of Chinese medical instrument industry was about 10 billion USD, the annual growth speed past 10%, in which the sales growth speed of high quality medical instruments was over 20%.

But the market scale of Chinese medical instrument only accounts for about 10% of the whole medical manufactures, much lower than the international average level of 40%. Chinese medical instrument manufacturers are 13 thousand, most of which are medium and small companies. 

From the end of 2008, Chinese government increased the investments in basic public hygiene networks. Undoubtedly, it would bring development space for medical instrument producers. Government policies are preferential to fundamental medical organizations. Demands for low and medium quality medical instruments were rising by. The major points of medical reform were the perfection of fundamental medical hygiene service systems, speeding up the constructions of rural township clinics, county clinics and community hygiene service organizations in the cities. With more diagnostics in the community hygiene service organizations in the cities, the problems of difficulty and high cost of getting medical could be solved.

In recent years, not only patients but also medical sources would transfer from hospitals to community hygiene service centers and township clinics, driving the demands for low and medium quality medical instruments. During 2005-2008, the number of community hygiene service centers realized the growth speed of more than 20% under the circumstances of reduction in the total Chinese medical organizations. 

Under the circumstances of international financial crisis, diagnostic and cure instruments, as the major Chinese medical export instruments, kept a fast growth in 2008. The total export revenues of Chinese medical instruments were 11.07 billion USD with a YOY growth of 31.5%.

Medical products belong to inelastic consumption products. Generally speaking, they are comparatively less influenced by macro-economy, especially in developed countries, such as European Union. Most medical costs are paid by state revenues and social commercial insurance. Therefore, the demands for Chinese diagnostic and cure equipments are still high in the international market.

In 2008, the total import and export revenues of Chinese medical instruments reached to 16.28 billion USD, rising by 28.21% year on year. The export revenues were 11.067 billion USD, increased by 31.46%. The import revenues were 5.216 billion USD with a YOY growth of 21.81%. The medical instrument trade continually kept a trade surplus of 5.851 billion USD.

In 2008, Chinese medical instruments exported to 217 countries and regions. The top five trade partners of Chinese medical instruments were America, Japan, Germany, Hong Kong and Great Britain, accounting for 53.55%, turning down 1.58% compared with 2007. Among the top 20 export revenues of Chinese medical instruments in 2008, Brazil was the country with the largest export growth, reaching to 77.24%.

In 2008, China imported 5.216-billion USD medical instruments from 98 countries and regions, increased by 21.82% year on year. The import volumes from Europe were 2.009 billion USD, rising by 22.78% year on year. The import volumes from Asia were 1.545 billion USD with a YOY growth of 24.36%. The import volumes from North America were 1.543 billion USD, increased by 16.55% year on year. The import volumes from America were 1.5 billion USD, growing by 16.09%. The import volumes from Germany were 955 million USD, increased by 22.44%. The import volumes from Japan were 900 million USD, rising by 24.75%.

Among Chinese import medical instruments, the import volumes of 15 types were over billion USD, five more compared with 2007. 41 types passed the import volumes of hundred million USD, three more compared with 2007. China mainly imported high quality diagnostic equipments and lab equipments so as to fill the blank in Chinese high quality medical instrument market.

Chinese diagnostic and cure equipments, medical dressing and consumables had strong price advantages in the world market. In 2008, the export revenues of Chinese diagnostic and cure equipments reached to 3.616 billion USD, rising by 31.64% year on year. The export revenues of medical dressing were 3.113 billion USD, growing by 29.4% year on year. The export revenues of consumables were 1.854 billion USD, increased by 30.08% year on year.

Among the diagnostic and cure equipments, the export volumes over billion USD concluded: the export volumes of CT were 228 million USD, rising by 49.36% year on year. The export volumes of colored ultrasonic diagnostic apparatus were 203 million USD, increased by 51.54%. The export volumes of nuclear magnetic resonance therapy apparatus were 158 million USD, growing by 79.76%. The export volumes of type-B ultrasonic apparatus were 109 million USD, rising by 5.88%. The export volumes of patient monitoring apparatus were 154 million USD, rising by 26.39%.

To get more details, please visit Report of Chinese Medical Instrument Industry under International Financial Crisis, 2009

Physicians must keep in mind that they cannot ignore Stark, as nearly every financial relationship between physicians and entities that furnish designated health services (“DHS”) implicate the law.  Violations of the Stark law have substantial consequences for all parties involved, regardless of the intent of the parties.  Sanctions include denial of payment for DHS claims, civil monetary penalties ($15,000 for each claim submitted plus two times the reimbursement claimed), and exclusion from Medicare and Medicaid.  In addition, parties who enter into circumvention schemes are subject to a civil monetary penalty of up to $100,000 per scheme.

Group practices are well advised to document their compliance with Stark.  Documentation supporting compliance is particularly important in today’s health care environment, which has had an increase in Federal False Claims litigation and investigations stemming from Qui Tam whistleblowers utilizing technical violations of the Stark law as a predicate for False Claims Act violations.

Application of Stark in the Group Practice Setting

Many common financial relationships can trigger the need for a Stark analysis.  This article, however, will focus on Stark’s applicability in the group practice context as Stark applies to referrals of DHS within a group practice.  For example, if a physician practice provides services such as physical therapy, clinical lab, x-rays, and/or ultrasounds, within the practice, Stark will be implicated.  Once the prohibition is triggered, the relationship(s) must then fall within a Stark exception.

The in-office ancillary services exception has been arguably the single most important exception in the Stark law.  This exception is designed to protect the in-office provision of certain DHS that are genuinely ancillary to the medical services provided by the practice.  In order for a physician practice that provides DHS to protect its referrals under the in-office ancillary services exception, the physicians must first qualify for the group practice definition.  The group practice definition is not an exception to Stark in and of itself, but any “group” of physicians that want to take advantage of the in-office ancillary services exception must be structured to meet the group practice definition.

The Group Practice Definition

Under Stark, a group practice is a physician practice that meets the following conditions:

Single Legal Entity.

The group practice must consist of a single legal entity operating primarily for the purpose of being a physician group practice in any organizational form recognized by the State in which the group practice achieves its legal status.

Physicians.

The group practice must have at least two physicians who are members of the group (whether employees, or direct or indirect owners).  Stark defines a member of the group as a direct or indirect owner of a group practice (including a physician whose interest is held by his or her individual professional corporation or by another entity), a physician employee of the group practice, a locum tenens physician, or an on-call physician while the physician is providing on call services for members of the practice.  An independent contractor is not a member of the group.

Range of Care.

Each physician who is a member of the group, must furnish substantially the full range of patient care services that the physician routinely furnishes, including medical care, consultation, diagnosis, and treatment, through the joint use of shared office space, facilities, equipment, and personnel.

Services Furnished by Group Practice Members.

Substantially all of the patient care services of the physicians who are members of the group (that is, at least 75% of the total patient care services of the group practice members) must be furnished through the group and billed under a billing number assigned to the group, and the amounts received must be treated as receipts of the group.  Patient care services must be measured by one of the following:

the total time each member spends on patient care services documented by any reasonable means (for example, time cards and appointment schedules.)  Any alternative measure that is reasonable, fixed in advance of the performance of the services being measured, uniformly applied over time, verifiable, and documented.

Distribution of Expenses and Income.

The overhead expenses of, and income from, the practice must be distributed according to methods that are determined before the receipt of payment for the services giving rise to the overhead expense or producing the income.

Unified Business.

The group practice must be a unified business having at least the following features:

Centralized decision making by a body representative of the group practice that maintains effective control over the group’s assets and liabilities; and

Consolidated billing, accounting, and financial reporting.

Volume or Value of Referrals.

No physician who is member of the group practice directly or indirectly receives compensation based on the volume or value of referrals except as provided under the specialty rules for productivity and profit shares.

Physician-Patient Encounters.

Members of the group must personally conduct no less than 75 percent of the physician-patient encounters of the group practice.

Special Rules for Productivity Bonuses and Profit Shares

The special rules for productivity bonuses and profit shares allow a physician who is in the group practice to be paid a share of overall profits of the group or a productivity bonus based on services that he/she has personally performed (including services “incident to” those personally performed services), provided that the share or bonus is not determined in any manner that is directly related to the volume or value of referrals of DHS by the physician.  CMS now takes the position that diagnostic-testing services cannot be billed as “incident to” but practices that provide physical therapy can, however, bill physical therapy services as “incident to” services (provided that all of the “incident to” requirements are met).

The Stark regulations specifically set forth examples of formulas that will be deemed not to relate directly to the volume or value of referrals.   For example, a group’s profits will be deemed not to relate directly to the volume or value of referrals if revenues derived from DHS are distributed based on the distribution of the group practice’s revenue attributed to services that are not DHS payable by any Federal health care program or private payer.

Documentation of Compliance

Group practices that choose to take advantage of the special treatment that the Stark law affords them must be prepared to demonstrate compliance with the regulations.  In this regard, if requested by the Secretary, group practices are required to provide documentation of the total time each member spends on patient care services, and to maintain documentation supporting compliance with the “substantially all” test.  The “substantially all” test is intended to guarantee that the group practice members are providing a substantial amount of their services through the group.  Groups can document compliance by any reasonable means, including without limitation, time cards, appointment schedules, personal diaries, or other reasonable means that are fixed in advance of the performance of the services being measured, uniformly applied over time, and verifiable.  Groups are also required to document, in writing, a new member’s employment with, or ownership or investment in, the group practice before the new relationship commences.

The In-Office Ancillary Services Exception

In order for a group of physicians to provide DHS within the practice, including without limitation, clinical laboratory, physical therapy, x-rays, and ultrasounds, the group must first meet all of the requirements of the group practice definition.  If the group practice definition is met, the group is then eligible to utilize the in-office ancillary services exception to protect its in-office DHS referrals.  The in-office ancillary exception exempts services personally provided by the referring physician, a physician who is a member of the same group practice as the referring physician, an individual that is supervised by the referring physician, or if the referring physician is in a group practice, by another physician in the group practice, provided that the supervision complies with all of the Medicare payment and coverage rules for the services.  In addition, the exception contains a location and a billing requirement.

Conclusion

This article is intended as only a brief summary of the Stark II Phase II Final Regulations in connection with the in-office provision of DHS within the group practice context.  Physicians and groups that provide DHS should also be mindful that many other common financial relationships may also trigger Stark, including, without limitation, (1) lease agreements for space and equipment; (2) medical director agreements; and (3) physician employment contracts with group practices and hospitals.