China: Is My Digital Health Tech a Service or a Product?

Chen Yang explains why the key question for digital health manufacturers looking to commercialize their products within China is determining whether the Chinese regulators will classify them as a medical service, or a medical product. Coverage questions are unclear.

Digital health is a rapidly growing area in China, one that is attracting a great deal of attention from the industry and the regulators. Regulation is likely to continue to change and evolve in 2023. 

Digital health initiatives in their various forms and technologies fall under the ambit of multiple regulations in China, and these are still evolving. A holistic, multidisciplinary approach to legal and regulatory analysis is therefore required to identify the most viable business models for digital health technologies in China. 

Digital health technologies can essentially be categorized into medical services and medical products. These fall under the jurisdiction of two separate Chinese regulatory authorities: the public health authority, the National Health Commission (NHC), and China’s food and drug administration, the National Medical Products Administration (NMPA). For those technologies that are considered medical services, the current “bricks-and-mortar” NHC regulations for medical institutions and medical practice apply. These essentially require a license to be granted by the NHC for a new digital technology or “medical service.” However, the life sciences e-industry is starting to explore the possibility of conducting decentralized clinical trials in China. This is likely to lead the NMPA to develop further guidelines for medical services, in line with other major markets. 

For those digital health technologies considered medical products, the NMPA has developed guidelines for the regulatory approval of software as a medical device (SaMD). This particularly applies to AI-incorporated SaMD. In general, the NMPA considers the intended use and the nature of data processed by a piece of software to be fundamental criteria in determining whether a product should be classified as a medical device. The maturity of the underlying algorithm will also determine whether the digital health technology is classified as an SaMD.

The SaMD categorization also brings challenges to the existing bricks-and-mortar regulatory framework established by the NMPA, the framework that covers the importing, manufacturing, and distributing of medical devices. For example, in the case of cross-border licensing transactions, an import question is to what extent an SaMD will be considered locally manufactured or whether what is licensed by the foreign licensor has to remain categorized as imported. Another key question is how an SaMD can be reimbursed under the current medical device reimbursement policies of China. In particular, the question arises about whether Chinese public hospitals would be willing to procure SaMD products given their already tight budgets or whether the products would need to remain within retail channels. 

Operations of digital health services in China are subject to other regulations covering telecommunication services, human genetic resources, network security, and personal information protections. For example, digital health products or services involving online data processing functions may be considered telecommunication services and therefore subject to additional licenses issued by the Ministry of Industry and Information Technology (MIIT). Traditionally, foreign investments are subject to more restrictions in this area. The NMPA also requires that important data, personal information, and human generic data collected and generated in China by SaMDs should in principle be stored in China and subject to a security review in the case of cross-border data transfer. The same local storage and security review requirements apply to digital health services that collect and process similar information and data in China.  

There currently is no special pathway for reimbursement of digital health products in China. In general, the reimbursement of digital health products would have to follow the same procedures as applicable to medical devices, where products can be reimbursed either as medical consumables or as a part of the medical treatment expenses. To be able to get reimbursed, the digital health product must first become a chargeable item for public hospitals, then be included in the provincial reimbursement catalogues in China. Whether digital health products can successfully navigate these pathways remains to be seen in 2023. 

The views expressed in these articles are exclusively those of the authors and do not necessarily reflect those of Sidley Austin LLP and its partners. This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers.
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