What are the clinical and regulatory opportunities for diagnostics innovators when we look beyond the Coronavirus pandemic?

February 2020

As COVID-19 is on the verge of becoming a pandemic and the entire world is fighting this new virus, we have taken a step back to provide a bird’s-eye view of the approach in China to infectious disease management and the regulatory mechanism for clinical diagnostics. Our intention is not to judge how the China health care system is managing events in real time – an incredible challenge under any circumstance – but rather to provide background on the ecosystem of infectious disease management and regulation in China. Our hope is that this context will better equip the industry players and possibly regulators in China to look for opportunities and improve the system to become more agile and efficient to not only cope with the next threatening disease on a large scale but also to improve health care delivery on a daily basis.

China has adopted a sentinel surveillance system to manage infectious diseases

In 1989, a infectious disease law was introduced and was revised in 2004 after the SARS outbreak. China had identified 39 notifiable infectious diseases and classified them into classes A, B, and C in descending order of severity. The idea of the classification is to enable all stakeholders, such as the general public, health care providers, regulators, and others to act according to a pre-defined protocol. For example, a health care provider is supposed to report a case within 2 hours upon acquisition of such information for a Class A disease condition whereas that reporting time window is extended to 24 hours for Class B and Class C disease conditions.

The new coronavirus was added to the list in January 2020 as the 40th disease condition. Although it is classified as a Class B condition, as is SARS, the government has decided to apply Class A management mechanism to fight the virus outbreak.

Table 1: 40 Notifiable Infectious Diseases in China

notifiable infectious diseases in China

As a result of the 2003 SARS outbreak, the National Notifiable Disease Surveillance System (NNDSS) was strengthened to include the establishment of a dedicated surveillance system for influenza under China CDC through a national sentinel network of 410 laboratories and 554 hospitals (2019 statistics) covering nearly all cities in China (China has in total 661 cities).

However, any system can easily fail to function when a critical component of that system, or the people administering it, make an improper judgement.  For example, if a sentinel health facility is late in detecting and reporting the new virus, there will be criticism as to how the information had been handled and processed when going through the hierarchy, and that if the public health authorities had reacted to the virus earlier and more rapidly, there may have been a chance to contain the virus before it becomes a national and now a global threat.

Although China’s health care delivery is heavily based on hospitals, hospitals are not necessarily equipped or competent to perform the PCR-based tests for the Coronavirus

The other area that has been heavily criticized is the bureaucratic testing process that has delayed the identification of this new virus, as well as the clinical diagnosis, especially in the early stages of the outbreak.  Looking beyond how the health system has managed the Coronavirus crisis however, there are some regulatory dynamics for clinical diagnostics that the crisis has exposed that offer some learnings for both innovators and the system as a whole.

One dynamic that is commonly known to our IVD technology industry clients is that today there is no regulatory pathway for RUO (Research Use Only) or LDTs (Laboratory Developed Tests) in China meaning that all tests for clinical use must go through the CFDA (the official name: National Medical Product Administration) approval process, which is an expensive and lengthy process that most IVD players will not be able to afford.

But the restrictions and difficulties to use a novel test in a clinical setting go far beyond the product level registration.

First, there is the qualification and competence of the labs providing clinical diagnosis. Understandably medical labs providing clinical diagnosis, whether a hospital lab or independent lab would need to be qualified before they could perform any clinical diagnostic services. Labs performing PCR testing, which is the gold standard for the diagnosis of COVID-19, would have to go through additional certification and qualification known as Guidelines of Establishment of PCR Laboratories (2018 by National Center of Clinical Laboratories). That includes standard procedures for working with potentially infectious materials, such as specimen collecting and processing, packing, shipping and transport, and clinical laboratory testing. COVID-19, for example, can only be handled by a certified Class II (or above) Biological Safety Cabinet (BSC).

China’s health care delivery has been heavily reliant on hospitals and that goes for laboratory services as well. Investor-backed independent or commercial labs independent from hospitals, are growing as a new business opportunity area, but the majority of clinical diagnoses are made in the hospital labs. The Hospital Infrastructure and Service Capability Guidance (2016) classifies medical laboratory services into 1) the “basic” and 2) “recommended” services.

There is also a minimum requirement in terms of hospital testing capabilities according to the classification level or tier of the hospitals. For example, a Tier III hospital (Table 2 provides the data of hospitals in China by tier) would need to be able to perform at least 219 testing services from the “basic” list and 157 “recommended” testing services.

Table 2: Number of hospitals in China by tier (2018)

Number of Hospitals in China by Tier 2018

Most molecular diagnostics and genetic testing, like PCR testing for COVID-19, are on the “recommended” testing list rather than “basic” even for the Tier 3 hospitals. That was one of the main reasons why there was a serious capacity challenge to diagnose the cases in a timely manner at the beginning of the outbreak. One of the crisis management measurements taken by the local health authorities to expand the testing capacity has been to include the independent labs, which traditionally are not used by the public hospitals. For example, the number of certified medical labs offering 2019-nCoV viral nucleic acid PCR testing in Wuhan increased from 10 to 18 as a result of the crisis, but this is still a low number given that there are 61 Tier 3 hospitals in Wuhan alone.

An underlying reason why Tier 3 hospitals are not resourced to perform molecular diagnostics such as PCR also has to do with hospital financial constraints due to limitations of current pricing and coding mechanisms. The challenge is either that there may be no service code by which the provider could bill the payer, or if there is an existing service fee, it is just too low to cover the cost of the novel testing technology (a persistent problem well-known by technology innovators). As the diagnostics innovation continues to accelerate, most molecular testing technologies unfortunately have constantly run into the conflict with the constraints of the current health financing system. It has been well documented that at the beginning of the coronavirus outbreak, patients struggled to get the test simply because the testing was not reimbursed.

Are the authorities and care providers going to see these systematic flaws when COVID-19 eventually subsides and learn the lesson to build a more flexible and agile system? This is something that industry should continue to focus on from a policy perspective in order to expand and routinize access to advanced diagnostics.

CFDA has granted accelerated approvals for several IVDs and a genome sequencing system for emergency use, all from local Chinese players

Now we are going to circle back to the regulatory mechanism for IVD products in China.

As mentioned previously, China today does not have a regulatory pathway for LDTs or RUO kits. IVDs for clinical use, even including calibrators and control materials must go through the laborious, expensive, and lengthy CFDA approval process. This is especially the case for those novel tests where the CFDA expects a registration study on Chinese patients with minimal sample number requirements ranging from 200 to 1,000 or even more dependent on the risk level.

This presents another barrier to novel test access and timely diagnosis in the case of any emergent disease. The regulatory burden is such that a service-specific-qualified hospital lab would be breaching the law if a capable pathologist or lab physician provides a diagnostic report based on an unregistered IVD test.

Only the CDC in China can operate above the CFDA limitations. Being the nation’s highest technical agency for managing public health, the CDC gets to equip its labs with registered and unregistered products in the name of research setting and hence has always been a blue-chip client for state-of-art technologies such as next generation sequencing. Actually, genome sequencing of COVID-19 carried out by the CDC labs are largely performed on an NGS platform although the platform had no regulatory approval status from CFDA for this purpose.

CFDA’s efforts in a time of emergency are to introduce special approval procedures and protocols to enable the accelerated reviews and approvals for virus-related medical products, such as pharmaceuticals, medical devices and IVDs. On January 26, 2020, less than 20 days since the genomic sequence of nCoV-2019 was published, CFDA granted accelerated approval for 4 real-time fluorescent RT-PCR diagnostic kits of the novel Coronavirus and four weeks later, by February 25th, five additional diagnostic kits were approved, including sequencing system. All products are locally produced by Chinese companies.

The local competition from Chinese players has always been a concern of the companies outside of China trying to enter the market with their technologies and these cases can only prove that the threat is real, worsened by the fact that the regulatory cost to enter the Chinese market presents a substantial challenge. We have seen several cases where copycats immediately pop up a few months after the original technology has received the CFDA approval after millions of investment and years of effort, yet all the local players need to do is to demonstrate equivalence to the originator product. A question we always ask our clients, companies or investors for novel diagnostic technologies keen to explore the China market opportunity, is “are you convinced that your product cannot be easily duplicated?”

Implications for Innovators

When China starts to look back to learn lessons from this fight against the new virus, it will offer a precious opportunity to initiate changes to some of the essential system dynamics that have been in place for decades but have hindered the adoption of novel technologies like those discussed: challenges to LDT use, the lengthy and expensive regulatory requirements for clinical diagnostics, the lack of funding for the novel tests, etc.

The epidemic will also likely accelerate business and technological innovation designed to promote remote health care delivery and home monitoring between the health care providers and patients. Technologies and means to improve efficiency and connectivity between health care facilities (B2B) will also be high on China policy makers’ list of actions after the crisis phase.

Innovators are strongly advised to review their portfolios to address these issues and develop approaches for engagement with policy makers to reduce the market entry barriers to much needed innovation in this context.

— Authored by Betty Su, Vice President and Managing Director at BHA Asia-Pacific.

Advanced diagnostics is a key business area for Boston Healthcare as well as telehealth and information technology. We also have a deep understanding of the evolving healthcare landscape in China. Our in-market experts closely monitor the policy and market trends on the strategic markets like China to help clients stay on top of industry trends and develop strategies and action plans to tap into the opportunities or tackle the issues. Please contact us to see how we can help.