Market Failures in the Distribution of Medical Devices and Approaches to Comprehensive Governance

Abstract

The healthcare market combines elements of public interest with market-driven operations. In recent years, healthcare reform policies in China—such as centralised procurement and medical insurance negotiations—have continued to gain momentum, leading to a significant decline in medical device prices, an acceleration in the process of substitution with domestically produced alternatives, and a continuous
improvement in industry transparency. However, as reforms progress, market failures—including information barriers, monopolies in certain
sectors, redundant distribution tiers and regulatory lag—persist across all stages of medical device production, distribution, procurement and
use, thereby constraining the industry's high-quality development. Based on the current state of the medical device distribution sector and the
policy environment, this paper analyses the core manifestations and underlying causes of market failure. It proposes a systematic governance
framework across five dimensions—information transparency, market competition dynamics, distribution systems, regulatory frameworks and
integration with medical insurance—with the aim of further rationalising the supply-demand relationship in the healthcare market, balancing
the industry's public welfare objectives with the needs of market-oriented operations, and promoting standardisation and high-quality development within the medical device sector.