Healthcare Policy Change and Innovation in China: Case of Chinese Firms

Abstract

This paper discusses what health policies are made by the Chinese government to respond to the growing demand for healthcare and increasing prices in medical services, and how firms react to the authorities’ policies. Multiple cases were investigated to answer the research questions, based on Funk & Hirschman’s (2017) theoretical framework for policy and firm strategy. We find that the formal policy change leads to diversification as a market strategy based on their core competencies (cases of AliHealth’s and Ping An Good Doctor’s diversification), and an interpretive policy change brings innovation as a market strategy because they discover a policy loophole (cases of Mindray’s low-end disruptive innovation, GE’s reverse innovation, St.Lucia’s new-market development). This is because while firms redefine their activities in existing laws and regulations as confronting formal policy change, they also attempt to innovate themselves by finding a policy loophole to avoid regulations and laws under an interpretative policy change. We also identify that innovation of local firms shrinks due to preferential policies for Chinese firms, while it stimulates innovation of global companies like GE introducing reverse innovation in the Chinese medical device industry. This study finds that an effective leadership and governance in terms of healthcare policy change and firms’ innovation is a stewardship which ensures efficient resource allocation, good health services and guidelines to cope with a changing environment.