January 22, 2012

China Gets A Shot In The Arm From Private Health Care

The New China’ Private Health Care System
By Melvin J. Howard

The U.S. Trade and Development Agency, the U.S. Department of Health and Human Services and the U.S. Department of Commerce joined with China‘s Ministries of Health and Commerce to announce their support for the establishment a new public-private partnership in the healthcare sector.

Twelve U.S. companies and six supporting organizations will participate in this partnership, alongside the supporting U.S. and Chinese government agencies. The partnership will be organized around U.S. healthcare industry strengths and government capabilities to foster long-term cooperation with China in the areas of research, training, regulation and the adoption of an environment that will increase accessibility to healthcare services in China.

Through programs supported by the initiative, Chinese participants will gain greater access to U.S. private sector expertise and ingenuity and better awareness of new technologies and results-oriented regulatory processes, U.S. officials said.

One of the supporting organizations, the Alliance for Healthcare Competitiveness, which represents both for-profit and non-profit U.S. healthcare employers, and whose stated mission is to open global markets to U.S. healthcare exports, has provided an outline of China’s healthcare market and potential.

With the growth of China the government is actively encouraging private capital to enter the health care industry. China will give preferential tax incentives to help ensure everyone had equal access to health care. The government of China has announced that it is to encourage the development of the private healthcare sector in the country. The news paves the way for foreign firms to gain greater access to the Chinese private healthcare market in a bid to meet the growing demand for healthcare services in the country. The new policy will provide overseas healthcare companies, with more flexibility in establishing a new business within the private health sector.

The move by the Chinese government is designed to encourage investment from overseas business to meet the increasing demand for private healthcare services in the country stemming from its rapidly expanded economy. Economic expansion has brought increased affluence among the population of China, which in return has led to a growth in demand for private healthcare. Currently Chinese regulations only allows foreign firms to enter the private healthcare sector in China through a joint venture with a Chinese partner, together with a cap on the level of capital which may be held in a Chinese operation. However, the recent announcement by the central government in China will mean a gradual easing on the level of investment permitted by a foreign firm in the private healthcare sector. The new policy also supports the use of social funds to participate in government hospital reforms, with the conversion of some government run hospitals into private medical facilities.

The Chinese authority’s decision to cut the red tape in the planning process for foreign companies engaged in the provision of healthcare in China is intended to ensure that the country’s healthcare needs are met partly by easing some the pressure on the Chinese public healthcare system. As constraints are eliminated, the intention is for foreign healthcare providers to establish larger-scale hospitals throughout China – to be run alongside smaller healthcare facilities – leading to an overall improvement in medical services across the country. Also the provision of foreign-run hospitals is planned to play an important role in meeting the needs of patients seeking higher standards of healthcare services.

As the new policy is implemented and a positive effect on the Chinese healthcare sector is delivered, patients will be rewarded with a better choice of medical care, with benefits to be gained from overseas expertise. 

The proposed policy reforms – enabling increased foreign investment in the private healthcare system in China – will mean more competition and an improvement in medical standards through overseas firms looking to capitalize on the opportunities being implemented by the Chinese authorities.


Unfortunately, the record on support for private healthcare is spotty. As China began to loosen healthcare restrictions at the beginning of the past decade, a decision was made to allow the sale of selected hospitals to private investors. Health authorities hoped this would allow local health bureaus to offload underperforming facilities and provide an opportunity for state-owned enterprises (SOEs) to divest non-core assets while at the same time seeding a private medical system that would alleviate strain on crowded public hospitals. Over the next several years, significant numbers of mid-size/county hospitals and SOE hospitals were privatized. In some cases, facilities were granted to the staff, with all employees receiving shares, but in many instances, hospitals were sold to real-estate developers with no prior experience in healthcare. Many hospitals, once privatized, placed significant emphasis on short-term profits, often at the expense of service quality (and, in some cases, medical ethics). Sales of medicines were a key source of those profits and there was a built-in incentive to overprescribe and charge high premiums to patients.

In China, physicians are licensed to practice at a single facility. According to regulations, doctors choosing to practice at private hospitals had to forfeit affiliation with their government facility thus exiting the path for promotion through physician ranks as well as ending the process of academic advancement. Top-ranked physicians such as department chairs and recognized experts, already comfortable with their position were understandably reluctant to leave their posts. Moreover, physicians in the middle of their careers and even talented younger practitioners the rising stars were similarly disinclined to enter private practice and render stagnant their careers.

Leaving some to say China's first attempt at private healthcare can be seen as a complete failure a system comprised of poorly managed facilities staffed by medical personnel whom the vast majority of patients had no interest in patronizing. By taking a portion of public hospitals "offline" and creating private hospitals which Chinese medical consumers actively shunned, a plan to create a private sector of medical facilities to ease demand on public resources had in fact resulted in just the opposite: more patients now crowded into even fewer facilities. Burdened with poor management and staffed by physicians with no reputation, private healthcare in China quickly earned a dismal reputation among medical consumers one that it has yet to successfully shrug off. High drug prices also tainted the public's association with private healthcare and reflected poorly on the industry image.

Many have speculated about the role of private healthcare, including foreign-invested private healthcare, under this new medical system. Although the original language of the healthcare reforms does mention private healthcare (and commercial insurance), it is only within the past several months that regulators have begun to more fully articulate their position on private medical facilities. At this juncture, there are strong signs that the government is preparing for a re-boot of private healthcare and this time, they intend to get it right.

Opinions on further lifting restrictions to private hospitals," co-authored by the National Development and Reform Commission (NDRC), Ministry of Health (MOH), Ministry of Finance (MOF), Ministry of Commerce (MOC), and Ministry of Human Resources and Social Security (MHRSS). The opinion offers a number of regulatory enticements to encourage private investment in healthcare facilities including the opportunity to participate in basic medical insurance reimbursement systems and favorable tax policies. It also paves the way for 100 percent foreign-owned healthcare facilities. 


Allowing top-level physicians to retain their positions and standing in government hospitals while practicing part time in private settings is the key to the future of private healthcare in China.  Going forward, physicians will likely be required to spend a certain portion of their time in grassroots settings, but they may also be allowed to enjoy some of their newfound freedom practicing in private clinics and hospitals. The most recent and significant development in this vein comes from the Beijing Municipal Health Bureau, which has allowed licensed physicians to work simultaneously at a maximum of three hospitals.

Healthcare authorities are no doubt hoping that an upper-tier private health system will emerge to lure more affluent medical consumers away from public institutions, thus freeing more resources for patients relying solely on basic government insurance programs. The MOH and other government agencies have repeatedly mentioned their intention to encourage commercial health insurance. This will also ease the burden on public/government medical institutions, and may well enable a larger population to access private healthcare