Sunday, 7 June 2015

China's government take the biggest step towards private healthcare


This month China's State Council has announced its biggest ever policy move towards developing a private healthcare system in China: it has made private hospitals eligible for reimbursement under the national health insurance coverage plans. In other words, private hospitals can now compete for China's equivalent of 'Medicare' rebates. Since most urban Chinese are covered by some kind of national health insurance policy, this is huge.

The State Council announced a raft of other measures that will make it easier for private hospitals to compete against the giant and powerful public hospitals. The government has announced tax breaks for private hospitals and abolished a lot of regulatory barriers such as rules on bed numbers. It has also said that nonprofit private medical institutions should get subsidies from the government.

These changes are a signal of a major change in China's government health reforms. Up till now, the government has made incremental changes to try foster the development of private hospitals (or "private capital invested medical institutions" as the cosmetic-Marxist state media still refer to them).

The government has tried to encourage doctors to work outside the public system by abolishing many of the restrictions on 'moonlighting'. It has eased the rules on foreign companies investing in private hospitals. It has abolished the pharmaceutical profit-skimming by public hospitals by stipulating a no-commission policy on drug sales.

However, none of this has been enough. The small reforms haven't worked because the powerful State-Owned Enterprise hospitals have been the elephant in the room of China's healthcare system. They control the income (from health insurance and out of pocket payments), they control the real estate, the equipment ($2 million for an MRI machine anyone?) and the workforce - and they also control the medical training. It's also not too obvious to state that the big public hospitals are run by the local government - who make the rules.

The central government has finally woken up to the fact that the only way to truly reform the healthcare system is to undermine it. The new deregulation steps will divert revenue from the public hospitals and give investors the belief that there is a genuine business case for private hospitals to succeed in a tough market.

Until now, the private hospital sector has been small, stymied and suspect. Official figures say that private hospitals account for about 10% of hospital beds - and patients, with most private hospitals being small specialist clinics of limited influence. The small private hospitals have never had the capital or networking to compete in purchasing power with the big government funded hospitals - and hence have a reputation for having limited equipment, staffing and resources. Many of the privately operated clinics have a reputation for offering aggressively marketed but suspect services (fertility and impotence clinics, cosmetic surgery etc) and for overcharging.

In the Chinese media, analysts are saying the new deregulation changes will awaken investor interest in the private hospital sector - with specific interest coming from pharmaceutical companies. One example is Shanghai's Fosun Pharmaceuticals, which has a subsidiary "Hospital Medical Investment Management" company that has just signed a "framework agreement" to set up private hospital services in Yulin City

It remains to be seen whether the changes will help the National Health and Family Planning Commission (NHFPC) and Chinese government achieve its aim of doubling the number of private hospital beds from 10% of total to 20% by 2020.

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