A New Player in The Medical Field

By+Yin+Pumin

Foreign investors have been given the green light to set up wholly owned hospitals in seven province-level jurisdictions in China， the Chinese Government announced on August 27.

The municipalities of Beijing， Tianjin and Shanghai， and the provinces of Jiangsu， Fujian， Guangdong and Hainan are taking part in a pilot scheme. Foreign investors can either set up a new hospital or participate via mergers and acquisitions.

There is no minimum requirement on the size of the overseas investment， but the government did outline several other conditions of entry.

First， foreign investors must be able to demonstrate previous experience of dealing with healthcare investment and management. They must also introduce leading management concepts and services； introduce advanced technology and equipment； or improve the health capability and make up for a local shortage of health technology， funds and equipment.

Chinese hospitals often lack funding， and there is a steep gap between urban and rural care， which often leads to tension between patients and doctors.

Analysts say the latest move of China reflects its drive to open up the private healthcare sector as it seeks to take the pressure off the state-run system.

Vipul Prakash， Director for Manufacturing， Agribusiness and Services in the Asia-Pacific at the International Finance Corp. （IFC）， an investment arm under the World Bank， said the opportunity is great for foreign and private players.

“I think private healthcare is still a relatively small proportion of services in China， as the government remains a main provider，” said Prakash， who in the past few years has invested roughly $300 million in Chinas healthcare sector. “Theres a lot of scope for more private participation in the sector.”

A right direction

Analysts also believe that the opening up of Chinas healthcare sector will boost the development of more high-end medical services and inspire public hospitals to up their game.

“The purpose of this policy is to enhance healthcare reform. The government believes that wholly foreignowned hospitals can meet some of the healthcare needs of high-end patients. Moreover， the government hopes that public hospitals can take a page from the wholly foreignowned hospitals and improve their technology and services，” said Ma Jin， Executive Dean of the School of Public Health at Shanghai Jiao Tong University.

In late July， German healthcare provider Artemed Group signed a framework agreement to establish a hospital in Shanghai. Local media reported 20 more foreign hospitals were also to be set up.

Currently， overseas-funded hospitals operating in China are mostly joint ventures with local investors. Only two private hospitals， Shanghai Landseed International Hospital and C-Mer Dennis Lam Eye Hospital in Shenzhen， south Chinas Guangdong Province， are solely funded by Taiwan and Hong Kong investors respectively.

Shanghai Landseed International Hospital opened for business in June 2012. The hospital was built with 150 million yuan （$24.39 million） from the Taoyuan-based Landseed International Medical Group， which entered a joint venture to build Shanghai Chenxin Hospital in 2002.

Compared with Shanghai Chenxin Hospital， which mainly serves people from Taiwan， Shanghai Landseed International Hospital caters more for Chinese mainland residents.

“We have sensed that residents on the mainland， especially those in first-tier cities such as Shanghai， Guangzhou and Beijing， now have a big demand for high-end medical services，” said Victor Chang， founder and President of Landseed.

Chang said he had great confidence in the development of new hospitals on the mainland market. He also said the number of patients from the mainland treated at Shanghai Landseed International Hospital has seen a 50-percent growth annually in the past two years.

“Behind the growth is the high-quality service the hospital provides，” said Cai Jiangnan， Director of the Center for Healthcare Management and Policy at Shanghai-based China Europe International Business School.

Overseas-invested hospitals generally provide better service. “They can supply a powerful demonstrative example to the public hospitals because to compete with those high-quality overseas-owned hospitals， the public ones will also have to improve their technology and service，” Cai said.

Chen Yude， a professor with Health Science Center at Peking University， expects the competition following the entry of overseas-owned hospitals can help push forward the reform of Chinas public healthcare institutions.

Chen said overseas-invested hospitals will compete with their local counterparts since they will scramble for not only patients， but also talented medical staff.

According to a Deutsche Bank report published in June， the number of private hospitals in China rose from 3，200 in 2005 to 11，300 last year， accounting for 47 percent of the countrys total number of hospitals. However， the number of beds they provide takes up only 11 percent and the ratio is expected to reach 20 percent by 2015.

Public hospitals provide 90 percent of Chinas medical services. Most Chinese patients prefer to go to large public hospitals in big cities for medical treatment， leading to their overcrowding. Analysts say inviting more private players is an effective way to ease the bottleneck in medical resources.

In May， the Central Government announced the easing of curbs on joint-venture hospitals. It encouraged the establishment of private hospitals to reduce public services from being overburdened.

The plan involved overhauling the management of medical joint ventures that involve overseas partners， including “reducing restrictions on the percentage of foreign ownership in medical joint ventures and collaborations.”

In April， the State Council， Chinas cabinet， gave private hospitals the authority to set prices for diagnoses and treatments， which had been controlled by the government

The government also promised in March to let the market play a bigger role in reforming the medical sector.

The scale of public hospitals will be controlled and medical resources will be optimized， according to the State Council.

All of these movements signal the governments determination to push forward healthcare reform， launched in 2009 to make it more affordable and accessible for all citizens by 2020.

“This is a move in the right direction，” said Bruce Liu， an industry veteran. “It will encourage more capital and expertise from other countries to meet the growing needs for quality healthcare in China.”

Difficulties

Still， many insiders note challenges that new private hospitals will face， and say that there needs to be development in related fields if private health care is to really take off.

“Ordinary people have to first face the relatively high prices in overseas-funded hospitals. Currently， such costs cannot be covered by their basic medical insurance，” Cai said.

Taiwanese-owned Shanghai Landseed International Hospital has capacity to receive 800 to 1，000 patients for clinical services each day， but the real number is only 300 to 400， according to a report by the Economic Information Daily.

“The service is good there， but the costs cannot be covered by our medical insurance. The hospital is for the rich，” a Shanghai resident who declined to be named was quoted as saying.

Given the market-oriented pricing of overseas-funded hospitals， China should encourage the development of the commercial health insurance industry to relieve the pressure on individuals who only have basic medical insurance， said Liang Hong， Vice President of the China Health Insurance Research Association.

Staff recruitment also poses a challenge for overseas-funded hospitals. Under Chinese law， overseas doctors practicing clinical and treatment services in China must renew their registrations every year.

Meanwhile， difficulties remain in attracting doctors from the public system， for reasons including problems in transferring academic titles and accrued social benefits.

To address this challenge， the government devised a new regulation in 2009， allowing doctors to practice at more than one site. Since then several cities have implemented the rule.

However， experts say this is impractical because some public hospital heads do not agree with the policy and do not give doctors permission to practice outside their hospitals.“So the human resources flow continues to be challenging，” said Roberta Lipson， who founded Chinas first foreign-funded hospital， Beijing United Family Hospital， in 1997.

Besides， Chang with Landseed said overseas investors have to make adjustment to adapt to local policies. “For example， if we want to open some departments， we are required to have a certain amount of space and a number of personnel working in them， which may not be reasonable，” he said.

Liu agreed. He said easing ownership restriction is only part of the solution， as new entrants still need to navigate a long series of regulatory constraints.

“They will be confronted with problems ranging from site selection and zoning approvals， licensing and registration， staff certification and equipment purchase approvals， product and service pricing， insurance coverage， as well as tax treatment and profit repatriation，” said Liu.

Liu said he expects to see more details soon for creating a level playing field for private and foreign-owned hospitals， more progressive policies and regulatory frameworks， especially in public-private partnership schemes.

“More transparency and consistency are required if China is serious about winning foreign capital and talent，” he added.