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Private Hospitals In China Blocked By "Glass Doors"

Invisible to the naked eye, the attitudes and regulations of local officials are blocking an expansion of private hospitals that most agree is much needed in China.

At a hospital in Shenyang, northeastern China
At a hospital in Shenyang, northeastern China
Li Yan

BEIJING — Though much has been made in recent years about the rise in private medical care in China, public hospitals still dominate the system. And this reality says as much about Chinese economic policy as it does about its healthcare.

According to the 2014 "Private Hospitals Bluebook," which tracks the sector, private hospitals have grown at an annual pace of 17%, now totaling more than 11,500 facilities, or some 46% of all Chinese hospitals. And yet, because these facilities tend to be far smaller in scale — 86% of China's private hospitals possess fewer than 100 beds — the Bluebook notes they are still far from rivaling the weight of public hospitals.

Li Jiange, co-president of the National Institute of Financial Research at Tsinghua University, notes that views about the relationship between public and private hospitals vary greatly among not only hospital directors but government officials and even venture capitalists.

"Public officials tend to be convinced that the need for private medical care has been exaggerated, and that there is a "bubble" ready to burst," Li says. "Meanwhile in the private sector, people believe that China has a huge potential in developing private medical care."

In China, the existence of private hospitals has always been regarded only as a structural complement to the public hospitals. "We like to stress that healthcare is a public welfare role and consider it a public good, so that the government should play a major role," said Cai Jiangnan, director of the Center for Health Management and Policy at China Europe International Business School. "In the medical industry the basic principle should be letting the market and the private sector exert their roles. The government should do what the private market can’t do. Yet the situation is exactly the opposite in China.”

Professor Cai also pointed to Taiwan’s medical service development as an example. Thirty years ago, public hospitals dominated in Taiwan. But today private hospitals account for 70-80 % of the total number of facilities, and the quality of private health care is widely acknowledged to have improved enormously.

Cai says China can learn from Taiwan’s experience. “China’s public hospital revenue comes from the patients and from health insurance, and government funding accounts for only 10%," he notes. "This kind of revenue structure is in essence that of private health care. The World Health Organization says that in a real sense there aren't really bona fide public hospitals in China.”

Multiple bottlenecks

Two years ago China's State Council issued two circulars stating the government's intention to encourage private investment in hospitals. The term "health services industry", a brand new concept at the time for China, was mentioned and the council noted that "as long as there exists no prohibition, the areas of services provided are open to market players."

By 2020, the size of China's health services industry is to account for about 10% of its GDP, and become a veritable pillar industry for the country.

In light of published reports from official sources, there is increasing support for private medical care from China's central government. But crucial barriers still exist, often in the form of invisible "glass doors" that make it hard for this sector to actually implement real changes.

Take kidney dialysis as an example. In Japan and many other countries, there exists a wide ranging network for patients who require such treatment. "In China, there are 20 million patients with kidney disease, of whom 3 million need to undergo kidney dialysis regularly, yet, only 400,000 of them have medical access," says Li Jiange. "This means that there are 2.6 million patients who may die of urine poisoning anytime any day."

Li says there is available private capital ready to enter the kidney dialysis market, and the central government has also liberalized the policy. "But it the local authorities who set up stiff barriers because they worry that this will lead to private hospitals competing for patients’ resources with the public ones."

Similarly there are plenty of doctors who would prefer to work in private health care, but are held back because of the onerous administrative examination and approval obstacles imposed by local officials.

Private hospitals also suffer discrimination on key issues such as choosing its location, explains Fang Yixin, president of Ruici Medical Group. "In principle the government starts off by only regarding the private hospitals as a complementary measure. For example, when a new town or district is developed and there's no public hospital interested, the private sector will be invited to invest," Fang explains. "But when it's a heavily populated place, they would say the public hospital needs room to expand there."

There is also the challenge of procuring medial equipment in accordance with market principles. "We are obliged to obtain the government's permission for buying equipment," says Fang. "Importers or exporters used to all be designated by the governments and so were the brands of the equipment. Now, even though we can choose the brand, the procurement still requires official approval."

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