If you don’t know, the Burrill Report is one of the most consistently informative news sources for the pharmaceutical and medical device industries, although its reach has expanded in the past few years to include a broader swathe of healthcare-related markets. The good news for us and our readers is that they are also starting to make a push towards covering China, owing to the importance of the China healthcare reforms efforts to MNCs in the life science and device industries.
In this month’s edition of the Burrill Report newsletter, author Michael Fitzhugh writes about China’s growing private healthcare opportunities. His very-well researched piece includes and interview with Chindex CEO Roberta Lipson that’s well worth reading since it gives some great insight into Roberta’s strategy for further expanding the Chindex brand of hospitals into new geographic and service markets.
The Origin of the Ongoing China Healthcare Reforms
Michael starts by providing a very nice summary introduction to how thirty-five years of economic reforms have shaped China’s healthcare delivery system:
Privatization of healthcare services, begun in the 1980s, stumbled at first due to the swiftness of change. But as mil-lions of Chinese have been lifted from poverty by rising fam-ily incomes, the care delivery landscape has evolved almost as rapidly as China’s economy.
For low-income citizens, China’s Urban Employee and Urban Resident Basic Medical Insurance programs have ex-tended coverage in cities. Basic medical security has been ex-panded even more substantially in rural areas by the New Rural Cooperative Medical System, an opt-in scheme that now covers more than 95 percent, or more than 800 million, rural people according to official figures.
He then quotes me to support the proposition that the Chinese government’s efforts in this regard have been quite impressive:
“Whether you believe the official figures, the coverage is nevertheless impressive, but it’s very shallow,” says Damjan DeNoble, founder and managing director of Health Intel Asia, and a partner at Rubicon Strategy Group. “Everyone has that shell of care. They didn’t have that before. That’s a step up.”
The current insurance scheme is certainly a step up from what the system was and everyone who has a stake in further shaping the efforts at reform understands that there is a long way to go. From here Michael goes on to describe the scale of private health reform in China. The initial allocation for reform as 124 billion USD, although this has been increased to some 168 billion USD since 2009.
China Healthcare Reforms and the Limits of Privatization Incentives
It is after this point that Michael summarizes some of the strides the Chinese government has implemented to lay the ground for faster privatization of care:
From a high-level policy perspective, China’s government has said that it believes in the value of private healthcare providers, that it wants to simplify their entry to the market, and develop incentives and a favorable investment environment.
There have been concrete changes over the past five years. The government eliminated business tax on healthcare services businesses, suspending a 5 percent tax on revenue. It has lowered the approval threshold for foreign investors to enter into joint ventures in healthcare service institutions, allowing provincial and municipal authorities to grant final approvals instead of requiring approval directly from the Ministry of Health. Additionally, a national policy allowing each local government to grant multi-site practice licenses for physicians has allowed doctors to be tied to more than one institution.
Of course, Michael’s report is aware of the limitations of these openings. As we’ve noted in the past many of these concrete changes are a little less meaningful in practice. For example, the lower approval threshold for foreign investors entering into Joint Ventures is somewhat undermined by the necessity to enter into a Joint Venture. The real necessary change is to allow WFOE formation in the hospital space, as we’ve talked about before:
- Is it too late to privatize for China’s healthcare reforms?
- Everything we know about Joint Ventures in the Hospital Space in China
- Market Access Issues in China – Part I (of 5 parts)
- Executing Joint Ventures for Healthcare Companies in China
- The doors to foreign investors have opened in China’s healthcare space
Similarly the fact that doctors are supposed to be allowed to practice in secondary hospitals is secondary to the fact that they have to ask permission to do so from top-level hospital executives. In general, the issue of allowing physicians to practice outside of public hospitals is very politically charged. Shenzhen recently rejected the plan to allow physicians to practice outside of the public hospital and now Shanghai is trying for a much more measure approach. For Bai Liping’s recent report on the state of China physician private practice, see here: “Shanghai May Try to Bring Chinese Physicians Into the Private Sector“.
Chindex’s Plan to Capitalize On the Reform’s Successes
The last third of Michael’s piece is a profile of the most successful foreign health service provide in China, Chindex International, Inc. Ms. Roberta Lipson, Chindex CEO reiterates how policies favoring privatization have been slow to take hold on the ground. She singles out taxes as a particularly big issue for healthcare operators. MOst interestingly, Ms. Lipson notes that the future of Chindex might be in rehabilitation services, a niche that is bound to be profitable in the years to come, and one where Chinese domestic players are going to be slow to enter because of a lack of capacity and know-how. [highlight](For more on the rehabilitation market and Chindex’s future plans, please refer to Benjamin Shobert’s interview David Rutstein of Beijing United Healthcare, a Chindex company.)[/highlight]
For more, do go read Michael Fitzhugh’s article in the October issue of the Burrill Report.