PLA hospitals seek foreign investors

PUBLISHED : Monday, 11 February, 2008, 12:00am
UPDATED : Monday, 11 February, 2008, 12:00am

Financial backers sought in 200-unit network as part of military efforts to modernise

The People's Liberation Army plans to open the hospital network it runs across the country to foreign investment.

But the military's top brass faced a tough challenge if it hoped to attract foreign money and know-how into the sector, as it must first persuade investors they could make a profitable return on their money, sources said. 'I don't see the economics. Hospitals are a loss-making industry,' a mainland banker said.

The move comes as part of a wider military modernisation effort announced by the government in June last year that will require funding from overseas and domestic investors. The PLA oversees the mainland's army, air force, navy and domestic defence forces and operates more than 200 hospitals, chiefly for service personnel but open also to the public.

The hospitals are considered to be among the best-equipped and managed on the mainland. In more developed markets access to basic health care supported by a strong health insurance sector eases the financial burden that might otherwise await cash-strapped patients when they become acutely ill, as well as the hospitals that will need to maintain expensive facilities and equipment.

On the mainland, however, such a basic health-care system is not yet in place and the very ill must pay for their treatment at hospitals from their own resources. The result, says the Ministry of Health, is that up to 50 per cent of all mainlanders will not visit a hospital when they fall ill.

'People can't afford it. So you have a system where hospitals can't charge as much as they need to make a real profit,' said one foreign investor on the mainland.

Conditions likely to accompany foreign investment in the sector will therefore sit uneasily on health-care providers in the country.

'From a clinical standpoint, a lot of what goes on in China wouldn't be the way you would run a hospital system elsewhere,' the investor said.

'You're talking about people's lives and their limited resources - it's a whole different ball game.' Investing in the country's highly secretive military may also worry some investors intent on maintaining transparency and mandated to report to shareholders who may be uneasy with such a partnership.

Over the past 10 years the government has allowed privatisation of hospitals among the estimated 5,000 second-tier health-care facilities operating at provincial and city levels. The mainland grades its hospitals as first, second and third level, with the third level providing the best care and facilities.

A small number of foreign-invested hospitals cater to employees of multinational firms doing business on the mainland and wealthy local patients. Foreign hospital operators such as Johns Hopkins and Harvard University tried last year to set up co-branded facilities on the mainland, but failed.

'None came remotely close,' said a source. 'The facilities were to be built from scratch so they didn't have the doctors; and there would be no cash flow for four to five years. It was all a bit too altruistic.'

The mainland has only 2.72 in-patient beds per 1,000 people, one of the lowest levels in the world. The number of beds available in rural areas is 40 per cent lower than in urban areas, according to the Ministry of Health. Most hospital equipment is more than 15 years old, according to semi-governmental surveys cited in a Credit Suisse report.

The backlog in the provision of beds and investment in new equipment is a legacy of Beijing's decision in the 1980s to shift the burden of financing hospitals to hard-up local governments, while its contribution to the health-care industry fell to 18 per cent in 2006 from 39 per cent in 1985.

'Fresh capital will help mainland hospitals upgrade their medical technologies and expand their network,' said Shi Weiren, an official in charge of medical equipment at Shanghai-based Renji Hospital. 'It is in line with the government's resolution to improve people's well-being.'

But he also voiced concerns that foreign investment might result in 'over-treatment' for patients because overseas-funded hospitals would be more profit-driven.

'This will be a main concern. We can't rule out the possibility that doctors will play tricks to maximise income by over-treatment.'