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Chinese private hospitals to benefit from regulatory relief

PUBLISHED : Friday, 04 December, 2015, 11:01am
UPDATED : Friday, 04 December, 2015, 11:01am

As China relaxed its bureaucratic procedures for hospitals applying for basic medical social insurance, private hospitals are set to benefit from a projected big increase in outpatients, analysts said.

A batch of local governments have slashed recently the administrative approval process for medical institutions applying for basic medical social insurance (BMSI), including Shaanxi province and Lanzhou city. The moves came after Beijing issued an order in mid-October to relax the bureaucratic procedures on the BMSI scheme, thus allowing patients to claim government health insurance for their visits to private hospitals.

The move is one in a series of supportive polices China has launched to boost the private hospital sector and reduce pressure on the public health care system, analysts from Fitch Ratings said in a research report.

Chinese public hospitals have been overwhelmed with demand for years, as patients are less inclined to go to private hospitals, most of which are not currently covered by China’s government medical insurance programme.

In contrast, outpatients at public hospitals only pay a small portion with cash for prescription drugs.

In June, the State Council said it will encourage private investment in the hospital sector by offering tax-favoured treatment, streamlining the approval process for establishing a hospital, allowing private players access to diversified funding sources, and cutting red tape to encourage the free flow of talents among different medical agencies.

The latest relaxation of BMSI rules set no deadline for implementation, but it marks “a good start in enhancing private hospitals’ competitiveness,” Fitch analysts said, adding it may lead to an increase in outpatients for private clinics and hospitals.

It will also lure more private investment into the sector.

“Drug-makers are the main force in private-hospital investment, with economic incentives to underpin the downstream market by centralising and optimising the medicine supply chain, instead of expanding the hospital market by compromising with high kickbacks to the latter amidst fierce drug market competition. On the other hand, as China undergoes changing dynamics at a slower economy growth, some industry capital has quit the previous high-yield sectors such as real estate and mining and crowded instead into the medical service industry,” Fitch said.

But some analysts also highlighted the risks in the sector.

China’s health care service industry is characterised by high investment, low returns and a long cycle. Risks involved in private-hospital development include various obstacles at the administration level, only a faint profitability visibility, low social recognition, and hence only a limited number of outpatients, they said.

The number of outpatient visit to private hospitals accounted for only 11 per cent of total visits in 2014, compared with 8 per cent in 2009, according to statistics from China’s National Health and Family Planning Commission.