Market study: China’s private healthcare sector

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Due to rises in the average Chinese resident’s life expectancy and income, the Chinese government has made a concerted effort to improve its citizens’ access to healthcare. This has created a problem in the Chinese healthcare system as quality of healthcare has suffered despite improvements in healthcare access. Due to this unmet demand in the Chinese healthcare system and a conflict of interest between Chinese patients and medical facilities, foreign investment may start to play a larger role in the development of Chinese healthcare.

Problems with current healthcare infrastructure

Recent reforms have extended basic medical coverage to 97% of China’s population while also decreasing Chinese patients’ out-of-pocket payments. Although this should improve Chinese healthcare in theory, these reforms have created staff shortages in Chinese hospitals. There are only 1.8 physicians and 1.7 nurses per 1000 people in China and many members of medical staffs are unqualified. This shortage has led to extremely long lines in big urban hospitals. As a result, many patients have received improper service or no service at all. In addition, China’s lack of a good primary care infrastructure forces many patients to go to big urban hospitals for matters that do not warrant extensive medical attention. The Chinese government also controls prices on lower priced drugs, services, and devices, but allows hospitals to overcharge for expensive products and services. This has created a conflict of interest between patients and physicians because the policy encourages doctors to prescribe unneeded services and drugs to increase the amount of money made on each patient. Lastly, a lack of high-quality step-down care facilities has forced patients at acute-care hospitals to stay longer than their western counterparts. The average length of stay for patients at these hospitals was 12 days in 2011. This causes overcrowding at hospitals for patients that could normally receive medical attention outside of a big hospital.

An opportunity for foreign investment

Over the course of the past 30 years, China has decentralized its once fully government run healthcare system and opened it up to foreign and private investment. The government realizes that it cannot meet the healthcare demands of its citizens and improve the country’s standards of care without privatizing healthcare. China intends to establish non-public healthcare institutions, particularly in lower-level facilities in rural areas or poor urban area. Although private healthcare services used to have a bad reputation for poor quality, this perception is beginning to change as more foreign investors enter the market.

Private healthcare patients used to be predominately composed of foreigners, but the number of Chinese patients is rapidly increasing. This presents an opportunity for foreign investors to set up wholly owned foreign hospitals that target the premium segment of China’s healthcare market or to partner with local service providers to apply their management expertise to existing Chinese facilities. In addition, foreign pharmaceutical companies could target China’s growing need for new pharmaceutical products to expand into the Chinese healthcare market. China also has an abundance of research funding that foreign medical researchers could utilize to collaborate with Chinese researcher.  Even though it may take a couple of years for the public’s perception on private healthcare to change, several opportunities exist for foreign investors to expand their services into China.

 

Sources:

Picture Source: Chinese hospital

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