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Chinese doctors prefer public to private hospitals
April 7, 2011, Thursday
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CHINA'S hospitals business is littered with the remnants of abandoned private and foreign ventures.
However, times are changing. In December, China's State Council confirmed that it foresees investors playing a much bigger role in heath care in the country.
It's good news for the most part, according to Roberta Lipson, co-founder of Chindex International, a supplier of US medical equipment in China. "It confirms that the Chinese government will support private investors with preferential policies or level the playing field with public hospitals," she says.
Up until now, the record for foreign ventures in China's health care sector has been discouraging, says Sheldon Dorenfest, president and CEO of the Dorenfest China Health care Group, a Chicago-based consultancy set up in 2006. Of the country's 20,291 hospitals, only around 4,200 (or 6.5 percent of all hospital beds) are in private Chinese hands, and just a dozen or so are foreign joint ventures, according to an estimate by McKinsey.
Nonetheless, the government's US$125 billion health care reform launched in 2009 is making progress.
Now, an increasing number of Chinese - mostly people working for private or state-owned companies - are eligible for Urban Employees Basic Medical Insurance, China's best established and most comprehensive health insurance plan, and schemes have been set up for both rural and urban low-income earners.
The result: The number of China's 1.3 billion citizens who are covered by public insurance has increased to 90 percent from 45 percent in 2006.
A huge medical market indeed. But private investors face a lot of challenges, such as lack of doctors. McKinsey estimates that there are currently 2.3 million doctors in China. One reason for the shortage is that doctors are generally not allowed to practice at more than one hospital.
Claudia Sussmuth Dyckerhoff, McKinsey's Shanghai director, says: "Any doctor who wants career advancement would rather stay with a public, class 3 hospital, where he or she can be more specialized, get good experience and have a bigger case load."
She refers to thee three-tier classification system in China, with class 3 being the largest of the hospitals in terms of beds (500 or more) and doctors, and rated the highest in terms of quality.
It is an open secret that many doctors already moonlight at other medical institutions, but that hasn't helped private hospitals much. Many doctors are reluctant to shift to the private sector because their professional rankings can only be enhanced by their performance at the public hospitals.
Apart from the human resource issues, private hospitals also face a huge financial handicap because they are ineligible for social medical insurance, as the public institutions are. "If all your patients have to pay out of their own pockets or need to have private insurance, it would have a negative affect on the overall inflow of patients," points out Sussmuth Dyckerhoff.
Private hospitals, including foreign joint ventures, are now allowed to participate in the social insurance scheme, but details, including treatment fees, are unclear and are likely to be approved on a case-by-case basis by local heath bureaus.
Niche markets
At any rate, social health insurance reimbursements tend to be extremely low, so patients still often need private insurance to afford the services at foreign joint venture hospitals, which are pricier than their public counterparts.
According to Dorenfest, the greatest promise for private players is in niche markets, such as dental clinics, obstetrics and gynecology hospitals, eye hospitals and cosmetic surgery.
Many private firms are also focusing on building their brands as superior service providers, offering access to cutting-edge medical equipment and star doctors to patients able to pay extra.
It's a niche that is proving particularly popular among expatriates and overseas Chinese who are put off by the long waiting times of public hospitals.
Facilities catering to high-end clientele include Beijing United and Singapore-based ParkwayHealth Group. Affluent Chinese account for about 40 percent of Beijing United's clients, Lipson says.
The same is true for ParkawayHealth China, which moved to China in 2005 after acquiring a foreign joint venture clinic called World Link.
It now has expanded to seven foreign joint venture clinics in Shanghai and one in Chengdu.
While facilities like Beijing United and ParkwayHealth have found a niche market, they've had limited success in providing more than outpatient and restricted inpatient services, according to a report titled Emerging Trends in Chinese Health care by PricewaterhouseCoopers (PwC).
Rates at the expatriate-focused hospitals are much higher than in the US and "their model is focused on catering to expats with offshore insurance, and the expats with offshore insurance do not care what the rates are," says David E. Wood, Beijing-based managing director of PwC China.
Wood, who has been a hospital management and health care consultant in the US and China for more than 30 years, says the providers have to keep rates high in order to be able to afford the physicians they hire from abroad.
Wood says his market research has found that in order to attract more of China's burgeoning middle class, fees need to be no greater than five or seven times what Chinese public hospitals charge, rather than the 35 times expat-oriented facilities currently charge, he says.
(This is excerpted and edited from an article from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. The original title: China Hospitals: Is a Window of Opportunity Finally Opening for Investors? To see the original article, please visit: http://bit.ly/fOcyvH)
However, times are changing. In December, China's State Council confirmed that it foresees investors playing a much bigger role in heath care in the country.
It's good news for the most part, according to Roberta Lipson, co-founder of Chindex International, a supplier of US medical equipment in China. "It confirms that the Chinese government will support private investors with preferential policies or level the playing field with public hospitals," she says.
Up until now, the record for foreign ventures in China's health care sector has been discouraging, says Sheldon Dorenfest, president and CEO of the Dorenfest China Health care Group, a Chicago-based consultancy set up in 2006. Of the country's 20,291 hospitals, only around 4,200 (or 6.5 percent of all hospital beds) are in private Chinese hands, and just a dozen or so are foreign joint ventures, according to an estimate by McKinsey.
Nonetheless, the government's US$125 billion health care reform launched in 2009 is making progress.
Now, an increasing number of Chinese - mostly people working for private or state-owned companies - are eligible for Urban Employees Basic Medical Insurance, China's best established and most comprehensive health insurance plan, and schemes have been set up for both rural and urban low-income earners.
The result: The number of China's 1.3 billion citizens who are covered by public insurance has increased to 90 percent from 45 percent in 2006.
A huge medical market indeed. But private investors face a lot of challenges, such as lack of doctors. McKinsey estimates that there are currently 2.3 million doctors in China. One reason for the shortage is that doctors are generally not allowed to practice at more than one hospital.
Claudia Sussmuth Dyckerhoff, McKinsey's Shanghai director, says: "Any doctor who wants career advancement would rather stay with a public, class 3 hospital, where he or she can be more specialized, get good experience and have a bigger case load."
She refers to thee three-tier classification system in China, with class 3 being the largest of the hospitals in terms of beds (500 or more) and doctors, and rated the highest in terms of quality.
It is an open secret that many doctors already moonlight at other medical institutions, but that hasn't helped private hospitals much. Many doctors are reluctant to shift to the private sector because their professional rankings can only be enhanced by their performance at the public hospitals.
Apart from the human resource issues, private hospitals also face a huge financial handicap because they are ineligible for social medical insurance, as the public institutions are. "If all your patients have to pay out of their own pockets or need to have private insurance, it would have a negative affect on the overall inflow of patients," points out Sussmuth Dyckerhoff.
Private hospitals, including foreign joint ventures, are now allowed to participate in the social insurance scheme, but details, including treatment fees, are unclear and are likely to be approved on a case-by-case basis by local heath bureaus.
Niche markets
At any rate, social health insurance reimbursements tend to be extremely low, so patients still often need private insurance to afford the services at foreign joint venture hospitals, which are pricier than their public counterparts.
According to Dorenfest, the greatest promise for private players is in niche markets, such as dental clinics, obstetrics and gynecology hospitals, eye hospitals and cosmetic surgery.
Many private firms are also focusing on building their brands as superior service providers, offering access to cutting-edge medical equipment and star doctors to patients able to pay extra.
It's a niche that is proving particularly popular among expatriates and overseas Chinese who are put off by the long waiting times of public hospitals.
Facilities catering to high-end clientele include Beijing United and Singapore-based ParkwayHealth Group. Affluent Chinese account for about 40 percent of Beijing United's clients, Lipson says.
The same is true for ParkawayHealth China, which moved to China in 2005 after acquiring a foreign joint venture clinic called World Link.
It now has expanded to seven foreign joint venture clinics in Shanghai and one in Chengdu.
While facilities like Beijing United and ParkwayHealth have found a niche market, they've had limited success in providing more than outpatient and restricted inpatient services, according to a report titled Emerging Trends in Chinese Health care by PricewaterhouseCoopers (PwC).
Rates at the expatriate-focused hospitals are much higher than in the US and "their model is focused on catering to expats with offshore insurance, and the expats with offshore insurance do not care what the rates are," says David E. Wood, Beijing-based managing director of PwC China.
Wood, who has been a hospital management and health care consultant in the US and China for more than 30 years, says the providers have to keep rates high in order to be able to afford the physicians they hire from abroad.
Wood says his market research has found that in order to attract more of China's burgeoning middle class, fees need to be no greater than five or seven times what Chinese public hospitals charge, rather than the 35 times expat-oriented facilities currently charge, he says.
(This is excerpted and edited from an article from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. The original title: China Hospitals: Is a Window of Opportunity Finally Opening for Investors? To see the original article, please visit: http://bit.ly/fOcyvH)
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