Sep 02, 2014 05:39 PM

Closer Look: Letting Foreign Investors Open Wholly Owned Hospitals Hardly a Cure-All

(Beijing) – The government has finally made some progress permitting foreign investors to establish wholly owned hospitals in China, but the recent achievement may not be as impressive as it appears upon closer examination.

Three municipalities (Beijing, Tianjin and Shanghai) and four provinces (Jiangsu, Fujian, Guangdong and Hainan) have been chosen as pilot areas where foreign investors can hold all shares in a hospital, as opposed to the limit of 70 percent elsewhere in the country, the Ministry of Commerce and the National Health and Family Planning Commission said on August 27.

The policy also says that the central government will delegate rights for reviewing and approving the establishment of a 100 percent foreign owned hospital to provincial governments. Applications should be submitted to provincial health authorities and then to the commerce regulator on the same level.

It has been four years since the State Council, the country's cabinet, first raised the idea in 2010 to permit overseas investors to set up wholly owned hospitals in the country on a trial basis. Yet progress had been extremely slow, underscoring the challenges.

Only two hospitals in the country are entirely owned by overseas investors, one in Shanghai and the other in Shenzhen. Both were specially approved by health officials.

By handing approval authority to provincial governments, the August policy marked a great achievement in relaxing the restrictions on foreign investments into the health care sector.

Liao Xinbo, an official with the health commission's Guangdong branch, said this amounts to granting foreign investors the same type of treatment as Chinese nationals when founding hospitals.

There is little doubt that foreign investors can bring advanced technologies and management expertise to the domestic health care industry, but we should not go so far as to celebrate the development as a solution to the problems of expensive drugs and the hardship many have experienced trying to find a good doctor.

In general, foreign-invested hospitals cater to wealthy patients. That means their services often cost a lot. It is unrealistic to hope that more foreign hospitals can make health care more affordable. By diverting wealthy patients away from ordinary hospitals, they might help with easing overcrowding.

But it is too soon to say whether foreign investors will line up for a hospital of their own now that restrictions on their share ownership have been lifted. Other authorities related to the opening of a hospital, such as those overseeing the sales of land and the health insurance and social security systems, must play along as well.

In fact, the biggest restraint on foreign investments in the Chinese health care industry is not the ceiling on foreign investors' share ownership but the overall regulatory environment for insurance and the bureaucratic system for doctor employment.

The rigid employment system that binds doctors to one employer means foreign hospitals have a hard time hiring talent. Of course, foreign hospitals can offer a more generous pay packet, but leaving a public hospital means relinquishing benefits, such as guaranteed employment and bureaucratic ranks equivalent to government officials.

Besides, a good public hospital may pay its doctors less, but it gives them plenty of power and prestige that enable them to make money on the side, illegal or not. The pilot program permitting doctors to work for more than one hospital at a time, which analysts say would make it easier for new ones to hire doctor, has made little progress.

Also, unless hospitals agree to price drugs as the government required, they cannot be included in the country's basic health insurance system, which allows patients to get reimbursed for some of the medicines and services they get at qualified hospitals.

The policy for the pilot program did not show any signs of improvement in these two fields, meaning the greatest obstacles holding off foreign investments have not been solved.

Moreover, to acquire large medical equipment such as a magnetic resonance imaging machine, all hospitals must apply to the health regulator supervising their operations, which must verify and hand over the application to their higher-ups all the way to the provincial level for further review and approval.

It is impossible for a private company to be truly in charge of its own business when even such small management decisions must be approved by regulators first. Not to mention the usually long period of wait time for the approval. By the time it comes, the company could have missed opportunities because of the delay.

It is hard to imagine any foreign investor would be particularly thrilled about such a prospect. The policy has taken a step in the right direction, but real breakthroughs require more reforms.

(Rewritten by Wang Yuqian)

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