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The entry of hospitals ex- clusively funded by foreign investors has shifted from“rumors” to reality and raised a great discussion in the society.
In early September, the National Health and Family Planning Committee and the Ministry of Commerce published the Notice about the Start of Pilot Project of Setting up Wholly Foreign-owned Hospitals, in which the government stated its decision to start the pilot project of setting up wholly foreign-owned hospitals in Beijing, Shanghai, Guangdong and other four provinces. This possibly ends the situation that Chinese citizens have no alternative approaches when they are sick. In addition, this might break the situation of China’s healthcare industry which has been unchanged for years.
Some people are expecting the wholly foreign-owned hospitals to generate the “catfish effect” in the entire healthcare industry which could finally lead to the solution to the current situa- tion of “hard and costly access to doctors” in China. In comparison, some people are still having doubts about the entry of foreign-funded hospitals into China. For example, what if they don’t provide services for ordinary people or are not covered in the medical insurance? In addition, is their entry as simple as the policy states?
The Tip of “Catfish Effect”
“The government is now ready to set up wholly foreign-owned hospitals in seven provinces/municipalities with the hope of promoting the development of the multiplied hospital operation and management and improving the distribution of medical resources with the advanced ideas, management and service patterns of foreign hospitals, as well their state-of-art medical technologies and devices,” says Li Zhixue, an analyst with P-Along Industrial Consultant.
The private-funded hospitals just started their development in China. They are still haunted by the low medical and management levels and have problems in creditability. The public hospitals, which have no concerns about the competition, are facing the heavy burden of reform. The imbalance of medical resources and the low efficiency of medical care lead to the “hard and costly access to doctors” for citizens.
Then, the newcoming foreign hospitals can become the stone thrown into the pond to generate ripples big enough to change the entire healthcare industry in China?
Prof. Yuan Jian with ASKCI Industrial Institute says that the wholly foreign-owned hospitals would definitely have the “catfish effect” in China’s healthcare market. According to him, the change of imbalance of medical resources needs to be done from two aspects: on one hand, it is necessary to further deepen the medical system reform and strengthen the support from the public funds; on the other hand, the market competition is needed to propel the reform. The establishment of wholly foreign-owned hospitals in China will exert its function and influence in capital, technologies, service and management to some extent. Those foreign hospitals with high scores in these aspects will become the “catfish that stirs up the pond of healthcare market”. “They will bring new vitality to the market. The wholly foreign-owned hospitals are just like Shenzhen and other special economic zones, which had little impact in the short term, but would impact the ideology and management in a deep-going way,” Yuan Jian says.
In addition, Yuan Jian says that foreign hospitals have advantages compared with Chinese domestic hospitals in the service quality, hospital management, medical level, organizational capital and devices. These advantages will come into and be merged in China alongside their entry and generate impact over the healthcare market of Chi- na. This has been repeated many times: most of the industries in China that are open to foreign investors have benefited from the skills, technologies and experiences of these foreigners.
No matter how the wholly foreignowned hospitals position themselves, they could contribute to the solution to the shortage of public medical resources. Another comforting point is that there is no big hurdle for wholly foreign-owned hospitals to be included into the medical insurance system of China. For example, Shenzhen-based CMer (Shenzhen) Dennis Lam Eye Hospital became a designated hospital in the medical insurance system of Shenzhen and patients could reimburse 80% of their spending on drugs in this hospital in accordance with the governmental decrees.
Li Zhixue says that the foreign hospitals could disperse and ease the “hard and costly access to doctors” and could become a competitive force for the public hospitals.

Liang Jiapei, an analyst with Zero Power Intelligence, says that if the wholly foreign-owned hospitals set the commercial profits as their primary goal in China, they are likely to position themselves as the medical care suppliers for high-end consumers. Shanghai Ruidong Hospital, an example in that field, attracts the rich people with the need of high-end medical care away from the masses that go to public hospitals through higher charges and better services. This is considered to be able to spare more public medical services for the better services for ordinary people. Thus, these kinds of foreign hospitals are seen as good supplement to the public hospitals and a likely panacea for the problems in the access to medical services.
Problems in Getting Used to China
It is worthwhile to mention that China has been open to the wholly foreignowned hospitals. In 2007, China started the pilot project about foreign hospitals. In 2010, the State Council issued a new file to state that the qualified foreign investors could set up wholly foreign-owned hospitals in China. However, the wholly foreign-owned hospitals were not greeted with a smooth way at the beginning. It is known that Hong Kong University Shenzhen Hospital, which was one of the chosen pilot foreign hospitals in 2007, had its ownership taken by the Shenzhen government and was equipped with a decision-making and management team by both parties from Shenzhen and Hong Kong. The two parties made bold moves in the reform to the hospital management system, financial investment system, HR arrangement, public welfare, corporate operation, cost management and service pattern. It spared no efforts in “distinguishing the administration from business, separating the management from enforcement, parting the clinic with the pharmacy and telling the for-profit from non-profit”. However, no expected results were gained after years’ development.
Li Zhixue says that foreign hospitals do not necessarily need to look for the balance between medical income and expenditure to a certain profit point. The income of wholly foreign-owned enterprises comes from none other than two resources: the price of drugs and the charges for medical services. The fees for medical services cannot be improved without an upper limit due to the status quo in China. Therefore, the medical insurance and the commercial insurance are the two resorts to lower the spending of a patient in the foreign hospitals to keep them from becoming the places exclusive for a few people.
Actually, the commercial insurance, which is connected to the world, needs some time to cover foreign hospitals. Then, it needs the local government to approve and support foreign hospitals in their becoming units under the coverage of medical insurance. It takes some time as well. Therefore, the problem cannot be solved in a short while.
Yuan Jian says that foreign hospitals originally provided the high-end medical services for the high-end people, namely the foreigners in China and local rich people. The number of these people is small and they are free of the “hard and costly access to medical services”.
In addition, foreign hospitals are at a disadvantage in the competition with private and public hospitals. In the second- and third-tier cities, the private-run hospitals have the price advantages which could almost drive the foreign hospitals away. In the first-tier cities, the limitation cast by sources of physician and medical insurances decide that foreign hospitals are no threats to public hospitals. They could only become a powerful rival in fields of dentistry and obstetrics. As reported by some media, foreign hospitals need to recruit foreign physicians. However, according to the current regulations of China, foreign physicians need to pass the exam in Chinese to get the physician license. This shut the door in front of many foreign physicians. Nowadays, most foreign hospitals choose to recruit Chinese physicians, but most of them have formal jobs at public hospitals, and they only work in foreign hospitals part-time.
“Foreign hospitals have their own advantages, but in front of the difference of the Chinese market, they need to rebuild their structure with the idea of localization,” Yuan Jian says.
In addition, Yuan Jian believes that the advantages of foreign hospital could be exerted in a certain circumstance. They cannot simply move the pattern in foreign countries into China. Here they face three defects as well: the lack of medical talents, medical insurances and drug supply. How to solve these problems and make foreign hospitals get used to the Chinese market is what both the Chinese government and foreign investors need to consider.
In early September, the National Health and Family Planning Committee and the Ministry of Commerce published the Notice about the Start of Pilot Project of Setting up Wholly Foreign-owned Hospitals, in which the government stated its decision to start the pilot project of setting up wholly foreign-owned hospitals in Beijing, Shanghai, Guangdong and other four provinces. This possibly ends the situation that Chinese citizens have no alternative approaches when they are sick. In addition, this might break the situation of China’s healthcare industry which has been unchanged for years.
Some people are expecting the wholly foreign-owned hospitals to generate the “catfish effect” in the entire healthcare industry which could finally lead to the solution to the current situa- tion of “hard and costly access to doctors” in China. In comparison, some people are still having doubts about the entry of foreign-funded hospitals into China. For example, what if they don’t provide services for ordinary people or are not covered in the medical insurance? In addition, is their entry as simple as the policy states?
The Tip of “Catfish Effect”
“The government is now ready to set up wholly foreign-owned hospitals in seven provinces/municipalities with the hope of promoting the development of the multiplied hospital operation and management and improving the distribution of medical resources with the advanced ideas, management and service patterns of foreign hospitals, as well their state-of-art medical technologies and devices,” says Li Zhixue, an analyst with P-Along Industrial Consultant.
The private-funded hospitals just started their development in China. They are still haunted by the low medical and management levels and have problems in creditability. The public hospitals, which have no concerns about the competition, are facing the heavy burden of reform. The imbalance of medical resources and the low efficiency of medical care lead to the “hard and costly access to doctors” for citizens.
Then, the newcoming foreign hospitals can become the stone thrown into the pond to generate ripples big enough to change the entire healthcare industry in China?
Prof. Yuan Jian with ASKCI Industrial Institute says that the wholly foreign-owned hospitals would definitely have the “catfish effect” in China’s healthcare market. According to him, the change of imbalance of medical resources needs to be done from two aspects: on one hand, it is necessary to further deepen the medical system reform and strengthen the support from the public funds; on the other hand, the market competition is needed to propel the reform. The establishment of wholly foreign-owned hospitals in China will exert its function and influence in capital, technologies, service and management to some extent. Those foreign hospitals with high scores in these aspects will become the “catfish that stirs up the pond of healthcare market”. “They will bring new vitality to the market. The wholly foreign-owned hospitals are just like Shenzhen and other special economic zones, which had little impact in the short term, but would impact the ideology and management in a deep-going way,” Yuan Jian says.
In addition, Yuan Jian says that foreign hospitals have advantages compared with Chinese domestic hospitals in the service quality, hospital management, medical level, organizational capital and devices. These advantages will come into and be merged in China alongside their entry and generate impact over the healthcare market of Chi- na. This has been repeated many times: most of the industries in China that are open to foreign investors have benefited from the skills, technologies and experiences of these foreigners.
No matter how the wholly foreignowned hospitals position themselves, they could contribute to the solution to the shortage of public medical resources. Another comforting point is that there is no big hurdle for wholly foreign-owned hospitals to be included into the medical insurance system of China. For example, Shenzhen-based CMer (Shenzhen) Dennis Lam Eye Hospital became a designated hospital in the medical insurance system of Shenzhen and patients could reimburse 80% of their spending on drugs in this hospital in accordance with the governmental decrees.
Li Zhixue says that the foreign hospitals could disperse and ease the “hard and costly access to doctors” and could become a competitive force for the public hospitals.

Liang Jiapei, an analyst with Zero Power Intelligence, says that if the wholly foreign-owned hospitals set the commercial profits as their primary goal in China, they are likely to position themselves as the medical care suppliers for high-end consumers. Shanghai Ruidong Hospital, an example in that field, attracts the rich people with the need of high-end medical care away from the masses that go to public hospitals through higher charges and better services. This is considered to be able to spare more public medical services for the better services for ordinary people. Thus, these kinds of foreign hospitals are seen as good supplement to the public hospitals and a likely panacea for the problems in the access to medical services.
Problems in Getting Used to China
It is worthwhile to mention that China has been open to the wholly foreignowned hospitals. In 2007, China started the pilot project about foreign hospitals. In 2010, the State Council issued a new file to state that the qualified foreign investors could set up wholly foreign-owned hospitals in China. However, the wholly foreign-owned hospitals were not greeted with a smooth way at the beginning. It is known that Hong Kong University Shenzhen Hospital, which was one of the chosen pilot foreign hospitals in 2007, had its ownership taken by the Shenzhen government and was equipped with a decision-making and management team by both parties from Shenzhen and Hong Kong. The two parties made bold moves in the reform to the hospital management system, financial investment system, HR arrangement, public welfare, corporate operation, cost management and service pattern. It spared no efforts in “distinguishing the administration from business, separating the management from enforcement, parting the clinic with the pharmacy and telling the for-profit from non-profit”. However, no expected results were gained after years’ development.
Li Zhixue says that foreign hospitals do not necessarily need to look for the balance between medical income and expenditure to a certain profit point. The income of wholly foreign-owned enterprises comes from none other than two resources: the price of drugs and the charges for medical services. The fees for medical services cannot be improved without an upper limit due to the status quo in China. Therefore, the medical insurance and the commercial insurance are the two resorts to lower the spending of a patient in the foreign hospitals to keep them from becoming the places exclusive for a few people.
Actually, the commercial insurance, which is connected to the world, needs some time to cover foreign hospitals. Then, it needs the local government to approve and support foreign hospitals in their becoming units under the coverage of medical insurance. It takes some time as well. Therefore, the problem cannot be solved in a short while.
Yuan Jian says that foreign hospitals originally provided the high-end medical services for the high-end people, namely the foreigners in China and local rich people. The number of these people is small and they are free of the “hard and costly access to medical services”.
In addition, foreign hospitals are at a disadvantage in the competition with private and public hospitals. In the second- and third-tier cities, the private-run hospitals have the price advantages which could almost drive the foreign hospitals away. In the first-tier cities, the limitation cast by sources of physician and medical insurances decide that foreign hospitals are no threats to public hospitals. They could only become a powerful rival in fields of dentistry and obstetrics. As reported by some media, foreign hospitals need to recruit foreign physicians. However, according to the current regulations of China, foreign physicians need to pass the exam in Chinese to get the physician license. This shut the door in front of many foreign physicians. Nowadays, most foreign hospitals choose to recruit Chinese physicians, but most of them have formal jobs at public hospitals, and they only work in foreign hospitals part-time.
“Foreign hospitals have their own advantages, but in front of the difference of the Chinese market, they need to rebuild their structure with the idea of localization,” Yuan Jian says.
In addition, Yuan Jian believes that the advantages of foreign hospital could be exerted in a certain circumstance. They cannot simply move the pattern in foreign countries into China. Here they face three defects as well: the lack of medical talents, medical insurances and drug supply. How to solve these problems and make foreign hospitals get used to the Chinese market is what both the Chinese government and foreign investors need to consider.