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By Jingyi Hu, Young Voices Blog

In June, the State Council issued a series of measures to accelerate the development of private hospitals. This new move toward healthcare reform aims to increase the competitiveness of private hospitals in order to alleviate the problems of affordability and accessibility of healthcare in China, and ideally, to incentivize public hospitals to transform themselves into more competitive entities. Private hospital leaders view this move as the biggest step the Chinese government has ever taken in opening up competition in the private hospital sector.

The most important development of this new round of reform measures is that private hospitals will be in the same pool as public hospitals in terms of eligibility for basic medical insurance reimbursement. As a result, patients are allowed to claim medical insurance for private hospital visits as they do for a public hospital. This could reduce crowding that occurs in public hospitals.

This new policy also opens the door for investors in private hospitals. Right now the private hospital market is flooded with hospitals providing low quality services. Additionally, private hospitals limit their services to those with low-entry barriers, such as plastic surgeries, orthopedic surgeries, and obstetrics and gynecology, and they only account for 10 percent of the medical services provided nationwide. Encouraging investment in private hospitals could help more reputable hospitals grow and the increasing competition would eventually force public hospitals to improve their services.

That said, some pieces are still missing in the unveiled government measures.

First, they fail to address the discrepancy of healthcare resources between urban and rural areas. On average, there are 8.6 health professionals per 1,000 people in urban areas, while the number is 3.4 for rural areas. Since the investors’ goal is to maximize profit rather than solve accessibility or affordability issues, capital and investment would still be concentrated in large cities, which have higher consumption level than smaller cities and rural areas. Moreover, big cities provide a more mature market for hospitals to thrive. Top teaching hospitals, medical device companies, and pharmaceutical headquarters are concentrated in big cities. If the reform increases investment in private hospitals but fails to offer incentives for investment in smaller cities or rural areas, the resource inequality would only be aggravated.

Second, the client base for private hospitals is underdeveloped. The new reform measures are expected to expand the client base because they grant eligibility to private hospitals for reimbursement under the national health insurance coverage plans. However, this may not generate sufficient incentives for public hospitals to reform themselves, given the latter’s almost monopoly status. In general, there are two segments of populations private hospitals potentially can target for providing high-end services in China. The first is the limited price-insensitive population (i.e., the wealthy people). The expanded coverage will not fundamentally change this group’s hospital choices. The second is the growing middle class who has interest in seeking better but more expensive medical services. But given the small amount of basic insurance reimbursement, affordability is still a concern. Commercial health insurance can step in and supplement basic insurance. Unfortunately, commercial health insurance in China remains an untapped market. In 2014, it only accounted for 12.8 percent of total insurance market, far lower than the share of property insurance.

The government deserves credit for allowing patients to claim medical insurance for visits to private hospitals and encouraging investment in private hospitals. After picking the low-hanging fruit, it is time for the government to think long term. Channeling investment to rural areas and establishing a strong commercial health insurance market are not easy, but they are necessary for the equality and sustainability of healthcare system in China.