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Healthcare in China: The Overhaul that Underwhelmed

Posted on Jul 25, 2012 by  | Tags: China, China Insurance Market, Health Insurance, Healthcare

Published July 25, 2012

A report released on Monday by the Healthcare Reform Office in China announced that the 3 year plan to improve some of the fundamental parts of China’s healthcare system completed its objectives on schedule. The Chinese Central Government spent almost US$71 billion between 2009 and 2011 in efforts to improve healthcare services to the public, build primary care medical facilities and new hospitals. Much of the effort was focused on extending coverage and providing medical services to the rural population, and the report claims that 95% of Chinese are now covered by public medical insurance.

Yet even while officials are congratulating each other on a job well done, Vice-Premier Li Keqiang called on the country to “push forward” with healthcare reforms. There are still huge gaps in availability of, and access to, public medical services between urban and rural areas. For example, the Ministry of Health reports that there are twice as many doctors per capita in the urban areas as in the rural areas. There is obviously a long way to go to narrow the urban-rural healthcare divide. In August 2009, Vice Health Minister, Huang Jiefu, acknowledged that there was a huge gap between the quality of healthcare offered in urban and rural areas, both in terms of outcome for patients and access to services. Official statistics in 2009 revealed that more than 85 percent of China’s quality healthcare resources were concentrated in cities despite the fact that rural residents account for 56 percent of China’s 1.3 billion people.

Even though there has been a significant improvement for many Chinese citizens in the availability and quality of public healthcare, the challenges facing healthcare in China have changed. The Chinese public has more purchasing power and have changed their eating habits and lifestyle expectations. The major mortality factors have gone from infectious diseases and malnutrition ten years ago, to hypertension and obesity today.

China has now surpassed the level of lifestyle-related health problems seen in more developed countries. According to statistics from the US Centre for Disease Control and the WHO, chronic diseases now account for 85% of all deaths in China, compared to 70% in the USA and 63% world wide. Healthcare services will receive about US$44 billion from China’s Central Government in 2012; currently almost 80% of this is spent treating chronic and long term illnesses. As in the case of most diseases, prevention is a lot cheaper than treatment. Experts have bemoaned the fact that only 2% of the healthcare budget is allocated for promotion and implementation of preventative measures such as education, medical staff training, check-ups and screening, which would reduce the incidence of long term illnesses and lighten the ever increasing fiscal burden.

According to the Ministry of Health, more than 260 million suffer from a chronic disease, research by the Peking University showed that China is now home to one of the world’s largest populations of diabetics. Lei Haichao, the deputy director general of the Beijing Health Bureau, said that even though China was spending billions of dollars every year to improve health services, there was no correlating improvement in the health of the nation’s citizens.

The fact that China has one of the world’s largest elderly populations which continues to grow as a demographic only adds to the burden. China’s one child policy has created a 4-2-1 (four grandparents, two parent, one child) ratio which is already beginning to put a strain on the public finances, a strain which is going to increase significantly in the next few years as a greater proportion of the population reach retirement age. Demographers predict that the percentage of working population, aged between 15-59, will peak sometime around 2013. So not only will the workforce shrink, but there is a potential of up to 6 dependants for every worker.

Officials from the Ministry of Health and other departments of the government have acknowledged that problems in current healthcare system include inefficiency, high costs, corruption and poor service. They have also been clear in expressing their belief that private investment can play a key role in solving these problems and have been working steadily to remove some of the many layers of regulations that have hampered local and foreign investment in the healthcare industry. Under regulations put in place earlier this year, various restrictions on foreign investment in healthcare institutions have been removed. Prior to this change, investment from wholly foreign-owned businesses was prohibited, and foreign investment in joint-venture healthcare facilities was limited to a maximum stake of 70%, however, it is now possible for foreign companies to wholly own healthcare institutions in China.

Largely because of the removal of foreign investment barriers, the number of private hospitals have increased by 20% in the last year, there are now almost 9000 private hospitals in China. In March, the government announced its goal to have 20 percent of hospital beds privately owned by 2015, a figure which was less than 5% in 2009.

These challenges to the Chinese healthcare system present some interesting, and possibly extremely lucrative, opportunities for private healthcare providers. A recent report by Deliotte claims that China’s medical services market is growing by 18% annually, and is projected to reach US$500 billion in three years. China is set to become the third largest healthcare market in 2013. With the state unable to foot the entire projected healthcare bill in coming years, it is a safe bet that authorities will continue in their efforts to improve the public system, while at the same time making it easier for private investment into the sector. Add to that the sheer size of the Chinese market, and it becomes pretty obvious that the healthcare sector will be one of the biggest investment opportunities in China.

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