Health Care in China: An Idea Whose Time Has Come

Several years ago, we took 20 of our Chinese general managers to the United States for an intense, week-long management meeting. For many, it was their first visit to the country they had heard so much about, and they were excited.

Midway through the week, feeling a bit guilty about how hard we were working them, we decided to give them an afternoon off to do as they wished. This would give them an opportunity to see some of the sights and experience the country, or so we thought. When asked how they wanted to spend their rare bit of free time, the answer was unanimous. “We want to go to a mall.”

Needless to say, that wasn’t what we expected to hear. What could they possibly hope to buy at a mall in the United States that they couldn’t find at home—at much lower prices no less? After all, most of the merchandise being sold in the stores was most likely made in China in the first place.

We got our answer the moment the bus pulled into the parking lot. All of the managers made a beeline for the drugstore, where they began stocking up on vitamins for themselves and to take back to their parents.
That told me two things. First, it told me that our Chinese general managers either didn’t trust what they could buy in China or couldn’t find suitable products there. Secondly, it told me that when people start making money, they want to live longer and are less sensitive to the cost of products and services that help them to achieve that objective. From that moment on, I became a believer that health care was going to be a big opportunity in China—at least someday.

Up until now, health care has simply not been a priority for the Chinese government, and the country’s medical industry is one of the last to modernize. According to the World Health Organization, the public-health arm of the United Nations, Chinese government spending on health in 2006 amounted to less than 1 percent of the country’s gross domestic product, ranking China 156th out of 196 countries surveyed.

Moreover, nearly 50 percent of health care costs in China are borne by individuals, about 18 percent by the government and only 33 percent by various types of insurance. With affordability an important issue for the vast majority of China’s people, the cost of hospital and doctor visits have to be kept low. As a result, hospitals lack funds to buy the latest equipment, and highly-educated doctors make a fraction of what their counterparts in more developed countries are paid. It is not uncommon for a doctor in China to see up to 100 patients in a day, leaving little time for individual attention.

Like everything else in China, though, this is changing. Many more Chinese now have the means to pay the going rate for world class health care and don’t want to be one of many in a long queue to see a doctor. And, the Chinese government is now taking steps to improve the quality and availability of the health care that is provided to its citizens.

On Wednesday of last week, China announced that it would spend 850 billion yuan ($124 billion) over the next three years to upgrade the nation’s health-care system by expanding insurance coverage, revamping public hospitals and improving access to medical treatment. China’s State Council said its goal is to extend medical insurance to 90 percent of the population by 2011 and make “basic health-care services” available to all of China’s 1.3 billion citizens. Under the new plan, the government will put in place a network of hospitals, clinics and community health-care centers covering both rural and urban areas and improve insurance coverage by increasing subsidies for premiums.

In a private conversation I had recently with the head of one of China’s major hospitals, it’s also clear that China wants to introduce the most advanced medical technology into its hospitals. “Why should foreigners and wealthy Chinese go to Beijing United (a Western run, privately funded medical facility in Beijing),” he asked me. “Why shouldn’t we be able to provide them with the type of medical treatment they want?”

China’s health care industry is highly bureaucratic and government controlled, so progress will be slow. However, the signs are all there that China’s health care industry may at last be beginning to open up. As it does, it will provide some interesting business and investment opportunities for companies and individuals with relevant technology and expertise. With the continued development of China’s economy and the new focus by the government, it’s only a matter of time.

4 Responses to “Health Care in China: An Idea Whose Time Has Come”

  1. “China announced that it would spend 850 billion yuan ($124 billion) over the next three years to upgrade the nation’s health-care system”

    In common with all centrally-funded projects in the provinces a good slice of that investment will go AWOL between source and intended recipient.

    I also think that Chinese hospitals are overly profit-oriented with doctors diagnosing for maximum return rather than best prognosis.

    So, yes, I tend to agree that progress will be slow.

  2. Stuart,

    Nonetheless, a step in the right direction.

  3. I think it’s been coming for a long time now (measured in fast paced China years, of course) and the hundreds of new private clinics (run by Chinese doctors) in Beijing and Shanghai serve as proof.

    A mature, private health care insurance industry will really open up the flood gates. When the Chinese Insurance Regulatory Commission (CIRC) decides that local private health insurers are big enough to compete with international giants like Blue Cross Blue Shield, and BUPA. And when both the CIRC and the Ministry of Health are comfortable enough with Third Party Administrators (which deal with direct billing), then we are going to see a true globalization of health care in China as Chinese will have access to care all over the Asian continent, and expats will be introduced to lower cost, but equal quality competitors to today’s status quo, like Beijing United Hospital Systems.

  4. Damjan,

    You sound as though you are quite knowledgeable about the healthcare industry. This is an area where I am doing some work and I would be interested in discussing your thoughts at some point. If you get a chance, please e-mail me at jperkowski@jfpholdings.com