China’s healthcare industry background

China’s healthcare industry is the world’s second-largest, closely behind the U.S. It is growing at an impressive speed: spending has soared from under 500 billion yuan (74 billion dollars) in 2000 to more than 7.2 trillion yuan (1 trillion dollars) in 2020.

China’s health care system includes hospitals (public and private), primary healthcare institutions (community healthcare centers, rural healthcare centers, and village clinics), and other healthcare institutions (such as women and children healthcare institutions, special disease prevention agencies, and centers of disease control).

Hospitals play the most crucial role in the nation’s healthcare services industry, with revenue making up 75.7% of the market share in 2020. After the nation’s reforms in the healthcare industry, the private healthcare system has grown in its importance to reduce the over-burden of its public counterpart.

However, this success has not lasted long, as many private hospitals declared bankruptcy in China this year.

The trend of hospital privatization

The last decade saw a dramatic growth in the private healthcare system. Before 2015, the number of private hospitals was always left far behind that of public ones. After 2015, with gradual growth, private hospitals surpassed state-owned hospitals, doubling their figure to nearly 22,500 hospitals in just 4 years, from 2015 to 2019. 

In 2020, there were 23,524 privately-owned hospitals, making up nearly 66.5% of Chinese hospitals.

By contrast, there is a downward trend in the number of public hospitals. 2015 recorded over 13,000 public hospitals, but the figure decreased to 11,870 in 2020.

Outpatients and inpatients received by private hospitals have constituted a rising share of total hospital patient visits between 2016 and 2020. A rise from 12.9% to 16% goes to outpatients, 15.9% to 19.1% for inpatients.

2017 statistics from the National Health and Family Planning Commission show the compound annual growth rate (CAGR) of public hospitals has been unchanged over the past 7 years, while that of private hospitals reached 16%.

Market research firm Frost & Sullivan estimated that the revenue from private institutions would triple to 90 billion dollars by 2019 from 2016 levels.

Problems of private hospitals

Although the private system dominates China’s healthcare market regarding the number of hospitals, it is outweighed by the publicly-funded system in other aspects.

For example, in terms of patient visits, private hospitals account for nearly 15% in 2020, while public hospitals take the rest.

Private hospitals tend to be smaller and specialized, while public hospitals have more beds, staff, and tertiary care capacity.

The average public hospital has 280 beds with higher occupancy rates. Several “super hospitals” with more than 4,000 beds, such as Zhengzhou First Hospital, can take in as many as 20,000 outpatients per day. In stark contrast, 83.5% of private hospitals have less than 100 beds and have an average occupancy of 40%.

Since private hospitals offer high out-of-pocket costs, they usually cater to citizens with private insurance, such as foreign expatriates, medical tourists, and affluent Chinese residents.

Other issues facing the private system are the recruitment of high-quality physicians and the lack of public insurance coverage.

Apart from the above-mentioned matters, the most significant problem of China’s private healthcare system is Zero-Covid measures.

The nation’s anti-epidemic approach has forced hospitals to suspend many services that generate revenue. Consequently, many hospitals have suffered a financial failure, leading to a disarray in the private system.

The private healthcare system affected due to strict covid controls

As reported by Reuters, footfall has dropped sharply in private hospitals, partly caused by policies forcing them to send patients with covid-like symptoms to public facilities. 

Due to widespread strict lockdown and a fear of being forcibly quarantined or hospitalized, many residents have been unable or unwilling to reach hospitals.

The government also put a cap on drug prices, a lucrative source of revenue for many hospitals.

In other words, the government’s measures have deprived private hospitals of revenue.

46 large private hospitals declared bankruptcy in China last year. This figure almost doubled those from 2 previous years, particularly 26 in 2020 and 21 in 2019.

In the first five months of 2022 alone, 26 private hospitals entered formal bankruptcy proceedings.

As many as 685 hospitals, including both public and private, closed in 2020 only, nearly 2 times higher than the number of the previous year.

Kanyijie, a Chinese medical industry information service specialist, says, “Since January 2020, in order to cooperate with the city’s epidemic prevention and control work, the hospital suspended some diagnostic and treatment activities and income fell noticeably.”

Kanyijie adds, “There was basically no medical income and the economic pressures were huge.”

Medical journal Lancet Regional Health published a study in 2021, showing that crippling losses in revenue can threaten the survival of a large number of healthcare facilities and providers.

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