Even before the COVID-19 pandemic began, China’s healthcare sector was undergoing rapid and dynamic development. With growing affluence and an ageing population, healthcare expenditure was forecasted to grow by an exponential compound annual growth rate (CAGR) of 9.8% between 2018 and 2023.
The pandemic has added a new spin to China’s healthcare growth story, but not necessarily in a negative way. While COVID-19 has definitely dealt a blow to Chinese hospitals in terms of finances and resources, it has served as a catalyst for expansion in certain parts of the industry – in particular, its health technologies.
It has also acted as a lesson in hospital emergency and contingency planning. “Although the many personal and public tragedies of the pandemic cannot be denied, the silver lining for the healthcare sector is major learnings in how to respond to, or be part of, preventing future pandemics,” said Ms Roberta Lipson, Chief Executive Officer of United Family Healthcare (UFH), a leading private healthcare operator in China.
The COVID-19 impact on China’s healthcare market
One gap in the pandemic response that was exposed by COVID-19 was the issue of insufficient healthcare resources, for both infected and non-infected patients. This meant that, at the start of the pandemic, many hospitals which either had COVID-19 infections or were ill-equipped to screen for and isolate COVID-19 patients, had to be forcibly closed by the authorities. “This was both difficult for the healthcare institution, and also disastrous for patients with non-COVID issues who could not find access to their original providers,” said Ms Lipson.
As such, the authorities, healthcare providers, and the general public have since set out to explore solutions to mitigate this issue in the event of future viral outbreaks.
The pandemic also saw China’s public health authorities making great strides in its monitoring, reporting and response systems. The nationwide digital ‘health codes’ system gathers data on users’ contacts, COVID-19 tests, vaccines and contact risk, which they then use to decide whether to grant or withhold citizens’ access to higher-risk spaces.
For China’s hospitals, the pandemic has driven home how crucial strong internal infection control regimes are, as well as the importance of being vigilant and prepared for possible future epidemics. Ms Lipson noted that this has resulted in more hospitals including scenario planning in their strategic considerations, with close monitoring of PPE inventories and relevant supply chains now a routine procedure.
China healthcare’s digital transformation
Much has been said about how quickly Chinese consumers have taken to digital health technologies, and in particular, telehealth and virtual care. “The acceleration of digital transformation of the health sector will certainly be one of the most impactful and lasting legacies of the pandemic period,” said Ms Lipson.
The move by Chinese authorities to liberalise the regulatory environment, allowing for reimbursement of online health services, has fanned the sector’s growth. Of note is the growth of China’s “internet hospitals” – these are licensed medical institutions which are tied to brick-and-mortar medical facilities that offer online consultation and prescription. As of July 2020, there were 711 internet hospitals in China, with more than half established in 2019 and 2020. UFH’s Internet Hospital is a recent addition to the pool, and has seen high demand for its online services. “Connection to our patients was greatly enhanced through online consulting services which accelerated during the pandemic,” said Ms Lipson. Becoming a full internet hospital has allowed UFH to further that connection, as they can now “incorporate data from home IOT devices, as well as offer online prescriptions, better monitor chronic diseases, and improve early triage for emerging situations.”
Where private hospitals stand in China’s healthcare landscape
Apart from pandemic-driven developments, another key trend is the rise of private healthcare in China. Traditionally dominated by public hospitals, the hospital market landscape has shifted over the past decade. The proportion of private hospitals saw a huge jump – from 17% in 2005 to over 50% in 2016 – and now make up over 20% of the country’s hospital bed capacity.
There remains a lot of growth potential in this area, and investors have been quick to jump at the opportunities – over 150 billion yuan were invested in new public market healthcare financings in 2020 alone.
However, obstacles remain in the development of private hospitals. For one, anyone hoping to invest in China’s private hospitals will have to first tie up with a domestic partner with at least 30% equity ownership.
Meanwhile, private hospitals have to compete for patients and staff with public hospitals that enjoy higher government funding, easier access to research funding and grants, as well as easier entry to the public social insurance system for reimbursement of services. Though some private hospitals have received approval for social insurance reimbursement, the amount is only limited to a portion of the regulated prices in the public sector. Thus, higher priced private services are ineligible for reimbursement, making them less attractive to patients.
Nonetheless, recent trends may swing the tide in favour of private hospitals. “The availability of new insurance products and Chinese consumers’ increasing acceptance of private insurance creates real opportunities for the private sector,” said Ms Lipson, who noted that commercial health insurance grew at an average annual rate of 28% over the past decade.
She added: “Recent changes in the procurement system for drugs, consumables, and devices, have somewhat limited the formularies in the public sector, opening up opportunities for private institutions to differentiate themselves.” A new policy has also liberalised the private sector’s access to previously limited quotas for large scale medical equipment (e.g. surgical robots, PET).
Exciting times ahead
Looking ahead, China’s healthcare sector is expected to continue its growth and influence in the global industry.
China is keen to invest in pharmaceutical R&D, with their spending expected to reach US$49 billion in 2023 – an amount that will account for about 23% of the world’s total spending on drug discovery and testing.
Ms Lipson cited new reforms in special zones which permits early adoption of new drugs and technologies as an example of China’s increased focus on pharmaceutical R&D.
United Family Healthcare is among the hospitals which has made full use of this development – it currently runs the International Vaccination and Cancer Care Clinic in the Hainan Special Medical Zone, which allows them to administer new therapies and vaccines to patients before it is rolled-out to the rest of the country.
Its Guangzhou hospital, as well as an upcoming one in Shenzhen, will be able to take advantage of special policies in the Greater Bay Area. These policies grant approval to the two hospitals to administer Hong Kong-approved drugs which are still pending mainland China’s approval.
With supportive government policies and buoyant consumer demand, how should Chinese hospitals, especially private ones, look to capitalise on the growth and ensure sustained development of this sector?
“I believe that leaders in both public and private healthcare need to be focused on talent development,” said Ms Lipson. “The private sector should enhance industry self-regulation and quality improvement in order to ensure the continued growth in consumer and regulatory acceptance of private healthcare.”