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China Law Insight

Corporate

The promotion of private healthcare services- A Challenge or an opportunity?

Posted in Corporate, Healthcare

By Kalley Chen  King & Wood Mallesons’ Securities Group

To address China’s aging population issue as well as its need to improve access to healthcare in rural areas, healthcare reform has become a priority for the Chinese government.

A key mechanism to improve access is through the promotion of private healthcare. While current exit restrictions exist in relation to private medical institutions, recent policy developments which have liberalized investment in the healthcare sector demonstrate China’s progress toward improving healthcare. It is likely that these policies may stimulate greater PE investment opportunities, in particular within the private healthcare sector.

Key legal developments

Recently enacted policies including the Opinions on Further Encouraging and Guiding Social Capital towards Medical Institutions (“No.58 Policy”), information contained in China’s 12th Five Year Plan and the “New 36 Article” have removed some of the barriers which existed in relation to foreign investment in the medical sector, and now permit wholly-foreign owned medical institutions to be established in China.

Similarly, the State Council recently promulgated the Pilot Opinion on Comprehensive Reform of County Level Public Hospitals (“Pilot Opinion”), which encourages the integration, reorganization and restructuring of medical resources, and in turn promotes investment within the healthcare sector.

Key challenges and opportunities

Currently private healthcare is subjected to more proscriptive requirements when compared with the public healthcare sector. The Implementation Rules for the Classification Management of Urban Medical Institutions regulate the management of profit and non-profit medical institutions in China, and public and private healthcare facilities are subject to different tax, pricing and reporting requirements.

Additionally, challenges for private hospitals including restricted access to medical resources (such as access to high-quality doctors, staff and equipment), the developing nature or China’s medical institutions, China’s capital market exit restrictions as well as the small investment returns, are currently a disincentive to invest within the sector.

Despite this however, the current legal and policy developments, which liberalize investment in the healthcare sector, demonstrate China’s progress in improving access to medical treatment. Consequently, investors should watch this space’ as it is likely that China will continue to promote healthcare investment, in particular within the private healthcare sector. Attractive investment opportunities which may exist in the private healthcare sector include:

  • Emerging healthcare industries- such as senior care facilities, psychological treatment facilities, and palliative care facilities.
  • Specialist medical treatment- including cardiovascular, oncology,gynecology services, obstetrics, dentistry and other special medical services.
  • Specialty private hospital chains-such as hospitals which deliver care for particular medical conditions.
  • Medical devices- including medical devices and equipment that is used in hospitals.

Investment opportunities in private healthcare in China will make impact on the current healthcare market and will probably lead to a new landscape for China’s healthcare.