China wants to draw more foreign hospitals, but hurdles remain significant

BEIJING - Patients in China have long faced limited options when it comes to foreign-run healthcare, but that could change as the country rolls out the welcome mat for foreign hospitals.

On Sept 7, the Chinese government announced that fully foreign-owned hospitals will now be allowed in the cities of Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou and Shenzhen, as well as on Hainan island.

This marked the latest high-level push to open up the medical sector amid a slump in foreign investment, in the hopes of bringing competition to domestic hospitals that face longstanding problems such as rising costs, over-consumption and corruption.

While analysts said the welcome signal from the central government is clear, it is unlikely to translate into a flood of entrants, given the significant challenges of running a highly localised service in a heavily scrutinised sector.

These include regulatory uncertainty for a sector that has opened up relatively recently, a need to build up brand recognition among mass market consumers, and concerns such as hiring and training local staff.

China first allowed direct foreign capital into the domestic medical institution sector in the late 1980s, and investment rules have varied over the years. It was only in 2015 that the first fully foreign-owned hospital was established in Shanghai.

For now, foreign hospitals in China remain few. National data showed that as at 2021, out of more than 1.07 million health and medical institutions in China, only 302 were foreign-invested, and 114 of them were hospitals. The rest were clinics and outpatient departments.

In China, foreign companies are often required to form joint ventures with local counterparts to operate in many sectors, including healthcare, although such requirements have been gradually lifted in recent years.

Mr Jack Wu, a partner at Shanghai-based Acadia Advisory Group, believes that the latest move to open up the market shows the Chinese government recognises that there is still a gap between foreign and local hospitals.

He told The Straits Times that the recent government notice, jointly issued by three national-level bodies, is meant to tell lower-level administrative agencies to be bolder when examining and approving such applications.

Mr Wu cited challenges such as the long wait before returns on investment can be expected. He cited the Beijing United Family Hospital, which opened in 1997 and is the first foreign-invested hospital to operate in China.

The parent brand, United Family Healthcare, founded by US businesswoman Roberta Lipson in 1997, now runs 11 hospitals.

“For United Family, which provides comprehensive services, their investment is very big because they have to be staffed in different specialities, yet the patient load is smaller than at public hospitals,” said Mr Wu, whose firm has advised hundreds of foreign enterprises entering China.

Regulatory uncertainty over issues, such as the process for bringing in second-hand medical equipment and licensing requirements for transferring foreign doctors from overseas, adds to the complications, he added.

Other foreign hospitals are banking on longer-term trends, such as China’s ageing population and rising affluence, even as the economy is experiencing a slowdown in recent years.

A Raffles Medical Group spokesman welcomed the latest announcement, and told ST that with rising affluence in China, there are increasing expectations and needs in healthcare, and this means “huge growth opportunities”.

The Singapore-headquartered company has operated in China for more than 14 years. It has three hospitals in mainland China – in Beijing, Shanghai and Chongqing.

The spokesman added that to be successful, a foreign hospital needs to be “committed to a long-term strategy and have the stamina to invest for the future”.

It also needs to stand out in a competitive landscape dominated by large government hospitals.

Raffles’ differentiating factor, the spokesman said, is offering high-quality and seamlessly integrated healthcare to the top 20 per cent of the population, as well as expatriates who value personalised care of international standard.

A DBS report in February on Raffles’ FY2023 results found that its China hospitals continue to gain traction but remained in a “gestational period”.

Less than 10 per cent of its 2023 revenue came from the Greater China region.

Kuala Lumpur-headquartered IHH Healthcare, which was among the first foreign healthcare providers to enter the Chinese market 20 years ago, said it would be making a significant investment in Shanghai with a new 8,000 sq m ambulatory care centre.

Dr Kenneth Tsang, IHH Healthcare’s regional chief executive for North Asia, said the centre will provide outpatient and day surgery services when it opens in 2025.

“Ultimately, we are fully committed to delivering the same world-class clinical and care excellence for our patients in China that IHH is known for, over the long term.”

More foreign entrants could help shake up China’s hospital scene, which faces problems such as over-consumption and corruption.

Peking University professor Li Ling said in a local media interview in July that according to her research, Chinese citizens see a doctor an average of seven times a year, far more than the developed country average of three to four times. She attributed this in part to the profit-driven behaviour of hospitals.

In recent years, China has cracked down on corruption in the medical field, including insurance fraud, cosy ties between doctors and pharmaceutical companies, and the common practice of giving “red packets” to doctors before an operation.

In September, a privately owned local hospital in Jiangsu province came under investigation for falsifying medical records for insurance fraud. More than 22 million yuan (S$4.1 million) in insurance funds were illegally used.

Mr Zhao Heng, founder of Shanghai-based healthcare consultancy Latitude Health, said that whether foreign hospitals succeed will depend on how much their brand recognition can take root among their target customers.

For foreign hospitals eyeing the mass market, ensuring their patients can claim medical insurance is important, and operating in wealthy second- and third-tier cities is a possibility, he said. But if they are hoping for clientele with deeper pockets, first-tier cities remain more suitable.

“For foreign hospitals, the market remains big enough, even after taking into account the fact that the target group of customers will be smaller. This is the biggest attraction.”