Developing World Healthcare Blog

The Beijing Field Trip

We recently spent a week in Beijing on business (and tourism.) We met with a variety of people and companies involved in the healthcare system, and summarize our broader observations below. China is a very interesting healthcare market because of its size, economic growth, and relatively low (but rising) spending on healthcare. At the same time, the healthcare system struggles with an inadequate medical workforce, and the side effects of skewed incentives (as described in several of our prior posts.)

First, some general tips:

Don’t go in August: hot, humid; and physically very demanding. I didn’t control the timing, but choose a different month if you can.

Google Maps: This is a very good tool for advance planning for meetings. It provides estimated driving times by time-of-day (valuable given Beijing’s heavy traffic.)  I found it to be very accurate and used the distances to estimate cab fares. Baidu Maps is very useful for going to places that aren’t well known to taxi drivers. In these cases, the “young and hip” doorman at our hotel was the “go to” guy for the other doormen because he had it on his iPhone.

Getting around: The subway is air conditioned, modern, and has bilingual signs. It takes longer than a taxi, and you probably have to walk to your destination (particularly important in the context of item #1 above.) Having addresses written in both Chinese and your native language is very helpful when entering a cab. 

Now on to healthcare……………………………..

Healthcare Reform is Critical to Lowering China’s Savings Rate

Healthcare sits at the center of the shift from an export-driven to a consumer-driven economy. The main drivers of China’s high savings rate (30% of disposable income) include the usual drivers found elsewhere: housing, automobiles, retirement, and education. Unique to China is the importance of healthcare in driving the savings rate. According to the World Bank, out-of-pocket healthcare spending represents about 34% of healthcare spending in China compared to 12% in the US. Even though fees for medical services are very low (4 yuan for a doctor’s visit), hospitals require upfront payment for services and rely on drugs and devices for 50% of their revenue.  The government health insurance system covers over 90% of the population, but provides only basic coverage.

Lowering out-of-pocket spending should free up savings for spending on other good and services. The government has understood the needed reforms (introduce commercial health insurance; increase physicians’ incomes; reduce hospitals’ reliance on drug/device revenue) for years, but there is much resistance in the system. There are numerous examples of baby steps in the right direction. For instance, the Municipality of Beijing is considering a pilot program to open up a commercial insurance market through a tax deduction of RMB2,000 – 2,500 for health insurance premiums. New investment opportunities will arise as the system changes, but assume a slow pace of change when evaluating them.

Demand for Healthcare in China is as Much about Quality as Quantity

According to the World Health Organization, China’s life expectancy of 75 is above the global average of 71. This performance is quite good considering the system’s inadequacies. That said, the inadequacies appear in subtle ways. We visited a high-end dental clinic and noted that the promotional brochures featured pictures of Caucasians. When asked, my host (a senior executive of the parent company) gave two reasons. First, the particular location targets expats along with wealthy locals. Second, dental care in China is so limited that “many Chinese people don’t smile.”  A sad comment, but we had heard it before. A second example of the inadequacies is patients’ experiences at public hospitals. Patients wait in line for an appointment, then wait in line to pay for any recommended service (or medication), then wait in line again. The public perception of the hospital system is so low that attacks on doctors are common. A survey by the China Hospital Management Association found that in 2012 hospitals experienced an average of 27 attacks annually, per hospital.

Open to Foreigners or Not?                         

China’s National Health and Family Planning Commission (NHFPC) permitted Wholly Foreign Owned Hospitals (WFOH) in seven Chinese cities and provinces on July 25th, 2014. Since then, there has been very little activity. One of our contacts noted that the registration process for a WFOH involves over 400 steps. In addition, the law is ambiguous in several areas. The wide chasm between policies announced at the top and their implementation is typical when it comes to many aspects of the healthcare system. The government favors local companies (nothing new here), yet has been pragmatic at times. As noted earlier, change comes slowly despite the government’s role in managing the economy.