[Note: below is Chapter 19 from Great Wall of Numbers]

Another concern that foreign medical professionals probably do not have to worry about currently is trust; or rather they may be able to find an opportunity to rebuild the trust in the medical profession.  The reason this is important is that according to the former Ministry of Health, in 2010 there were “more than 17,000 “incidents” aimed at hospitals and their staff.”¹ These sometimes violent encounters have markedly increased, up from 10,000 such “incidents” five years ago.

For example, in March 2012 a young intern at a hospital in Harbin was stabbed to death by a patient, a patient who also stabbed three other doctors during the same encounter.² In September 2012 at a hospital in Shenzhen a doctor and nurse were both stabbed by a patient who also stabbed two others.³ In November 2012 two such incidents occurred.  The first, in Hefei, Anhui, a man with a knife entered the 2^nd Affiliated Hospital at a medical university and stabbed five medical workers, killing the head nurse.⁴ According to a preliminary investigation he had received medical treatment from the same hospital.  And in Tianjin, near Beijing, a doctor was axed to death by a psychiatric patient.⁵ In fact, in 2011 up to “10 medical staff were murdered by patients.”⁶

Why is this occurring?  A significant portion of the frustration involves what The Lancet (a British medical journal) has called “Bribegate” – medical staff have been found to have received bribes and kickbacks for prescribing drugs to patients, even if the patients did not need the prescription (more on that below).⁷ For example, a recent survey found that “54% Chinese doctors acknowledge they have taken drug kickbacks from medicine dealers or manufacturers.”⁸

While they are not required to take the Hippocratic Oath, Chinese doctors have similar ethical standards that essentially promote the same ideals.⁹ Yet there are at least two problems that have created an atmosphere of mistrust: relatively low salaries (set by local governments) and peer-pressure.  According to an anonymous doctor at a hospital in Anhui, “I think the low salaries of doctors in China, which I can say don’t match the effort they make, are the major cause of this phenomenon; the kickback a doctor accepts is usually greater than his salary.  What’s more, it’s difficult for a doctor to refuse the kickback when all the other doctors accept it. It will alienate him or her from the others.”¹⁰

This dissonance between having “low salaries” and “work performed” is not just an isolated observation.  In August 2012, the Chinese Medical Doctors Association released a report that found 91.9% of the 3,704 doctors surveyed “said the job involves many sacrifices for low financial return.”¹¹ In fact, according to a recent survey of 363 doctors, 61% reported they were unhappy with their profession due to a number of factors including compensation.¹²

What are the typical salaries like?  Depending on the city and size of the hospital doctors can earn as little as 5,000 yuan ($800) a month.  At larger hospitals in Tier 1 and Tier 2 cities this amount can be 10,000 yuan or more, yet still only a fraction compared to their Western counterparts.  For comparison, according to a 2011 report from the Bureau of Labor Statistics, the mean annual wage for physicians was $184,650 in the US.¹³ Simultaneously, doctors and nurses in China typically must see 60 to 100 patients during their 10-14 hour shifts.  As a consequence the average face time doctors have with patients can be as little as 5 minutes.  In contrast, the typical face time with a doctor in the US is 13-18 minutes.¹⁴ And as both the survey and Anhui doctor noted above, practitioners think that salaries do not correlate with the effort and performance.

This has led to another problem involving retention and future matriculation.  According to the Chinese Medical Doctor Association, “the proportion of doctors who hoped that their own children would enter the medical profession has decreased, from 11% in 2002 to 7% in 2011.”¹⁵ And based on an August 2012 report from Health Times in China, 96% of doctors said they were unsatisfied with their jobs and that “70 percent said they would not allow their children to enter the medical profession.”¹⁶

On the ground cases

I spoke with four Chinese doctors about this issue.  Maggie Li is an anesthesiologist who works for a large pharmaceutical company in Shanghai.  In her view, “the recent attack on medical staff in Anhui is a snapshot of the problems in the national health care system.  I empathize with these five medical professionals.  For them, I can see little hope in their seemingly futile effort to continue to be a doctor in China.  Based on my observations, doctors are not fully utilized in China because most doctors currently only treat physical, superficial diseases but cannot treat sick hearts – their psychological feelings.  However, we as medical professionals still need to have the courage to face this harsh reality and continue on because we are the foundation and real hope of the large majority of Chinese who have few options currently available to them.”

Psychological and mental health issues are an important predicament on the mainland in part because they are still a largely taboo topic.¹⁷ This despite the fact that The Lancet estimates that up to 17.5% of the adult population in China has some kind of mental ailment.¹⁸ In fact, because of cultural issues that have largely overlooked or even frowned upon this increasingly important sub industry, there are relatively few active professionals on the mainland.  In 2007 there were only 17,000 certified psychiatrists, “one-tenth the number in developed countries, in proportion to the population.”¹⁹ According to Tian Chenghua, a professor at Peking University, for every 100,000 people in China there are only “about 1.26 qualified psychiatrists, far lower than the global average of four.”²⁰ Yet according to a recent Caixin report, the second-most commonly diagnosed disease on the mainland is depression, affecting 260 million Chinese people.²¹ Specifically, more than 287,000 people commit suicide each year in China, some of which stems from a shortage of mental health professionals.²²²³ In contrast to Western countries, more women commit suicide than men in China (by a factor of three to one) and it is also the leading cause of deaths by young women.²⁴ In fact in 2009 each day an estimated 500 women committed suicide (the most recent year for detailed records).²⁵

And while the suicide rate has itself purportedly halved over the past two decades (from 30 in 100,000 to 15), suicides in China still account for “more than 30 percent of the world’s total suicide cases.”²⁶ While this rate is expected to drop due to suicide prevention awareness, the same Caixin report noted that “[m]ore than 88% of patients with mental disorders had never received professional help between 2001 and 2005.”  And that, “only 45% of the nation’s depression victims who saw mental health professionals had been treated in the previous six months.”  In contrast, the 2009 estimate for the suicide rate in the US was 12.4 in 100,000 (the highest in 15 years).²⁷ Furthermore, a 2007 study found that annual productivity loses due to lost work days from depression amounted to “51.37 billion yuan [$6.39 billion], including 5.62 billion yuan in medical costs.”²⁸ This then presents an opportunity for psychological and psychiatric professionals and NGOs such as the China-American Psychoanalytic Alliance from other countries to help a significant segment to heal what Li referred to as “sick hearts.”²⁹

In November 2012 I spoke with Jenny Xu, a doctor at a public hospital in Zhongshan, Guangdong.  According to Xu, “I think most medical staff, regardless of where they may work on the mainland feel very overwhelmed.  We are required to work relatively long shifts in an increasingly stressful and even dangerous environment.  I personally have begun the immigration process to move to Canada where I plan to work as a nutritionist.  In the free time that I have, I am preparing for TOEFL and learning about North American culture because I do not feel the compensation and lifestyle as a medical professional in China is worth the amount of effort and work that most medical professionals are currently required to do.  The incentive structure is warped and some doctors that have received bribes in the past have created permanent problems for the medical community because many patients now do not listen to us.  And as a consequence some patients even take their frustrations out on everyone.”

Xu may one day become part of the ‘brain drain’ (the emigration of skilled professionals) I briefly mentioned in Chapter 10.  In 2007, China became the leading contributor of emigrants globally.  Nearly 100,000 mainlanders received immigration or permanent status to the US, Canada and Australia in 2009.  Two year later, 87,000 Chinese immigrated to the US itself; the US now attracts more than half of all Chinese immigrants a year.³⁰ Of the 1.21 million Chinese students and researchers (liúxuéshēng) who studied overseas between 1978 and 2007, only about 25% returned to the mainland after graduation.³¹³² In fact, 508,000 Chinese (typically wealthy and educated) emigrated abroad to OECD (developed) countries in 2010 alone, a 45% increase over 2000.³³ And according to a 2011 report, “27% of Chinese entrepreneurs worth more than 100 million RMB ($15.9 million) have already emigrated, while another 47% say they are considering doing so.”³⁴ More pointedly, two-thirds of all investment visas (EB-5) issued by the US in 2011 were to Chinese nationals and of the 7,641 investor visas granted in 2012, 80% were taken up by Chinese.³⁵³⁶³⁷ For comparison, since it implemented a new immigration program in 2004, there have been a total of 5,000 foreigners that have received a green card in China.³⁸

This brain drain is not just endemic to China, as other developing countries such as India also have had comparable numbers emigrate abroad.³⁹ In fact, it is estimated that Indian doctors now account for 5% of the medical workforce in developed countries.⁴⁰ And an estimated 60,000 Indian physicians work in the US, the UK, Canada and Australia.  In the case of China, policy makers are beginning to try and stem the exodus with bonuses of up to 100,000 RMB ($15,896) to Chinese physicians who take part in visiting physician programs which will train and educate healthcare workers in rural areas that are lacking in medical professionals (e.g. to prevent the ‘overwhelmed’ feeling of Xu and her peers).⁴¹ In the meantime, perhaps you and your firm could provide immigration services to those looking to move abroad.

Compensation related to productivity is another issue that came up in a conversation I had in November 2012 with Lin Zhang.  Zhang is an iconographer (doctor who studies X-rays and CT scans) at a hospital in Shanghai.  She noted that “government bodies have instituted a new policy, a two-tier wage system of ‘ordinary’ and ‘famous’ specialists, yet the gap between these doctors is arbitrarily set.  Perhaps in future reforms, doctors can be paid according to other performance reviews and thus there may be a near-infinite amount of price points that they can be paid at, just like in the US.  And unfortunately ‘ordinary’ doctors currently do not have many opportunities to promote themselves in the work environment.  Thus, while the ‘ordinary’ doctors do most of the daily work, their compensation is relatively poor compared with the large quota requirements.  And because of the way this system is set up, they are often victims of violent incidents in hospitals.  In fact, one of the reasons why some patients have turned violent over the past few years is because of the little face time that these ‘ordinary’ doctors are allocated per patient.  Coupled with the low salary this has created a profession that is internally frustrated and externally looked down upon by customers and public opinion.”  I discuss the new ‘ordinary’ versus ‘famous’ specialists below.

Reforms and alternatives

Currently the break down for hospital revenue is in three portions: 40% of hospital revenues are typically generated by selling medicine, 40-50% comes from services like diagnostic tests and treatments and the remaining 10% comes from governments.  Because of their relatively low salaries (as noted above), in most hospitals, doctors are directly compensated by the “profits of the sales of medicine.”⁴² This sets in place the cycle noted above where some doctors will overprescribe medications knowing that they can in return, receive additional compensation.  To remove this incentive, as part of the reforms that began during the 11^th Five year plan by which medicines and prescriptions as a whole will be reduced in price (e.g., ‘mark-ups’ as noted in Chapter 6), governmental bodies have recently introduced a “medical service” fee.

Because medicines will no longer be generating as much revenue, to bridge this revenue gap, this new “medical service” fee enables patients to pay a rate of 42 yuan ($6.72) to consult with an “ordinary” doctor and 100 yuan ($16) to consult with a “famous specialist.”⁴³  Thus, creating some incentive for medical practitioners to focus away from overprescribing and towards providing services; as there is now an objective bridge linking performance and productivity to mandatory hours.⁴⁴ Yet as noted by both Li and Zhang and the numerous surveys above, this is just one small step in the reform process.  Similarly, despite a concerted effort to remove pharmaceutical mark-ups (see below) these reforms have met resistance from hospitals.  For example, “[a]lthough more than 300 county-level hospitals have implemented the price reform since Chen announced it at the beginning of the year, only a dozen city-level hospitals – including two in Beijing and 10 in Shenzhen – have stopped charging the mark-ups.”⁴⁵

Another area under reform is the “pay first” method (in contrast to the “pay after” service system in much of the West) which has sometimes left poorer patients in a bind.  For example, in August 2011, a doctor in Wuhan, Hubei province removed the stitches on a patient’s fingers immediately after surgery because the patient did not have enough money to pay the medical fees.⁴⁶ Due to public criticism, a new “pay after” payment system is currently undergoing new trials across 20 provinces that will attempt to alleviate future problems.⁴⁷

A Byzantine process and long-term opportunities

In December 2012 I took a CRH (mentioned in Chapter 10) and spoke with Yolanda Bo who works for a large pharmaceutical distributor that sells Chinese-made pharmaceuticals (usually reproductions of Western drugs like penicillin) to dealers in Nanjing, Jiangsu province.  She has been working in the industry for over five years and according to her, “the way the drug system works is rather complex.  On the supply side are factories, several hundred factories spread throughout the country.  They will produce a certain drug like an antibiotic and sell it to a company like ours for 15 RMB ($2.40) – a base price that fluctuates according to the tender price.  There are approximately 200 distributors in Nanjing alone and thousands across the country.  What we do is sell products to dealers (brokers) for usually around 17.5 RMB ($2.80) – and as the wholesaler this price point still provides a comfortable profit margin for us.  Dealers maintain relationships with four different entities: doctors, delivery companies, hospitals (specifically the purchasing department) and a unique group called a billing company.  The dealer will often pay them 8-12% of the price differences as a type of fee and then absorb the remaining profit.  Thus the dealer will only buy our product if they can make a profit margin of around three times the cost to them.”

The reason why the dealer markup is relatively high is that in this system he or she needs to build and maintain guanxi with each of those four entities who in turn require a certain margin to keep for themselves.  According to Bo, “for example, the delivery company which physically delivers the product to the hospital will buy the product for around 54.62 RMB ($8.75) from the dealer, this is based on an average 6% fee yet sometimes this fee can be up to 8% or more.  In turn the delivery company resells the product to hospitals for 58 RMB.  Hospitals in turn may add additional mark-ups depending on where they are located though generally they add about 15% more.  In poorer, rural regions, the hospitals might negotiate with the dealer and receive higher terms, perhaps 20-60% of the retail price.  Simultaneously, the dealer typically hires subcontractors to maintain relationships and connections with the head doctors (deans), administrators (purchase managers) and directors at each hospital.  Thus if a finished product sells for 100 RMB ($16) to the patient, some of the top doctors’ share typically amounts to around 20% (20 RMB).  To complicate matters further, because of numerous regulations and certification requirements (like warehouses, storage facilities and transportation that must meet certain standards and provide government authorized invoices) the delivery company itself actually must physically receive the product through another middle-man called the billing company typically located in Anhui due to the laxer regulations and price structure.”

Over the past decade various governmental entities have attempted to reform this business model due to the relatively high costs and low value added in the middle-man process.⁴⁸ Yet while price ceilings are set, factories will simply stop producing the product because they can no longer charge the required amount for this incentivized model to continue.⁴⁹ As a consequence those medications are no longer produced, thus to prevent this shortage from occurring government regulators have allowed a certain amount of rent-seeking to continue.⁵⁰⁵¹

While these prices are essentially artificially inflated at each level, because of competitive pressures due to hundreds of factories producing identical pharmaceuticals, the wholesale prices themselves are purportedly “kept in check.”  Yet according to Bo, “wholesale prices do fluctuate every 2 years after mandatory governmental checks and reauthorizations which levy or remove fees.  We call it ‘inviting tenders’ or a proposal (RFP) and as a consequence new medicines percolate into hospitals while concurrently others will disappear from the market; it all depends on the government’s attempts to control prices.”⁵²

In a nutshell, because of all the agents, middle-men and logistical movements (e.g., Coasian transactions costs⁵³ ), a drug that costs 15 RMB to manufacture is often sold, according to Bo, to hospitals for 3-10 times the cost to end-users without any value-added in between.  As a consequence, Chinese consumers collectively spend more on pharmaceuticals as a percentage of GDP (2.26% in 2007) than compared to most other OECD countries.⁵⁴ And because patients are increasingly aware of how this pharmaceutical business model operates it has led in part to the intense emotional venting surrounding ‘Bribegate’ discussed at the beginning of the chapter.

Another solution (and one where new business opportunities may be found) to this issue that one source said is being planned for pilot programs is to allow not just salaries to reflect market conditions, where prices fluctuate based on the supply of medical professionals but also the supply of pharmaceuticals based on the market demand and consumption by end-users (e.g., wholesalers selling directly to medical practitioners).  Or in other words, removing the artificial barriers, subsidies, the price ceilings and floors and letting market participants bid on scarce resources directly from the original suppliers (e.g., directly from factories and wholesalers or the skilled labor and per usage of medical equipment).  However as Bo and others I have interviewed noted that even though some of these pricing mechanisms have been liberalized and reformed, because various institutional bodies still set compensation rates and effectively create a quota system, they have removed other incentives for doctors to perform based on productivity.⁵⁵ And in some cases, some hospitals still pay top doctors based on both the new “service fee” as well as a percentage of the pharmaceuticals sold.  The analogy Bo used to describe this process in our conversation was, “Rome was not built in one day, so it would be myopic to expect such an entrenched business model to be immediately reformed overnight.”  Thus according to her, while these reforms may take years and decades to become fully realized one of the long-term opportunities for both foreign and domestic firms is to continue establishing new factories that produce pharmaceuticals because of the demand by both an aging population and from a growing middle class.

Private and foreign owned facilities

Another opportunity for foreign medical professionals is that because of this general distrust among the populace towards Chinese medical professionals, those with means have begun turning towards private, Western-run hospitals.  Beginning in 2000, Chinese policy makers “officially permitted foreign companies to pursue hospital and clinic joint ventures but limited ownership to 70%.”⁵⁶ In December 2010, as part of the health care reforms, foreign companies were now allowed to own 100% in hospitals.⁵⁷ Foreign-owned and managed hospitals include United Family Healthcare (UFH which is owned by publicly traded Chindex: CHDX) and Parkway (a Singapore-based company) which have opened several locations throughout Tier 1 and Tier 2 cities.⁵⁸ In fact, while the majority of clients used to be typically foreigners, wealthier Chinese now make up 50% of the patients at UFH locations.  As a consequence, after 15 years since they first started, UFH has grown to include 3 hospitals and 11 satellite clinics.  While the hospitals provide many common international services, satellite clinics typically handle immigration health checks for residents applying for visas abroad.

In November 2012 I spoke to Alan Kahn, Vice President of Marketing at UFH in Beijing.  According to him, “our secret for success is that we are patient centered, we try to provide the best services available to them.  As a consequence we invest a lot of capital into unseen quality of life amenities.  For example, almost certainly none of our patients will walk out of the hospital with a staph infection because there are strictly followed hygienic and sanitary protocols in place and each patient has their own individual room.  New mothers have their own privacy in an OBGYN wing which is guarded by a permanent security detail to prevent child theft, which can occur in certain areas of China.  We are also the only JCI quality accredited hospital on the mainland and spend a lot of time bringing international standards, new innovations and ‘best practices’ to our customers.  In fact we were the first to provide Western-style in-patient care on the mainland, which has been subsequently emulated by other companies and institutions.  We were also the first in a number of other service areas like pregnancy care and post-partum recovery which have also been copied and emulated by others.  And since we are not restricted by quotas – and are privately owned – we can continually change our services to meet the needs and demands of the customers.  This includes building specialized centers, like our new Rehabilitation Hospital which is one of the first of its kinds on the mainland.”⁵⁹

Accidentally transmitting diseases like staph can still conceivably occur in any hospital in any country, yet in part because of inconsistent quality control and sanitation procedures occur more frequently in public facilities.  For example, in the fall of 2009 there was an outbreak of multidrug-resistant Acinetobacter baumannii (MDR-Ab) at a large public hospital in Beijing.  Twelve patients were infected and five died because the bronchoscopes had not been properly sterilized.⁶⁰

And while the costs of their services may be more expensive than visiting a public hospital, one of the reasons Chinese customers are increasingly interested in private health care facilities is that, “they do not have to worry about trust or over-medication or trying to provide a hong bao (红包, a red envelope or bribe) in hopes of seeing a specific doctor.”  Or in other words, UFH and other private firms primarily focus on providing service in an industry – that because of its system as noted at the beginning of the chapter – has struggled to fully provide.

In my own experiences with public medical treatment on the mainland (I have not utilized UFH facilities), one of the problems is that while the doctors are typically well-trained and competent, because of long queues and short face time, there is still a tendency to overprescribe, for example, antibiotics.  In fact in November 2011 I learned firsthand of the consequences of receiving too much antibiotics when it was discovered I had very little bacteria left in my GI tract to digest food (e.g., there are billions of bacteria cells in your stomach which play a key role in digestion, using antibiotics kills the ‘bad’ infections as well as your useful stomach bacteria).⁶¹ This is not a startling revelation either, as nearly every month there is a news story about this phenomenon.⁶² In fact, according to the Ministry of Health (now the National Health and Family Planning Commission), “on average each Chinese person consumes 138 g of antibiotics per year — 10 times the amount consumed per capita in the U.S. Meanwhile, three times as many Chinese people are prescribed penicillin compared with the international standard.”⁶³

Another reason for UFH’s success is that its founder, Roberta Lipson came to China in 1979, thus they are a first mover in an industry that takes years to set-up.⁶⁴ Throughout the initial opening and reform during the 1980s, many policy makers and potential customers alike were suspicious and uncertain of privately owned health care facilities.  Just like Pizza Hut and KFC (see Chapter 16) were seen as curiosities that few could initially afford, private health care was a service that took adjusting to.  Yet after a number of VIPs, celebrities and thought leaders had a chance to visit and use private health care services, mainland media outlets took note and public opinion has been increasingly positive towards this seemingly foreign idea.

Another reason is that as Kahn explained, “up until the recent reforms, the public health care system was under immense systemic strains.  Because there were few modern healthcare facilities in the countryside and because most of the well-trained doctors worked in cities, rural residents would surge into cities’ overwhelming resources in order to wait in line to see the few doctors who could provide needed surgeries.  For example, if you needed life-saving gall bladder surgery there may only be a couple doctors in a big city like Kunming who could provide it.  So you and your family would move to the city for weeks and months, waiting in various lines and queues for 24 to 72 hours on end just to see a specialist for a few minutes.  As a consequence sometimes desperate families take every action possible, such as trying to present doctors with large gifts hong bao (红包) in hopes of receiving admission and service.”

How long are these waiting times?  According to the former Ministry of Health “waiting times at public hospitals are 30 times longer than private hospitals.”⁶⁵ In fact, one public maternity hospital in Beijing alone receives 5,000 patients a day and “there is a line stretching back 200 meters from the window where patients have their blood tested every morning. A one-hour wait to have a blood test is normal.”⁶⁶⁶⁷

This is not to say that private hospitals in China do not have their own problems.  In fact, in 2012 a TV station utilized an undercover reporter who visited three private hospitals.  The reporter sent green tea in for analysis instead of urine.  The private hospitals did not notice it was tea and subsequently offered several expensive treatments including “surgery for calcification.”⁶⁸ This was a repeat of a 2007 scandal in Hangzhou where reporters from a different TV station sent in green tea as well.  The subsequent investigation found that five hospitals (one of which was private) prescribed relatively expensive medicines for treatment.⁶⁹ Another instance of medical negligence was uncovered in Liaoning, a northeastern province in February 2013.  A doctor at a privately run clinic infected as many as 95 patients with Hepatitis C which can cause cancer.⁷⁰

In November 2012 I also spoke with a Chinese doctor at a private hospital in Pudong.  According to her, “foreign health care providers can now move to China to provide their services as there are more and more expatriates in China who usually feel more at ease and secure when they are seen by doctors from similar cultural and linguistic backgrounds.  Meanwhile, the administration departments at Chinese joint ventures and private hospitals continue to transform and integrate their hospital services to the level of so-called international standards.  Hence, foreign health care providers especially from advanced health systems will find many opportunities for reshaping and improving the management-side of the facilities.  In addition, the pay of foreign doctors is usually on-par with many facilities in their home countries and local accommodations and cost-of-living perks are almost always provided by the employer.  Needless to say, legal certificates and license are also required before practicing on the mainland.  Yet despite all of these inducements and known requirements, one major challenge facing foreign doctors could still be cultural issues in all aspects of working place.  For example, at international medical centers, different doctors from different countries and health systems may have different guidelines for both treatments and consultation approaches to patients.  Ultimately however, while they will need to take time to iron out the differences and reach a common ground, overall the medical principles, practices and ideas are typically similar at these private facilities.  Hence the increased popularity of their services.”

Yet while reforms of the public industry are still being carried out (as noted at the beginning of the chapter), Kahn and others I spoke with are of the opinion that the current reforms are relatively well thought out, that the overprescribing of medication can now be tracked and prevented by software that is being rolled out in pilot hospitals.  Similarly, he thinks the new changes in doctor training more in line with Western practices, (with China now piloting a 3 + 2 system for doctors to take 3 years in general practice medical study and 2 years of specialty application before being allowed to fully practice), will help prepare doctors that are better able to handle more maladies while boosting ER capabilities.  For example, prior to reforms, doctors were assigned to the ER, not because they had that particular skill – in fact many were specialists in other areas like internal medicine – but based on hospital administrative organizational management (e.g., politics).

And according to Kahn and others, one of the opportunities that health care professional can provide to all demographics in China is internationally recognized ‘best practices’ which mainland institutions are still incorporating and adjusting to.  Thus despite all of the issues, hurdles and problems there are still potential opportunities in a growing market.  After all, China’s healthcare industry is projected to reach $900 billion by 2020, up from $275 billion in 2010.⁷¹ For instance, last year two US firms (Medtronic and Stryker) purchased two Chinese medical companies (China Kanghui Holdings and Trauson Holdings) for nearly $1.6 billion.  Perhaps you and your company can provide consultations, services and training in this growing market or even acquire a local partner.

Medical tourism

Under the current reforms, the Ministry of Health has set a target to double the utilization rate and overall contribution of private facilities in China by 2015.  That is to say, the Ministry has set a goal by which private health care facilities will manage 20% of all inpatient and outpatient volume.⁷² Yet as Maggie Li also informed me, “for most Chinese people, they still trust local Tier 3 hospitals more than these foreign private hospitals currently because as a local residents can still oftentimes use a network [guanxi] to see the doctor that the patient would like.  For wealthier patients, they are also willing to choose to give birth to children in Hong Kong or in North America because these children would be the citizen of Hong Kong or US at the birth.  That is the dream of many families to give their children a foreign passport so that their children can choose freely where to study, live and work when they grow up.  Freedom is the best gift that parents can give to their children.”

Tier 3 hospitals are the largest and most sophisticated hospitals on the mainland (e.g., 500+ beds and advanced surgery and treatments).  According to one estimate, there are roughly 1200 Tier 3 hospitals now on the mainland.⁷³

There is also a controversial ancillary service within medical tourism called birth tourism or maternity tourism.  For instance, more than a third of all births in Hong Kong in 2010 were to mainland mothers (32,653 babies) compared with just 620 in 2001.⁷⁴ In 2011, this increased again as 44,000 mainland mothers had babies in Hong Kong.⁷⁵  Yet beginning in 2013, Hong Kong policy makers have set a new, lower quota and will begin to bar mainland mothers from giving birth in the SAR.  For example, in October 2012, more than 400 mainland mothers were arrested for traveling to Hong Kong with the purpose of giving birth on the island and thereby gaining residency and access to services (e.g., birth right citizenship).⁷⁶

In the US, while specific statistics are hard to come by, there are at least several independent maternity clinics that have sprouted up over the past several years to cater to Chinese mothers as part of the market for birth tourism.  While this is not illegal, it can be risky as there have been investigations and closures of several facilities.  For instance, a maternity clinic in Chino Hills, California was recently closed due zoning violations and another in San Gabriel was closed because “neighbors complained about noise from the babies.”⁷⁷ Yet despite these known risks, many others cater to the increased demand.  According to one report from the Washington Post, the costs for this alternative route (flight, 3-month maternity stay, meals, delivery) is approximately $14,750; and the medical staff at some of the facilities speak Chinese.⁷⁸ For example, a motel in Arcadia, California runs a makeshift maternity ward catering to Chinese mothers.  These women pay a China-based agency $25,000 “in fees for travel, medical, visa and other related expenses.”⁷⁹ Another American business owner in New York interviewed by NBC runs a similar clinic and charges up to $30,000 for all expenses.⁸⁰ The family of 4-month old Ada Lin, now in China, who was born in the now-shuttered clinic of Chino HIlls, paid $27,000 for all the expenses.⁸¹ And as noted in previous chapters, with a growing middle class, the 110,000 yuan price tag ($15,000) at many of these facilities is becoming increasingly affordable.⁸²⁸³

Again, while the legalities are still being sorted out and discussed, perhaps you and your firm can consult with potential clients.  After all, all of the Chinese women that do choose this option have received legal travel visas and are not a burden on welfare systems as their expenses are funded privately.  For example, according to NPR, some of these women and their families will use the occasion to buy luxury, foreign-made products (as noted in Chapter 11).  In one such instance, a mainland mother, “went to a conference in Las Vegas and bought eight pairs of designer shoes, for about $200 each, half the price they cost in China.”⁸⁴ Another example was recently reported by NBC, who interviewed a new Chinese mother that had also gone shopping during this gestation period in the US and “bought an iPad, suits and dress clothing, luxury brand perfumes and baby clothes from brands like Polo by Ralph Lauren.”⁸⁵ In fact, according to a 2008 McKinsey & Company report, between 60,000 to 85,000 medical tourists travel to the US each year to pay for and receive medical care out of pocket.⁸⁶⁸⁷ Perhaps you and your company can provide consultative services with these potential customers.

Takeaway:  Because of institutionalized incentives systems involving kickbacks and over-medication, there is a strenuous relationship between doctors and patients.  While a number of reforms to alleviate these strains have begun rolling out, other fundamental issues involving the calculation problem may place additional constraints on possible reforms and changes.  During this transition time foreign firms specializing in traditional health care may find a new consumer base – one that is increasingly wealthier – that is hesitant to trust domestic practitioners and institutions.

Endnotes:

1. Heartless attacks from The Economist [↩]
2. Harbin court hears hospital attack case from Sina [↩]
3. Nurse and doctor stable in brutal stabbing from China Daily [↩]
4. Man killed 1, injured 4 at a hospital in E. China from Sina [↩]
5. See Doctor axed to death in N China hospital from China Daily and Female doctor axed to death in Chinese hospital from The Telegraph [↩]
6. See Patient-On-Doctor Violence In China Symptomatic Of A Sick And Crippled System from Economic Observer and Chinese man convicted of murder after stabbing four hospital staff from The Guardian [↩]
7. How to solve the crisis behind Bribegate for Chinese doctors from The Lancet [↩]
8. Survey shows 54% Chinese doctors take drug kickbacks from pharmaceutical dealers from HugChina [↩]
9. Sun Simiao was the Chinese “King of Medicine” whose text “On the Absolute Sincerity of Great Physicians” is required reading for Chinese physicians.  See Heal Thyself? from TIME [↩]
10. Netizen accuses Zhejiang doctors in new kickback scandal from China Daily [↩]
11. Patient’s knife attack raises security fears from China Daily [↩]
12. 调查称61%医生不喜欢自己职业 8成认为工资低 from ifeng [↩]
13. This number varies from state-to-state and specialty-to-specialty.  If other compensation and perks are added, this number increases as well.  See Occupational Employment and Wages, May 2011from Bureau of Labor Statistics and Physicians and Surgeons from Bureau of Labor Statistics [↩]
14. See Time Spent in Face-to-Face Patient Care and Work Outside the Examination Room by Andrew Gottschalk and Susan Flocke and National Ambulatory Medical Care Survey: 2003 Summary by Hing, et.al. [↩]
15. See New generations of Chinese doctors face crisis from The Lancet and 第四次医师执业状况调研报告 from the Chinese Medical Doctor Association [↩]
16. 医生职业满意度调查：七成医生不愿子女从医 from Sohu [↩]
17. See The Madness of China’s Mental Health System from Foreign Policy and Freud, psychiatry, and mental health in China by Evan Osnos [↩]
18. See Mental illness in China by Guo et al. and Mental Illness: Far More Chinese Have Mental Disorders Than Previously Reported, Study Finds from The New York Times [↩]
19. Mental health in China from The Economist [↩]
20. Plan to improve 550 psychiatric hospitals from China Daily [↩]
21. The heavy toll of depression in China from Caixin and失守抑郁症_专题频道_财新网 from Caixin [↩]
22. See 287,000 commit suicide in China each year from Xinhua and Care, Confusion and Depression’s Heavy Toll from Caixin [↩]
23. After heart disease and cancer, suicides are one of the leading causes of deaths in China.  Traffic-related accidents account for the largest amount of deaths of Chinese people under the age of 45.  In contrast, suicides have overtaken traffic-related accidents as the leading cause of injury deaths in the US.  For comparison, according to Xinhua “it estimated that there are 3.12 million new cases of cancer each year in China. There are 2.7 million cancer-caused deaths, which represents 13 percent of total deaths of Chinese people.”  Road Safety Problems Pose Dire Threat in China from The New York Times, Suicides Replace Auto Crashes as Top Cause of Injury Death from ABC News, Taking traffic regulations seriously from China Daily and Cancer in China influenced by pollution, poverty from Xinhua [↩]
24. The suicide rate for females was three times higher than for males.  See Women and suicide in rural China from World Health Organization and Alone but alive from Global Times [↩]
25. Meet the woman making China fashionable from The Independent [↩]
26. China’s suicide rate declines, but still poses a challenge from Xinhua [↩]
27. Facts and Figures from American Foundation for Suicide Prevention [↩]
28. Care, Confusion and Depression’s Heavy Toll from Caixin [↩]
29. China American Psychoanalytic Alliance [↩]
30. Report: US Tops China’s No.1 Immigration Destination from Caijing [↩]
31. See China’s Brain Drain at the High End by Cong Cao, China’s Brain Drain Dilemma: Elite Emigration from The Jamestown Foundation and China fears brain drain as its overseas students stay put from The Guardian [↩]
32. This trend seems to be changing however.  A more recent survey by Nankai University found that “[o]ut of 2.24 million overseas students from 1978 to 2011, 818,400 had returned after studies.”  And furthermore, “[a]mong those who had returned, more than half, or 429,300, had done so in just three years from 2009 to 2011. And 2011 alone registered 186,200 returned students.”  See Fewer Chinese overseas students staying abroad from Xinhua [↩]
33. See Rich Chinese want to buy happiness — by emigrating from Los Angeles Times and Wary of Future, Professionals Leave China in Record Numbers from The New York Times [↩]
34. The Real Reason China’s Super-Rich Are Packing Up and Moving Abroad from WorldCrunch [↩]
35. See More Wealthy Chinese Said to Prepare Exits from The Wall Street Journal and Fast track to the American dream from Chicago Tribune [↩]
36. Investors and investment companies should again, do their due diligence and be vigilant against scams.  For example, the SEC recently halted aninvestment scheme from an American (Anshoo Sethi) who fraudulently collected $11 million in fees from Chinese nationals seeking EB-5 visas.  See SEC Halts $150 Million Investment Scheme to Dupe Foreign Investors and Exploit Immigration Program from the SEC [↩]
37. This is not to say that all high-networth individuals (HNWI) become foreign citizens.  According to Boston Consulting Group, only 6% HNWI actually take up foreign citizenship.  One reason why is because of tax laws (e.g., US taxes income on a global level) and another is due to political considerations.  For instance, Zong Qinghou, one of the wealthiest persons in China gave up his US permanent residency after receiving criticism as having dual loyalties (he is a representative of the National People’s Congress).  It may also be cheaper to purchase investor visas and gain permanent residency through new programs offered in Europe (e.g., permanent residency in Cyprus is roughly $300,000 which is significantly cheaper than similar programs in the US and Canada).  See Why Some Chinese Should Rethink Value of Green Card from The Wall Street Journal and Why Wealthy Chinese Are Giving Up U.S. Green Cards from The Wall Street Journal [↩]
38. Foreigners to get key rights from China Daily [↩]
39. In his book The World is Flat, Thomas Friedman details the Indian brain-drain.  More than 100,000 Indians — most of whom are highly trained — emigrate to the United States each year.  A 2001 UN Development Report found that the “average total cost to India of educating each one of them was between $15,000 and $20,000.”  In turn, hundreds of these Indians create startups.  In fact, immigrants from India founded “more tech startups from 1995 to 2005 than people from the four next biggest sources — United Kingdom, China, Taiwan and Japan — combined.”  See Brain drain costs developing countries billions from CNN and Immigrants Behind 25 Percent of Startups from The Associated Press [↩]
40. 1,333 doctors migrated abroad last year from The Times of India [↩]
41. See China boosts investment in grassroots healthcare from China Daily and Are China’s Doctors About to Get a Major Salary Bump? from Asia Healthcare Blog [↩]
42. Heroes dare to cross from The Economist [↩]
43. Ibid [↩]
44. In Crisis of Abundance, Arnold Kling notes that when a patient has a cold or broken arm, that does not mean the patient necessarily needs to have immediate access to the most experienced doctor’s from the Mayo Clinic or Johns Hopkins.  Not every condition requires having a ‘Cadillac’ doctor.  And in many cases a patient could be fully served by a nurse or physician’s assistant – thus freeing scarce resources (doctor’s) to work with other patients.  Since medical professionals and medicines are all finite, scarce resources, allocating them has become the topic du jour.  A market-based allocation method involves prices and price signals that arise via interaction between market participants (entrepreneurs, investors, customers, suppliers) which continuously reflect supply and demand and would rationally allocate medical professionals in the most efficient manner (e.g., higher costs, lower usage; lower costs, higher usage).  Conversely, because central planners would subsidize and reduce the cost of an activity, more of those resources are being bid on – ultimately outstripping the supply of the resources.  Thus attempting to rationalize identical resources without organic prices effectively makes planners ‘blind’ – they cannot coordinate and know how, where or when to allocate resources.  All decisions would be made arbitrarily.  See What’s Really Wrong with the Healthcare Industry by Vijay Boyapati and Economic Calculation in the Socialist Commonwealth by Ludwig von Mises [↩]
45. Hospitals in China resist bid to reform drug sales from South China Morning Post [↩]
46. Doctor removes patient’s stitches immediately following surgery from Global Times [↩]
47. China plans new medical payment system from China Daily [↩]
48. In economic terms part of the costs are due to “rent-seeking” by monopolies and by other special interest groups through another term called “regulatory capture.”  See Rent Seeking: Some Conceptual Problems and Implications by E.C. Pasour and The Theory of Economic Regulation from George Stigler [↩]
49. Milton Friedman and other economists have explained that “price ceilings” (e.g., price controls) cannot inherently work due to the fact that the inputs and economic fundamentals underlying the demand for a product or service have not changed when artificial ceilings are implemented.  For example, if demand remains constant yet supply or the price at which suppliers are willing and able to provide a good or service decreases then a shortage will occur.  See An Interview with Milton Friedman by Russ Roberts and Price Controls by Hugh Rockoff [↩]
50. See Rent Seeking: Some Conceptual Problems and Implications by E.C. Pasour and Rent Seeking from David Henderson [↩]
51. Another source explained that many of these billing companies are set up in Anhui because its provincial tax codes are more competitive than others on the mainland with this specific industry.  This is different than the Anhui pricing model which was discussed in Anhui medicine wrong for China and The Stakeholders in China’s Hospital Reform both by Benjamin Shobert [↩]
52. Forty Centuries of Wage and Price Controls by Robert Schuettinger and Eamonn Butler [↩]
53. The Problem of Social Cost by Ronald Coase [↩]
54. China’s Pharmaceutical Price Policies and Practices by Ziyang Wang [↩]
55. This is very similar to how command economies of the Eastern Bloc and Soviet Union directly removed incentives like “profit,” replacing them with an arbitrarily set quota-based system. [↩]
56. China’s Medical Boom from TIME [↩]
57. See China opens door to foreign-owned hospitals from China.org.cn and China Opens the Door for Foreign Healthcare Providers from International Insurance News [↩]
58. United Family Healthcare and ParkwayHealth [↩]
59. Another industry first is a new home medical care service from UFH which includes doctor’s visits direct to customer homes.  See United Family Home Health [↩]
60. A bronchofiberoscopy-associated outbreak of multidrug-resistant Acinetobacter baumannii in an intensive care unit in Beijing, China from Xia et al. [↩]
61. See Antibiotics: Killing Off Beneficial Bacteria … for Good? from Wired, Gut-Bacteria Mapping Finds Three Global Varieties from Wired and The Wired Atlas of the Human Ecosystem from Wired [↩]
62. See Overuse of antibiotics concerns officials from Xinhua, Chinese ministry, WHO warn of antibiotic overuse from Associated Press, China further curbs overuse of antibiotics from China Daily, Government warns over antibiotic misuse from China Daily and Shanghai researchers discover how bacteria develop antibiotic resistance from South China Morning Post [↩]
63. When Penicillin Pays: Why China Loves Antibiotics a Little Too Much from TIME [↩]
64. Roberta Lipson, the founder of Chindex, was recently interviewed by AM 774 and noted that among other things, that it took some time to convince local doctors to give up their “iron rice bowl” (e.g., state employment for life) to work at the private facilities (xià hǎi).  Similarly it was a struggle at first to get Western medical practitioners to give-up their careers and move to Beijing and other UFH facilities.  See Thirty three years working within health care providing in China from AM 774 and The golden rice-bowl from The Economist [↩]
65. Private hospitals begin to nurse big ambitions from China Daily [↩]
66. Ibid [↩]
67. Another opportunity could be for manufacturers of ambulances and EMT equipment.  According to one report, Beijing needs 600 ambulances but is 100 short and thus ‘black ambulances’ have attempted to fill in this gap, much to the chagrin of various stakeholders.  See Shining a Light on Beijing’s Deadly ‘Black Ambulances’ from The Wall Street Journal [↩]
68. Private hospitals in China can’t tell tea from pee: report from Want China Times [↩]
69. Scandal brews over China tea-for-urine samples from Reuters [↩]
70. Doctor detained over NE China hepatitis C case from Xinhua [↩]
71. Chinese Healthcare Deals in Short Supply from The Wall Street Journal [↩]
72. See Healthcare in China: Entering uncharted waters from McKinsey & Co., Part 3: McKinsey Evaluates the Private Hospital market in China from Asia Healthcare Blog and Organized healthcare delivery should be the future of private healthcare, in China from Asia Healthcare Blog [↩]
73. Healthcare in China-A Trip to the Orient from Medical Tourism Magazine [↩]
74. Hong Kong to slam door on pregnant mainland Chinese from Reuters [↩]
75. Hong Kong to Limit Birth Quota for Mainland Chinese Mothers from NTD [↩]
76. Mainland Moms Get Jail Time in Hong Kong from The Wall Street Journal [↩]
77. Born in the U.S.A.: Birth tourists get instant U.S. citizenship for their newborns from NBC [↩]
78. See For many pregnant Chinese, a U.S. passport for baby remains a powerful lure from The Washington Post and Pregnant and Bound for America: Why Chinese Moms Want to Give Birth on U.S. Soil from TIME [↩]
79. Chinese birth tourism booms in Southern California from San Francisco Gate [↩]
80. Born in the U.S.A.: Birth tourists get instant U.S. citizenship for their newborns from NBC [↩]
81. “Maternity Tourism”: How Chinese couples buy U.S. citizenship for their babies from CBS [↩]
82. See High risks behind Chinese mothers’ giving birth in US from People’s Daily and Parents deliver US citizenship from China Daily [↩]
83. While the typical goal for this form of medical tourism is to provide an alternative educational and lifestyle plan for their children (e.g., allowing the easier access to US institutions) some of these children are actually raised on the mainland for many years while their parents work abroad.  See Left-behind American children in China from Offbeat China [↩]
84. Born In The U.S.A.? Some Chinese Plan It That Way from NPR [↩]
85. Born in the U.S.A.: Birth tourists get instant U.S. citizenship for their newborns from NBC [↩]
86. U.S. Hospitals Worth The Trip from Forbes [↩]
87. According to the National Center for Health Statistics, “births of babies on American soil to foreign mothers increased from 5,009 births in 2000 to 7,462 births in 2008.”  See Born in the U.S.A.: Birth tourists get instant U.S. citizenship for their newborns from NBC [↩]

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