China: Spotlight On China's Hospital System

Hospitals in China differ greatly from those in the west with respect to their relationships with physicians and patients; but they also share some of the same legal challenges faced by western hospitals.

As of the end of 2016, China had approximately 29,000 hospitals, comprising 13,000 state-owned public hospitals and 16,000 private hospitals.

PUBLIC v PRIVATE HOSPITALS

There are two main categories of hospitals in China: state-owned public hospitals (including state-owned teaching hospitals that are affiliated with universities), and private hospitals that are either locally owned or have foreign investment. Although the number of private hospitals exceeds the number of public hospitals, public hospitals account for more than 80 per cent of market share by revenue.

Owing to various regulatory restrictions, the number of foreign-invested private hospitals is still very low, and they are typically located in large metropolitan cities and predominantly serve expatriates and the rising Chinese upper-middle class.

PHYSICIANS

Except for a small number of physicians who practice through private medical clinics, most Chinese physicians are employed by hospitals. Physicians are only permitted to practice medicine through a registered employer, as stated on their medical practice certificates, and they are typically registered to practice in only one medical institution. As part of the government's effort to encourage private investment in China's health care sector, recent policy changes are gradually allowing physicians to practice at multiple locations.

It is also notable that Chinese physicians employed by hospitals are not personally liable to their patients for medical malpractice. Instead, hospitals, as the employers, are solely responsible for any medical negligence on the part of their employed physicians. This liability shield for physicians, and the general lack of trust in the legal system, have contributed to a rising level of violence against physicians, where aggrieved families are known to hire street criminals to assault medical staff for alleged medical negligence.

PATIENTS

In Most western countries, with the exception of emergency rooms, patients typically do not seek medical care directly from hospitals; instead, they are referred to hospitals by their attending physicians.

In China, patients go directly to a hospital for medical care, often waiting hours for a same-day appointment. Patients, rather than physicians, therefore choose the hospital. In urban settings where there are multiple competing hospitals, patients typically prefer large, state-run public hospitals.

PAYORS

Unlike the United States, for example, China offers universal health care coverage for a basic level of medical services. Some patients are also covered by private insurance through their employers.

Chinese hospitals also offer different levels of services and add-ons for an additional cost. For example, a basic room at most public hospitals holds three to six patients, whereas an upgrade to a private room (which would not be covered by insurance) could cost the equivalent of US$70 to US$150 per day.

SALE OF DRUGS AND MEDICAL DEVICES

Most Chinese hospitals participate in the national health care reimbursement program. The majority of drugs and medical devices used in hospitals that participate in the national reimbursement program are procured through a centralised bidding process via purchasing platforms managed by the government.

The government sets the prices for drugs and medical devices that are covered by the national reimbursement program, but allows hospitals to charge a mark-up of up to 15 per cent. This mark-up generates a significant portion of the operational profits of Chinese hospitals, which results in hospitals being heavily dependent on the sale of drugs and medical devices to finance their operations.

Payment for physician services under the national reimbursement program may not be marked up, and is relatively low. This has a negative impact on the overall income and welfare of Chinese physicians, who are not as well compensated as their counterparts in, for example, the United States. As a result, many Chinese physicians rely on kickbacks from pharmaceutical manufacturers or distributors, and cash gifts from patients, to supplement their income.

These two factors incentivise the overutilisation of expensive drugs, which has become a significant social issue in China. As part of its ongoing health care reform, the government has been addressing the payment issue by gradually allowing hospitals to set health care service prices according to the market, eliminating the mark-up on drugs and medical devices, and increasing enforcement against corruption and misconduct in the health care sector. Penalties now include administrative and even criminal sanctions.

LICENSING

Hospitals in China must have a wide range of licenses and permits from various health care, environmental protection, fire protection, tax, labour, construction, corporate and civil registration authorities. The statutory requirements for issuing these licenses and permits are often ambiguous and subject to the discretion of the government officials in charge. As a result, it is not uncommon for operators to bribe government officials in order to obtain and maintain practice licenses and permits.

REFERRAL FEES AND REIMBURSEMENT FRAUD

As the dominant player in the Chinese health care sector, state-owned public hospitals are able to attract the best physicians, nurses and other resources, which make them the preferred choice for patients. In contrast, private hospitals, including those with foreign investment, face significant challenges in attracting patients.

As a result, many private hospitals have had to make themselves more competitive, such as by offering free checkups, free food and pickup services, to attract patients. Others have turned to more aggressive, and arguably illegal, marketing efforts, such as paying referral fees to public hospital physicians to redirect patients to the private hospital, and offering improper discounts and kickbacks to patients.

It is also typical for private hospitals to augment medical expenses by increasing hospital stays, charging for nonexistent surgeries or medications, or excessive prescriptions. Some private hospitals have even been found to collect patient identification cards to create fraudulent medical records and reimbursement claims. These all contribute to a negative perception of private hospitals in China.

DATA PRIVACY

Where Chinese hospitals share the same challenges that face western hospitals is in relation to their data. They are required to comply with regulations relating to the management of medical records and maintaining a medical information management system. They are prohibited from disclosing patient medical records for any purposes other than treatment, education and research. Hospitals are also required to maintain an internal compliance program to ensure the confidentiality of various types of patient medical records.

Patients have a private right of action for any unauthorised disclosure of their medical information. It is also a criminal offense to sell or otherwise unlawfully disclose to third parties personal data collected by a medical professional in the course of providing medical services.

It is notable that certain population health information collected by Chinese hospitals, including demographic information and electronic medical records, must be stored on servers located within China. Moreover, there is a proposed regulation that would deem hospitals as operators of "Critical Information Infrastructure" under the recently enacted China Network Security Law, which would subject any cross-border transfer of patient medical information by to additional safety evaluation processes by government agencies.

Spotlight On China's Hospital System

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