Health care and pharmaceuticals

China's private healthcare racket

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This is the second of a pair of articles examining the problems of health care providers in China. The first is about Chinese medical "guru" Zhang Wuben.

This article is by Tessa Thorniley, a freelance business and travel writer based in Shanghai. She writes for newspapers, magazines and websites including The Daily Mail, the South China Morning Post, the Guardian, The Daily Telegraph and Wallpaper. Her previous contribution to Danwei was Bankrupt schools and their fleeing foreign bosses.

Why is the price of private healthcare in China rising at 3,000% a year?
How long will the private clinics be able to get away with it?

By Tessa Thorniley

Patients who have had operations recently at Parkway Health, the Singaporean private healthcare provider, may have been surprised by an item at the bottom of their bill – a charge for removing their stitches.

A recent round-robin memo from Parkway even reminded doctors in Shanghai to make sure they did not forget to charge for the service, prompting one member of staff to call for some “common sense” from the penny-pinching management. He wrote, dryly: “I am sure most physicians do not charge for suture [stitch] removal”.

The desire to grind out as much profit as possible from patients means that China is now one of the most expensive places in the world to have private healthcare.

According to Bupa, the medical insurance giant that operates in over 190 countries, the cost of treatment in China has spiraled alarmingly. “Globally, medical costs are rising by around ten to eleven per cent each year,” said Dr Sneh Khemka, the medical director
of Bupa International in London. “At its worst, in China the inflation rate is 3,000 per cent.”

For Bupa customers, that translates into insurance premiums that are rising by 200 per cent to 300 per cent each year, as the group tries to cover its costs. However, Dr Khemka can see no obvious clinical reason why the prices should be rising so fast.

“It is our view that the drivers of these higher costs are commercial, rather than medical. There is practically a monopoly in Shanghai and Beijing and the clinics charge what they like,” he said.

Until now, Parkway, United Family and International SOS have carved the vast majority of the market up between them for non-Chinese speaking patients and for wealthy Chinese who distrust the domestic healthcare system.

The lack of competition in the market means fewer options for patients and has left insurance companies more-or-less unable to negotiate discounts. One Shanghai-based investment banker, whose clients include a foreign insurance group, said: “The medical community really has the upper hand here,” he said.

For the money, the treatment is often lavish. Advertisements in magazines highlight the clinics' premium services, their ranks of internationally-trained, multilingual doctors and Western-style facilities.

When Parkway's Gleneagles center opened in Shanghai in 2005, it seemed to be modeled more on a hotel than a hospital, with massage services, free snacks and flat-screen televisions in each room. In Beijing, International SOS, a round-the-clock outpatient clinic proudly boasts that it can evacuate patients to outside of China via its own “dedicated air ambulance”, a service that seems at best anachronistic given the high quality of care available in both public and private emergency rooms.

The pricing culture at private clinics, and the practice of charging for each and every step of a treatment, has changed little since medical companies began to set up in China ten to 15 years ago.

Most companies coming to China simply adopted United States-style pricing, given the company packages and generous medical insurance that were standard for their clients, wealthy expatriates.

A chiropractor based in Beijing, who asked to remain anonymous, said his private clinic uses the 'Current Procedural Terminology' (CPT) pricing system developed by the American Medical Association. Under this system, the therapy is broken down into dozens of smaller, billable, treatments. “I have to charge for every small thing separately – a neck adjustment, a back adjustment and so on. It's quite common for the insurers to refuse payment when the bills are really high,” he said.

In addition, the rising fees at many private clinics are often applied opaquely. Few patients can distinguish whether a second or a third x-ray, or scan, is a vital precaution or an unnecessary extra. Or whether a certain type of drug is the most effective on the market or merely the most expensive. For patients with private insurance, the distinction is rarely worth worrying over anyway.

However, Alan Kahn, the vice president of marketing and communications for United Family hospitals argues that costs remain lower than in the US system.

“We are in the 65th to 70th percentile of US medical costs. In many cases our charges are not as expensive as US medical charges, but in others we are not as cheap. But there's no hospital in my hometown in the US that is as well-equipped and run as our hospital in Beijing,” he said.

The private clinics argue that the high cost of their service reflects the quality of their care and the difficulty in recruiting talented doctors, either within China or from overseas. “It is always a challenge recruiting good doctors,” said Jonathan Seah, the former chief executive of Parkway in China.

He explained that foreign doctors were usually unwilling to step outside of their own country's healthcare system, and forsake any opportunity for advancement, in order to take more mercenary jobs in China. Meanwhile, in China, “the best doctors work in the public sector,” he said, where they are hugely incentivised by bonuses and commissions from pharmaceutical companies for prescribing their drugs.

“Another difficulty that foreign providers have is that if they try, for example, to build a new private hospital, they are immediately competing with the state-backed financing of some private clinics that have been set up within many of the state-funded public hospitals, which are now offering "VIP" and international services. In general, starting costs are high, licensing arrangements are complex and the investment criteria for foreign investors are strict. These are some of the reasons why there are not more international players in the market,” he added.

Buoyed by their revenues, the big players are busy expanding. United Family, part of Nasdaq-listed Chindex, cut the ribbon on a new oncology centre in Beijing this month. It now has seven private clinics and hospitals, including centers in Guangzhou and Wuxi. “We are also expanding our hospital in Beijing so that we can carry out neuro-surgery and other advanced clinical procedures,” said Mr Kahn. “Our patient mix has also expanded. Today, roughly 55 per cent are expatriates and 45 per cent are local Chinese.”

Parkway is also moving into the interior of China, attracted by the possibility of rich Chinese clients. It has eight facilities, including one in Chengdu, and a new site at Shanghai's Jin Mao tower.

Slowly, however, patients are beginning to baulk at the cost of treatment. A former clinic manager, who has worked a several leading private clinics in China, said: “The majority of customer complaints I received were about billing and pricing. The worst areas were obstetrics and maternity.”

Rachel Wu, the marketing manager of United Family, said: “A natural birth at our hospitals costs 62,148 yuan and a C-section is 100,000 yuan.” Ms Wu said United Family encouraged natural childbirths, but one insider said there was an abnormally high rate of caesarian operations at other private clinics, often making up 50 per cent to 60
per cent of the procedures, partly because clinics were keen to maximise their profits.

Not everyone is convinced by their business model, however. David Wood, the managing director of PriceWaterhouseCoopers Healthcare in China, said: “I think the question to ask is: Is this a failed model?”

“As China's domestic healthcare continues to develop, there will be less and less need for very expensive care. You have to think that eventually everyone will be able to go through the normal stream. In the past 15 years, public healthcare in China has been focused on coping with the numbers, but now there is a greater emphasis on service. The market will respond to patients' needs,” he said.

“The pricing at these clinics is high. They have a considerable burden, employing lots of foreign doctors. But when you are talking about clinics with 30 to 40 beds, the cost of a specialist is very hard to justify,” he added.

Dr Seah, who left Parkway to join a private equity firm that invests in healthcare and education companies, Living Ventures in Shanghai and who is also a director of the Tongren Hospital Group a public-private partnership, agreed. “Since 2000, there has been a significant leap in the capabilities of the private or VIP wings at local state hospitals. In many cases they have caught up with the Western clinics.”

In Beijing, the foreigners' wing of the Peking Union Medical College has a solid reputation, with many former patients claiming its birthing unit is the best in the city. In Shanghai, Ruijin Hospital's VIP wing has 10 private rooms where, for a 300 yuan registration fee, patients can sit down with an English-speaking doctor.

The costs (for patients) are usually considerably lower at public hospitals. “Take a CT scan for example,” said Dr Seah. “In a local hospital, you might pay 500 yuan for this. At the VIP wing of a local hospital it might cost 1,000 yuan. And at a private International
clinic you might pay 5,000 to 10,000 yuan, even though the actual scan might actually be done in a local hospital. You are essentially paying up to ten times the price for the interpretation of the scan to be done by an internationally-trained doctor who speaks English.”

He added: “Ultimately, we think local hospitals, or partnerships with local hospitals, are the future in China.”

Some of the private clinics appear to have come to the same conclusion. United Family has teamed up with Shanghai's state-run Huashan hospital, one of only five hospitals in China to be accredited by the Joint International Commission, a US-based NGO, to open a second hospital in Pudong in April. New entrants are also emerging to put pricing pressure on the big three incumbents.

Singapore stock market-listed Healthway, one of the country's largest networks of private medical centers, plans to open six new centers in Shanghai, taking its total in the city to eight by the end of 2010.

Global Healthcare, opened its second clinic in Shanghai last month focusing on clinical and dental care and a new World Path clinic in Pudong opened in October last year.

Shannon Neilson, director of operations at Regenerative Medicine group, which is setting up new clinics in Shanghai aimed at holistic healthcare and nutrition, said: “We are definitely starting to see more competition in the market. Although it could be two or three years before some of the bigger medical centres reach profitability. I think we might see some of the big established players struggle to adapt to more competition if they don't make improvements to their facilities, pricing and overall standards of medical care.”

New start-up clinics are often willing to offer lower rates of contract to insurers in a bid to establish direct-billing relationships, and this could also reduce the pressure on insurance premiums.

However, any change to the system is likely to be gradual. “On pricing, it is really a question of perception,” said Neil Raymond, chief executive of Pacific Prime, an insurance broker in Hong Kong. “The foreign private clinics and hospitals in China may be ten times the price of the state-backed VIP clinics, but equally the private arms of the public hospitals are ten times the price of the normal service, even though the doctors are usually the same,” he said.

And, as one insurance broker, who asked not to be named, said: “Let's not forget that high insurance premiums are in the insurance companies' interest. None of them wants to operate in a market where healthcare costs are very low, such as Thailand, because it is very hard to sell insurance there.”

There are currently 8 Comments for China's private healthcare racket.

Comments on China's private healthcare racket

I don't know about the well paid overseas doctors part that Jonathan Seah mentions. Some of the medical professionals I know who work at Parkway are paid significantly less than what they make in the USA. They are only working at these overseas medical clinics as they have come to China to be with their family and these are the only places they can work.

It may have changed since I was last in beijing, but previously patients went to United family to give birth (with the big fees attached)but the doctor who delivered the baby would be brought in from Peking Union. I always thought the big fees were for the ridiculously 5 star facilities

I agree, that certain domestic hositals have a good reputation amongst the expat community for obstetrics. The local hospitals are pretty good for basic services and even basic dental, but for expats who don't speak Chinese, haven't got the time to hunt around or don't have the social network to know the good from the average, then the International Clinics are the go to place. For anything advanced, or an urgent illness, you don't want the hassle or the uncertainty of going to a local hospital. You may scoff at ISOS evac cover (and no I don't work for them) but if you have need an operation, you DON"T want to run the risk of variable quality service that could have health implications for the rest of your life. Like with so many things in China, there are serious and real issues about consistency of care, of quality and training of staff. The potential for damaging profiteering and lack of accountability permeates everything in China. Just think of the food industry. It's a question of trust. Thats the reason why expensive international clinics are the preferred choice when the health of me and my family is on the line.

Racket indeed. The most experienced doctors are at the most well-known public hospitals. Places like United do bring in experts from Peking Union.

Most wealthy Chinese DON'T go to these places...

I went to the so-called International Clinic at the Lufthansa Center this winter because I was seriously ill and got seriously ripped off.
Quick hightlights:
* Charged for a "private room" (two days in a row) so I could have an IV; two full day charges and was there two hours each day.
* Charged for a doctor's consultation the second day (Sunday) when the doctor was not not even in the building (when questioned the staff said he instructed them to do this the day before). I already paid the previous day for the time I actually laid eyes on him.
* Charged admission fee and administration fee (but staff could not explain what they were or how they were different)
* Charged serious money for medicine, including inflated OTC stuff.
* Etc, etc.

Cost me more than $2,000 for four hours. I hear they may start charging by each breath you take while on their premises.

Sorry for the multiple posts but I forgot:
* Was charged 1,500 RMB on top of the private room charge to stick the IV needle in my hand. And the (Chinese) nurse did it with all the elan of a Shanxi coal miner.

Got to feeling better and made it to China-Japan Friendship Hospital's international wing. Got better care at about 20 percent the cost (ya, really, 20 percent).

The '3,000% a year' figure seems to have been plucked out of air - not that I disagree that private health might be unreasonably costly in China...

Health care in China is generally costly, and the whole system is riddled with profiteering and corruption.

Luckily, my only experience was in the hospital in Sanlitun, late at night a few years ago. My girlfriend had been hit by a car (was alright though)... They didn't have any toilet paper in the hospital. When I asked at the front desk they said I had to go out to buy it myself, and denied having any sort of absorbant paper fit for the job - which was obviously very hard to believe...

When I had got back from the nearest xiaomaibu, I had to take my girlfriend to the toilet carrying her in one hand, while holding up the stupid IV drip she had been given - no doubt because the hospital got kickbacks from the drug company for doing so... - in the other, taking care to hold it high enough, while some stupid nurse gawped at us and didn't offer any help whatsoever (I didn't ask because I wanted to see whether she would volunteer...). My girlfriend had some sort of scan which cost about 500 rmb, and the total bill came to around 1,300 rmb I seem to remember. She even ended up going to another hospital a few days later for another scan because apparently the one in sanlitun wasn't that good.

The huge "Serve the People" sign outside the hospital seemed hugely ironic after the whole experience.

Why doesn't the journalist investigate the practice of Parkway Health, the Singaporean private health care provider or other companies which may be owned by Singaporeans/ Taiwanese? or by Americans? or Canadians?
Definitely these companies are making $$$ fleecing the ignorant Chinese in China.
Who own those private health care providers in China? Taiwanese? Singaporeans? The Chinese government and law should investigate into these companies and prosecute them! The govt prosecute non-health industry people for their shady activities!
No wonder Singapore and Taiwan have enviable health care ...they are all depending upon their huge earnings from China!

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