China's Medical System Defeats Taiwan Pioneer

Wang Yung-ching, Taiwan's richest man built a hospital dedicated to his father, who died of an undiagnosed stomach illness. Now Chang Gung has become one of the biggest private hospital groups on the island, serving 27,000 patients a day.

Wang wanted to repeat in China what he had done in Taiwan – build large hospitals of international medical and research standards aimed at people on low and medium incomes , employing talent from both sides of the strait. But five months after his death at the age of 91 and nine years after he first announced his ambitious China plans, his projects have stalled. Plans to build Chang Gung hospitals in Zhengzhou and Ningbo have been put on hold.

The facility that opened in Xiamen in May last year has 500 beds but is using only 100 of them. Wang's master plan for Xiamen calls for an investment of 1.34 billion yuan and 4,500 beds, 3,000 in a general hospital, 1,500 in an old people's wing as well as a nursing college with 4,000 students.

But like the half dozen other Taiwan-invested hospitals in China, Chang Gung in Xiamen is unable to hire the doctors and nurses or buy the equipment it needs or operate a payment system that would give it a profit and patients a reasonable cost.

The Taiwan health care systems began to cross the strait at a crucial time for China, whose own system underwent wrenching change in the 1990s with the disappearance of the command economy and cradle-to-grave care along with it. Health care spending had fallen to about 15 percent of China's fiscal budget by 2006, well below even the United States, at 21 percent for Medicare and Medicaid, its primary health care programs. The Ministry of Health at the end of 2006 estimated that no more than 10 percent of the population were covered, pushing China into the unenviable company of industrialized nations like the US in which provision of adequate health care has become one of society's most pressing problems.

Since private investment was allowed in the sector in 2000, private hospitals have grown to provide 10 percent of all beds but less than 3 percent of inpatient and outpatient services. Public hospitals provide a wide range of services, including emergency care and specialist operations, but patients must pay for their care. Public hospitals enjoy tax breaks, subsidies, training and medical insurance contracts rarely given to private ones.

It is hard for private hospitals, including Chang Gung, to register as non-profits, which would give them these benefits. As commercial entities, they are treated like businesses in terms of tax and land.

From the beginning, the Chang Gung institutions in Taiwan were registered as non-profit entities, which are obliged to plough their profits back into the hospitals or give them to charity. They were unable to obtain this status in China.

The Xiamen facility was approved in 2005. Since Chinese law does not allow 100-per-cent foreign ownership in hospitals, as Wang initially wanted, it is a 70-30 joint venture between his Formosa Plastics group and a city medical firm. Its biggest headache is hiring qualified and experienced staff. The vast majority of Chinese doctors and nurses belong to city hospitals or other government institutions offering housing, pay, welfare benefits and a pension. Mobility is limited.

Medical professionals, especially those with experience, are unwilling to leave their institution and the benefits they have accrued to work for a Taiwan-invested hospital, It is too expensive for Chang Gung to rely entirely on staff brought from Taiwan or elsewhere.

The government sets quotas for the import of medical supplies and equipment, restricting what a private hospital can order.

Insurance is another issue. In China, patients pay about 50 percent of all medical costs from their own pocket, down from 60 per cent a decade ago but substantially higher than in many rich countries. In Taiwan by contrast, the government established a universal National Health Insurance (NIH) system in 1995. It brought within the insurance cover the 41 percent of the population who had previously been outside the net.

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Now more than 80 percent of Taiwan's hospitals and hospital beds are privately owned. Most of the private beds are in nonprofit hospitals that can earn substantial profits. The NIH and private insurance schemes mean that hospitals have strong revenue sources.

For the Xiamen hospital, in-patient care payments covered by medical insurance are only one third of those in Taiwan and out-patient payments one fourth, while the costs it must pay for medicines and facilities are the same or higher.

One option would be to provide special services and medical checkups, which would bring in revenue. But this would change the hospital's objectives, which it does not want to do. Under the current medical system, the Xiamen hospital does not seem viable. Its best hope lies in a medical reform package passed by the State Council in January and expected to be released in the next few months. It calls for the central and local governments to spend 850 billion yuan by 2011 to improve the quality and affordability of medical care. It aims to introduce market reforms, with an improved status for private hospitals, lower patient payments and encouraging private investment.

But intense lobbying continues over the details of the package, so the Xiamen hospital must wait for the final outcome.

China's economic conditions today are similar to those in Taiwan in 1976, when the first Chang Gung hospital was built. The economy was booming and average personal incomes had reached US$2,000. But medical services lagged the economy, with 11 doctors and seven beds per 10,000 people and nearly 80 per cent of the beds controlled by the government. The income of doctors at Chung Gang hospitals consists of an annual salary, fees from teaching and research and income from clinics. They are forbidden to accept ‘red packets' – from patients and their families -- and their pay is not linked to sales of medicines.

In China, such ‘red packets' – given in the hope that the doctor will give the patient his best care -- are commonplace and many hospitals rely on the income from overpriced medicines to remain solvent.

The struggling Xiamen hospital is a far cry from Wang's ambitions in 2000, when he announced plans to invest US$436 million in major hospitals in Beijing, Fuzhou and Xiamen. He wanted wholly-owned facilities, but the government would not allow them. He received provisional approval for a 5,000-bed hospital in Beijing and was given 120 hectares in Changping county, on the outskirts. But his own government did not approve the investment and Beijing gave the project to two domestic firms instead.

Last May, at the age of 91, Wang attended the opening of the Xiamen hospital, despite failing health; it was an emotional day for him and for his employees. But the most successful entrepreneur Taiwan has produced since World War II was too far ahead of his time in China. He died last October without seeing the realization of his medical dreams.