China’s Healthcare Sector and U.S.- China Health Cooperation

 In testimony before the United States-China Economic and Security Commission on April 27, 2016, Yanzhong Huang discussed China’s 13^th Five Year Plan in the context of China’s healthcare system landscape, attempts at reform, and potential opportunities and challenges for collaboration between the United States and China in the healthcare sector. With regards to policy recommendations for the United States Congress, Huang emphasized the importance of proper regulation and balance of interests while recognizing the inherent dilemmas and contradictions within Beijing’s health policy process that influence the operating environment for conducting future healthcare-related business in China.

Takeaways:

• China’s current healthcare financing system is defined by disconnect between spending and demand, where government spending on healthcare relative to GDP is low given its 1.4 billion person population and high-income status since the implementation of market-oriented reforms that began during the 1980s. Although spending on healthcare has grown roughly 20 percent annually since the 2002-2003 SARS epidemic and 2008 global financial crisis, the burden of healthcare provision is largely placed on debt-ridden local governments that only receive 30 percent of tax revenues for healthcare while financing 70 percent of care.

• China’s 13^th Five-Year Plan seeks to alleviate problems of affordability and accessibility of high-quality healthcare for those in remote areas and lower social strata. These problems are manifested in the growth of urban, high-tech medicine at the expense of rural primary care, as well as the utilization of state-owned public hospitals as revenue generating operations. The Five Year Plan seeks to promote universal health coverage, refine healthcare financing mechanisms, and coordinate government, corporate, and individual responsibilities for healthcare provision. In addition, the plan advances a  policy agenda that encourages the research and development of new drugs at higher profit margins than generics, but this could potentially come at the cost of affordable access.

• There are five main trends in Chinese society that will sustain the robust growth of China’s healthcare market and business opportunities for U.S. pharmaceutical companies, hospital groups, and insurance companies in the region. First, the rising burden of noncommunicable diseases will increase the number of outpatient visits, hospitalizations, and overall medical spending. Second, a demographic shift towards older age and the abandonment of the one-child policy will increase demand for consumer health products and home, community, and institution-based senior care. Third, rapid urbanization has led to more effective demand for healthcare by migrant workers, as well as social stratification requiring private hospitals, high-tech devices, patented drugs, and commercial health insurers to cater to the wealthy’s needs. Fourth, the growing use of information technology will make mobile health technology for those in rural and remote areas. Lastly, reforms that relax restrictions on market entry and encouragine private overseas investment of capital in the biomedical, hospital, and pharmaceutical industries.

• There still remain major challenges for U.S. foreign investment in the Chinese healthcare industry. Even though almost half of all Chinese health facilities are foreign-owned, they only provide 10 percent of inpatient and outpatient care due to the persistent monopoly of the state-owned public hospital system. Talent recruitment has proven difficult, since foreign physicians must pass Chinese medical exams and locals who are hired as a result often moonlight while practicing as full-time employees in public hospitals. In addition, the importation of high-end medical services requires government approval and these services are not covered by China’s current health insurance schemes. The pharmaceutical industry faces growing numbers of reimbursement categories, government pressure to reduce prices on drugs, and a rule of law that exists only in theory.

• Public-private partnerships to improve drug development still remains relatively nascent in China due to excessive government restrictions on foreign entities, capacity and innovation challenges for local, government-funded researchers, and overall administrative policy failure behind unsuccessful efforts to incentivize new drug development. However, some recent successes have included collaboration efforts by parties such as the U.S. Department of Health and Human Services, the Gates Foundation, and PATH with Chinese laboratories to develop vaccines for Japanese encephalitis and Ebola, as well as partnerships between American and Chinese policymakers and agencies for biomedical research and rapid infectious disease response to advance the Global Health Security Agenda.