Reuters has reported that China’s main administrative authority will allow patients to claim on medical insurance for visits to private hospitals.  This follows a separate May 6 decision of the State Council to give tax breaks worth up to RMB 2,400 ($387) to individuals who take out private medical insurance. So what does this do for private sector prospects?

These measures come on top of preferential tax treatment for private hospitals and streamlining the process to set up a hospital or clinic.

China will also give equal treatment to medical staff, regardless of whether they work in the public or private system and eliminate requirements on the number of beds per hospital.

If followed through, these moves would have a huge impact on the sector. Which private operators stand to gain most from allowing patients to claim on statutory insurance?  The measure would make little difference to VIP hospitals catering mainly for the elite such as Chindex. But Stephen Sunderland at LEK reckons it could have significant impact on the relative economics of private treatment for most patients. That is, no doubt, behind the government’s thinking as it seeks to ease demand pressure on high level public healthcare facilities.

Operator views of these measures vary. At a recent IFC conference, the CEO of one of the largest private hospital groups was much more negative than bosses from Concord, a NYSE quoted imaging and radiotherapy group which runs outsourced centres in 140 public hospitals and Columbia Pacific, which runs nursing homes and is building two hospitals.  The latter see few problems and say Chinese authorities are generally far more cooperative than the US government.  But the former pointed to the failure over a decade to change a payment system which means hospitals make most of their money from drugs and says there is a powerful coalition of vested interests who are opposed to change.

Sunderland says it is best to see China as almost another Europe – payor regimes vary from region to region, for instance. Whilst many municipalities are desperately keen to add capacity and offer citizens western-style healthcare, there are big roadblocks. Perhaps the largest is the payment system which skews treatment and creates powerful special interest groups, many of whom are opposed to private healthcare.

But these measures clearly underline the government’s determination to use private healthcare operators to create capacity. We can’t think of any other government, anywhere in the world, which has set out such a powerful set of incentives. The nearest competitor would be the tax breaks on offer from Putin’s Russia…