McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai. This China Law Alert was authored by MWE China Law Offices lawyers John Z.L. Huang, Molly J.J. Qin, Chris Mou and Lacoste Qian. U.S. clients may contact Stephen W. Bernstein, John M. Callahan or Dale Van Demark for additional details and / or questions.
The chairman of China’s National Health and Family Planning Commission (HFPC) highlighted potential reforms that would allow increased foreign investment in China’s medical services industry, as well as support the “two-child policy” at a recent press conference.
At an executive meeting of the State Council approximately two weeks later, China’s Premier Li Keqiang confirmed that China will be pursuing the policies outlined in the HFPC chairman’s press conference. Premier Li’s statements signaled that these policies had the support of China’s government and will soon be put into practice.
At a 13 March 2014 press conference, the Chairman of the National Health and Family Planning Commission (HFPC) of the People’s Republic of China Li Bin reviewed the commission’s achievements in health care reform since the former Ministry of Health and former Family Planning Committee merged as the HFPC one year ago. HFPC Chairman Li also commented on trends in China’s health care and health care-related policies, highlighting in particular the potential reforms that would allow increased foreign investment in China’s medical services industry and support the recently announced “two-child policy”.
Approximately two weeks later, at a 25 March 2014 executive meeting of the State Council, China’s Premier Li Keqiang articulated the Chinese Government’s confidence regarding the policies outlined by HFPC Chairman Li, indicating that the policies have the support of China’s Government and will soon be put into practice. A detailed analysis of the reforms follows.
Allowing Increased Foreign Investment in China’s Medical Services Industry
As mentioned, Premier Li’s comments indicate the government’s support of allowing increased foreign investment in China’s medical services industry. Of note was Premier Li’s comment that “the non-public medical institutions (including foreign-owned and private-owned medical institutions) shall be treated the same as public medical institutions, particularly in aspects of the designation of national health insurance unit, the appraisal of professional titles, and the national ranking of medical institutions.”
To facilitate the level of foreign investment and participation envisioned, the current patchwork of laws and regulations that have allowed gradual and increased foreign participation in the medical services industry will likely be reformed further. Briefly, existing laws include:
- Two 2010 regulations promulgated by the Ministry of Commerce and the former Ministry of Health, allowing investors from Hong Kong, Macau and Taiwan to establish wholly foreign-owned medical institutions in certain pilot provinces, including Shanghai, Fujian, Guangdong, Hainan, Chongqing and Jiangsu. With the release of Certain Opinions to Expedite the Development of Non-public Medical Institutions, it is expected that the pilot zones will be extended to all cities at the prefecture and above levels in the near future.
- In 2011 the most recent Foreign Investment Industry Guidance Catalogue permitted foreign investors to invest in the medical services industry and establish foreign medical institutions such as foreign hospitals. The Interim Measures for the Administration of Sino-Foreign Equity and Cooperative Joint Venture Medical Institutions (promulgated in 2000) (Sino-Foreign Medical Institutions Measures) was, however, not amended. It still prohibits wholly foreign-owned medical institutions and only allows joint venture medical institutions.
- In 2013 officials announced that foreign investors would be allowed to establish wholly foreign-owned medical institutions in the newly launched Shanghai Free Trade Zone if the proposed medical institutions met several requirements, including those in respect to capital requirements, operation period and the experience of the foreign investors in the medical services industry.
It is expected that the Sino-Foreign Medical Institutions Measures will be amended and new regulations will be promulgated in order to further lift the limitation on ratio of foreign investment in medical institutions.
It is obvious that China is adopting a gradual approach to opening up its domestic medical services market to foreign investments, in a manner that not only protects Chinese public hospitals but also steadily brings in advanced medical institutions to modernise the Chinese medical service market as a whole. How this will be carried out in practice while maintaining that balance will be the subject of further laws and regulations governing areas such as capital requirements, administrative approval procedures and purchases of large medical equipment.
The authors will continue to monitor developments in this area and provide updates as necessary.
Approval Procedures for Foreign-invested Medical Institutions
At present, establishing a foreign-invested medical institution in China is subject to complicated and layered procedures and approvals. These procedures mainly include industry access review, foreign investment review and approval, antitrust review, national security review, tax and foreign exchange regulation and supervision of the sale of state-owned assets by a number of authorities such as the HFPC, Ministry of Commerce (MOFCOM), Ministry of Human Resources and Social Security, the State Administration for Industry and Commerce (SAIC), the State Administration of Foreign Exchange, the State Administration of Taxation (SAT), State-owned Assets Supervision and Administration Commission and the China Securities Regulatory Commission.
However, pursuant to HFPC Chairman Li’s comments, the government is directing its efforts towards simplifying approval procedures to facilitate foreign investment in the medical services industry. Such efforts are already reflected in newly released regulations such as the Interim Measures for the Administration of Wholly Foreign-owned Medical Institutions in the Shanghai Free Trade Zone, which prescribes that all competent authorities must decide within 40 working days of the acceptance of application documents for the establishment of a wholly foreign-owned medical institution whether to issue the approval of that wholly foreign-owned medical institution. In contrast, the Sino-Foreign Medical Institutions Measures, which regulate the approval procedures for foreign-invested medical institutions throughout China, indicate that only the HFPC and MOFCOM approval procedures must be completed within 90 working days from acceptance of application documents, while administrative procedures required to be undertaken by SAIC and other competent authorities require a greater time for completion.
Restrictions on Purchases of Large Medical Equipment
HFPC Chairman Li also announced that restrictions on purchases of certain large medical equipment, such as PET-CT, gamma knife, MM50, proton therapy system, CT, MRI, DSA, SPECT and electron linear accelerator equipment, by medical institutions—whether public or foreign-invested—will be revealed in the future.
Since 2004 the purchases of certain large medical equipment have been subject to the approval of the HFPC or a local branch of the HFPC at a provincial level. The restriction was put in place to regulate public finance. Existing HFPC guidelines at both the state and local levels set out basic requirements that need to be satisfied before medical institutions can purchase large medical equipment. Such requirements include scale of institution, number of professionals and number of outpatient and emergency visits within a set period.
The relaxation of equipment purchase restrictions is a positive development for most medical institutions, especially for those owned by foreign investors. Indeed, because large medical institutions in China are typically state-owned, the current restrictions were made without much consideration of non-public medical institutions. Foreign-invested medical institutions that do not fulfil the requirements, e.g., on the basis of the scale of institution, are not permitted to purchase large medical equipment even if they have sufficient funds or patient need. The restrictions also unduly handicap potential foreign investors planning to establish medical institutions in China.
The relaxation of the above restrictions will likely create a friendlier investment and operational environment for foreign investors, encouraging their investment in China’s medical service industry.
Physician Multi-site Practice
During the press conference, HFPC Chairman Li stated that final regulations to the Exposure Draft on Physician Multi-site Practice released earlier this year will be promulgated in 2014. The final regulations are based on the Exposure Draft and incorporate feedback provided to the HFPC from various industry sectors. Premier Li also emphasised it is critical to implement such physician multi-site practice policy.
The Exposure Draft states that certified physicians, except for the heads of clinical departments, medical laboratories and administrative departments ,and physicians at higher administrative levels, will be allowed to practice in two or more sites such as hospitals, clinics, sanatoriums and first-aid stations. Among these sites, one will be determined as the primary site. The physician shall execute an employment contract with this primary medical institution and enter into multi-site practice agreements with other medical institutions. In addition, the physician needs to ensure his or her practice in the primary medical institution will not be influenced by the practices in any other medical institutions. Each medical institution, together with the physician, shall be liable in any dispute or accident arising from the practice carried out in that medical institution.
The Exposure Draft focuses on Chinese nationals who are certified physicians. Foreign physicians with foreign professional certificates have been allowed to practice at multiple sites ever since China established the Foreign Doctor Short-Term Medical Service policy in 1992.
Beneficiaries of the physician multi-site practice policy are non-public medical institutions, particularly foreign-invested medical institutions. At a stage where most Chinese physicians are exclusively employed by public hospitals and foreign doctors are still subject to a number of restrictions, the implementation of a multi-site practice policy meets, to some extent, the demands of foreign-invested medical institutions for good, local doctors.
Support for the “Two-child Policy”
China is slowly relaxing its “one-child” policy and allowing its citizens to have two children in certain circumstances, for example, if both parents are only children or, according to the most recent policy, if either of the parents is an only child. Over the past 30 years, China has strictly enforced the “one-child” policy: any Chinese family that gave birth to more than one child was typically subject to a penalty (e.g., social support fee) equivalent to two to three times the high average annual household income in the city where the family lived, or the actual annual family income of the family.
Different cities may apply different standards and practices. The “one-child” policy and social support fee system are enforced by the local branches of the HFPC under the supervision of the HFPC. The resulting “two-child policy” has so far been implemented in eight provinces. With more regions set to adopt the policy, China may possibly experience a baby boom. In response, HFPC Chairman Li emphasised that the government will direct certain available resources towards the construction of infrastructures related to gynecology, obstetrics and pediatrics.
Evidence of this is available in the form of the new branch of Shanghai Children’s Hospital, which was unveiled recently. The new Children’s Hospital is three times larger than the original.
Thus, there is likely to be strong demand for the establishment of medical institutions or the provision of medical equipment/services in connection with gynecology, obstetrics and pediatrics. In addition, the growth of such institutions, the provision of related goods and services will likely be encouraged.