We have analyzed drug policies with regard to drug pricing and the centralized procurement of drugs in the previous Key 2015 Healthcare and Pharmaceutical Policies: Pharmaceuticals. This article will sort out China’s key regulations and policies in 2015 related to healthcare from five aspects - public hospital reforms, private investments in the healthcare sector, the removal of the administrative review and approval of healthcare insurance designated institutions, the combination of healthcare and elderly care services, and the investment of foreign capital in healthcare institutions.

1. Fully Promoting Public Hospital Reform

In April and May 2015, the General Office of the State Council promulgated theImplementing Opinions on Fully Promoting the Comprehensive Reform of County-level Public Hospitals and the Guiding Opinions on the Pilot Comprehensive Reform Program for Urban Public Hospitals to fully promote the overall reform of county-level public hospitals and further expand the pilot programs of urban public hospital reform. The above documents further specify that in the comprehensive reform of county-level public hospitals, the incentive policies with respect to land, investment and financing, taxation, pricing, and industrial policies for private investment in the healthcare sector shall be refined. In the urban public hospital reform, private capital investment into the healthcare sector by means of contributing to establish new entities and participating in restructuring existing institutions shall be encouraged. Great efforts shall be exerted to support the establishment of non-profit healthcare institutions. In practice, however, different regions may have different land or taxation policies with respect to restructuring public hospitals or private investment in the healthcare sector thus bringing difficulties to investors. Local governments should further implement the above State Council documents to deepen public hospital reform.

2. Fully Promoting Private Investment in the Healthcare Sector

On June 15, 2015, the General Office of the State Council promulgated Several Policy Measures to Promote the Acceleration of the Development of the Private Investments in the Healthcare Sector (Measures). It proposes 16 specific measures from four major aspects: further relaxing the entry barrier; expanding the investment and financing channels; promoting resource flow and sharing; and optimizing the environment for development. It also encourages the localities to explore their own ways of development in accordance with their needs.

To solve the problem of the difficulties in entering into the market faced by private investment in the healthcare sector, the Measures state that the relevant administrative departments at all levels shall, in accordance with the principle of “everything not forbidden is permitted”, clean up and remove unreasonable government approval prerequisites. Under certain conditions, specific rules with respect to the restrictions on the numbers and locations of healthcare institutions invested by private capital shall be removed. The Measures explicitly prohibit the nature of a healthcare institution’s ownership becoming a prerequisite for the qualification of healthcare insurance designated institution. In addition, factors irrelevant to healthcare service capacity, such as whether the quota of healthcare insurance designated institutions is full, cannot be a reason used to deny the inclusion of healthcare institutions invested by private capital into the scope of healthcare insurance designated institutions. The Measures provide much information that is favorable for the entrance of private investment into the health sector. However, the promulgation and implementation of the supporting policies regarding specific issues concerning capital and scale are needed for further practice.

3. Removing the Administrative Review and Approval for the Qualifications of Healthcare Insurance Designated Institutions

On December 2, 2015, the Ministry of Human Resources and Social Security promulgatedThe Guiding Opinions on Improving the Administration of Agreements Regarding Designated Healthcare Institutions and Pharmacies of Basic Healthcare Insurance, stating that the review and approval of the qualifications of the designated retail pharmacies and healthcare institutions for basic healthcare insurance coverage shall be removed by the end of 2015. Instead, the healthcare insurance management bureaus shall directly sign service agreements with the designated healthcare institutions and pharmacies. The removal of such qualification review and approval will enable healthcare institutions invested by private capital to have a better chance to be covered by basic healthcare insurance if they comply with the standards and hence attract more patients. This measure will leverage the decisive role of the market in allocating resources, and thus promote virtuous competition in the healthcare sector.

4. Combining Healthcare Services with Elderly Care Services

On November 20, 2015, the General Office of the State Council forwarded theAnnouncement on the Guiding Opinions of Promoting the Combination of Healthcare and Elderly Care Services published by the National Health and Family Planning Commission (“NHFPC”) and other ministries , which states five key tasks such as establishing and refining the collaboration mechanism between healthcare institutions and elderly care institutions; supporting elderly care service institutions to provide healthcare services; and encouraging private capital to invest in institutions that combine healthcare and elderly care services. In addition, the announcement emphasizes policies concerning investment and financing and policies concerning finance, taxation, and pricing shall be improved, and the landscape planning and land supply shall be strengthened. The announcement also states that a long term, multilayer caring and nursing system shall be established. As China’s aging population grows more and more rapidly, combining healthcare services with elderly care services is a practical solution, and will become the new economic growth engine.

5. Keeping a Close Eye on the Regulatory Policies on Foreign-invested Healthcare and Elderly Care Institutions as They are Updated Frequently

According to the Foreign Investment Industrial Guidance Catalogue (Revised in 2015) ( “2015 Investment Catalogue”) taking effect on April 10 of 2015, elderly care institutions are classified under the ‘encouraged’ category. However, the 2015 Investment Catalogue moved healthcare institutions from the ‘permitted’ to ‘restricted’ category which only allows for cooperative joint ventures or equity joint ventures. Such adjustment regarding the category in which a foreign-invested healthcare institution belongs to is inconsistent with theAnnouncement on Carrying out the Pilot Programs of the Establishment of Wholly Foreign-Owned Hospitals published by the NHFPC and the Ministry of Commerce in 2014, which permits overseas investors to establish wholly foreign-owned hospitals in 7 provinces and municipalities including Beijing, Tianjin and Shanghai, by either establishing new hospitals or merging with existing ones.

We have noted, however, that China and Australia signed the China-Australia Free Trade Agreement (“ChAFTA”) on June 17, 2015. The ChAFTA provides that qualified Australian service providers may establish wholly foreign-owned hospitals in the 7 provinces mentioned in the Announcement, either by establishing new hospitals or merging with existing ones (with the exceptions of Traditional Chinese medicine hospitals). The approval regarding the establishment, registration of the practice, and the diagnosis and treatment activities of such hospitals must comply with the laws, regulations, and rules of China and the relevant rules regarding wholly foreign-owned hospitals in the above seven provinces and municipalities. In addition, Australian service providers are allowed to establish Sino-foreign joint venture hospitals and clinics as major shareholders. The ChAFTA relaxes the restriction on Australian capital flowing into the healthcare service industry in China, which exemplifies the Chinese government’s willingness to open up its economy, and will positively promote private investments in the healthcare sector in China.

We understand that the State has frequently updated the national policies on investing in the healthcare and elderly care institutions in recent years. Therefore, it is suggested that investors of healthcare and elderly care institutions pay close attention to the most updated laws, regulations, and policies to formulate or adjust their investment strategies.