The National Health and Family Planning Commission (NHFPC) released its Circular on Deepening Reform of Streamlining Administration, Delegating Powers and Improving Services to Arouse Investment Vitality in the Medical Care Sector (Circular) on 8 August 2017. The Circular is the latest move by China to promote private and foreign investment in medical institutions.

In this e-bulletin we highlight the key policies in the Circular and set out our observations on the regime.

BACKGROUND

Li Keqiang, the Premier of China'’s State Council, continually expresses his commitment to cutting through bureaucracy and reducing entry barriers for private investment. As a result, the State Council regularly issues policies and holds conferences requesting government ministries to streamline their administration processes and open up relevant sectors for private investment.

In February 2017, NHFPC revised the implementing rules for the Administrative Regulations on Medical Institutions to (i) permit six new types of independent medical institutions to be established, including medical testing and experimental laboratories, radiodiagnosis centres, pathology diagnosis centres, hemodialysis centres, palliative care centres and maternal and child care centres; and (ii) permit medical professionals to apply to establish medical institutions.

In June 2017, the State Council issued a new work plan for ministries, including NHFPC, to further simplify the administrative approval processes and lower industry entry barriers. Consequently, NHFPC issued the Circular to implement the work plan.

HIGHLIGHTS OF THE KEY POLICIES AND OUR OBERVATIONS

I. Extended scope of independent medical institutions

The Circular permits five new types of medical institutions to be established, namely rehabilitation centres, nursing centres, sterilization supply centres, health examination centres and small- or medium-sized ophthalmic hospitals.

Previously, these were only allowed to operate as integrated departments of large hospitals. The extended scope of independent medical institutions in the Circular will lower the entry barrier for private investment and foreign investment in medical services in these areas. We expect the standards for establishing such medical institutions to be published soon.

II. Simplified regime for medical clinics in aged care institutions

The Circular revokes the previous requirement that approval be obtained to establish medical clinics within aged care institutions. The Circular replaces this requirement with a simpler filing regime.

This will significantly reduce the administrative process for establishing aged care institutions with medical services and encourage investment in this sector. Previously, the complicated process for obtaining a practice certificate for ancillary medical services often hindered the development of aged care institutions.

III. Streamlined process for establishing medical institutions

The Circular proposes (i) to merge into one process the establishment pre-approval and the practice registration approval for medical institutions of Class II or below (including clinics) and (ii) to streamline the approval process for Class III hospitals (which is the highest class of hospitals in China in terms of scale).

The simplified administrative process is expected to shorten the timeframe for getting approval to establish medical institutions.

IV. Relaxed cap on foreign ownership

The Circular calls to relax the existing 70% cap on foreign equity ownership in medical institutions for foreign-invested clinics. Investors from Hong Kong, Macau and Taiwan will continue to benefit from preferential treatment offered under various economic cooperation agreements entered into with the Mainland, including for establishing wholly-owned medical institutions across China.

Relaxing the 70% cap means that foreign investors may be allowed to operate wholly-owned clinics in China in the future. The types of clinic that will be covered by the Circular are still unclear, but the newly created types of independent medical institutions under the Circular and previous regulations may well be included.

V. Greater autonomy for privately-invested medical institutions

Currently, all purchases of Class B large medical devices need to comply with centrally-formulated allocation plan and be submitted to NHFPC for approval. The Circular proposes to replace the approval requirement with a pilot notification regime for the purchase of Class B large medical devices by privately-invested medical institutions in the free trade zones (FTZs), which means the purchase decisions will be subject to less administrative influence Class B large medical devices include computed tomography (CT), Nuclear Magnetic Resonance (MRI), digital subtraction angiography (DSA), single photon emission computed tomography (SPECT) and linear accelerator (LA). This measure gives privately-invested medical institutions more autonomy in purchasing Class B large medical devices in FTZs and greatly simplifies the administrative processes for the purchase.