A reflection on the 2019 capability development progress report of the county hospitals in China

The Boston Healthcare China team has been developing a series of newsletters highlighting the Chinese government’s efforts to cut prices of pharmaceuticals and medical devices. It is important to understand that this initiative falls within the broader context of China’s healthcare reform that started back in 2009, the essence of which is to tackle the disparity between the poor and the rich by extending public healthcare coverage to the ~1 billion people born and living outside the cities.

For more background regarding China’s public health insurance schemes and their evolution, please refer to our previous article here.

Currently, there are approximately 2800+ county-level administrative regions in China, and over 70% of the total Chinese population resides in these counties, more commonly referred to as “the rural areas of China”. Healthcare facilities in these counties typically consist of a County General Hospital and a few specialty hospitals for women and children, for cancer care, orthopedics, Chinese traditional medicine, etc.

Recognizing that there are large competency and infrastructure gaps in these county-level healthcare providers compared to their peers in modern cities, the Chinese government developed a program in 2015-2016 as one of the healthcare reform priorities, to improve the service capabilities of the county hospitals currently serving rural residents.

In response, some of our clients have identified the county hospitals to be an emerging customer segment in their strategic market development plan. We analyzed a recent report published by the National Health Commission reviewing the capability building program’s progress in its first three years and would like to share some of the interesting and relevant findings.

  • The scope of the assessment covered 1,837 County General Hospitals which, and according to the National Health Commission, accounted for 97.8% of all county-level general hospitals.
  • Early indicators show that the capability building efforts in the county hospitals have been successful in terms of providing more care in the local setting.
    • The number of diseases that can be treated by the county hospitals had increased from 1,062 (2017) to 1,412 (2018), as well as the number of types of surgical procedures performed, 343 (2017) to 434 (2018), which are 33% and 26.5% increases compared to 2017, respectively.
    • Average annual patient visits: 312,000 per hospital, 20% increase from 2017
    • Average annual hospital admissions: 24,000 per hospital, 36% increase from 2017*; average inpatient stay is 7.4 days and utilization of hospital bed is 88.3%
    • Average annual surgical procedures performed: 8,526, 39% increase (*2017 data as comparison)

The data have also been used to monitor the role of the county hospitals within the tiered care delivery system.

  • County hospitals and higher-level hospitals: 194,800 patients were transferred from higher-level hospitals to the county hospitals whereas 2,580,500 patients were referred to higher-level hospitals in 2018.
  • County hospitals and lower-level care facilities: 2,021,300 and 799,700 patients were respectively transferred from and to lower-level facilities.

The report has also revealed where the biggest competency gaps lie – specialties such as Psychiatry, Rehabilitation and Physiotherapy, Intensive Care, and Infectious Diseases are rarely established. For example, only 42.5% of the 1,837 County General Hospitals reported having a department of Psychiatry.

And even when there is a dedicated department, it does not necessarily mean that the staff are equipped or trained to perform diagnostic or treatment services beyond the most basic ones. For example, although 86% of the county hospitals have Pathology departments in their hospitals, only 40% of those are capable of performing special staining, immunohistochemistry, or molecular diagnostics in their histopathology labs.

When it comes to surgical procedures, examples of low adoption are:

  • Ultrasound-guided radiofrequency ablation is only performed in 429 of the 1,837 hospitals (23.35%)
  • Video-assisted arthroscopy is performed in 1,088 hospitals (59.23%)
  • Surgical removal of tuberculosis in the spine is performed in 1,018 hospitals (55.42%)
  • Pulmonary lobectomy is performed in 925 hospitals (50.35%)
  • Video-assisted thoracoscopic procedures in lung bullous disease are performed in 923 hospitals (50.24%)

Undoubtedly, as the county hospitals continue to improve their infrastructure and service capabilities, they represent an emerging market segment for our clients, pharmaceutical and medical device companies, who typically supply to the 2,000 ~3,000 mega hospitals in big cities in China. While staff skills take time to build, it is not difficult to see the short-term equipment needs driven by the 2,000 or so county hospitals’ rush to improve their infrastructure, particularly the capital equipment. As the report revealed, the total asset value of hospital-based capital equipment has grown significantly by almost 30% from 2017 to an average value of 95 million yuan in 2018 (approximately $15million; exchange rate 6.5) per hospital largely driven by the acquisition of imaging modalities like MRI and CT scanners.

But the industry also recognizes that the county hospitals are very different from its current big-city-big-hospital type of customers. To begin with, affordability of the hospitals and affordability of the patients treated in the county hospitals. And this brings us back to the opening of this article how the government payer is responding as it finances this expansion in rural healthcare delivery – the Government is enacting aggressive price cuts through the national reimbursement process and national/provincial tendering.  So, the dilemma here is while the industry is being cautious as to the short-term business upside opportunity brought by these ~2000 county hospitals, the government payer has already used that theoretical volume in price negotiations.

Boston Healthcare Associates works with both large multinational corporations and SMEs specialized in innovative medical technologies. Whereas it may be a less relevant discussion for SMEs in the sense that one has to stay focused on the leading hospitals and national-level KOLs in China to drive early adoption, it is rather a challenge for established international companies in China to debate and determine whether this is the time to re-examine the potential of the market and the various strategies and models developed based on the traditional customer segments. Pricing likely will become the most pressing issue among all as the China governments’ negotiation mechanism becomes a norm in coverage decision and procurement process. Please contact us to see how we can help.