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Healthcare in China



I N FRAST R U C T U R E , G OV E R N ME NT & H E A LT H C A R E
Contents



                                                       1     Introduction


                                                       2     Healthcare statistics


                                                       5     Healthcare reform in China


                                                       8     Implications of the planned healthcare initiatives in China


                                                      10     Healthcare reforms in Hong Kong SAR


                                                      12     Implications of the reforms – Hong Kong SAR


                                                      15     Conclusion


                                                      16     About KPMG




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Healthcare in China             1




Introduction



Healthcare reform has been one of the key topics on the government agenda
both in China and Hong Kong SAR. In China, a basic framework for the
medical and healthcare system is being developed with consolidation in the
pharmaceuticals sector likely. In Hong Kong SAR, considerations regarding the
promotion of public-private partnerships in the healthcare sector and medical
funding reforms were addressed during the first stage of public consultation in
2008.

Developed countries, such as Australia and Japan, have well defined medical
and healthcare systems and strictly regulated pharmaceutical markets. The rapid
economic growth of China over the last decade has brought about fundamental
demographic changes and shifted the balance between the country’s urban
and rural populations. These changes are the drivers behind the government’s
development of a national healthcare reform plan, which aims to provide a basic
framework for medical services and the healthcare system for the short and
longer term. As a result, we are seeing opportunities for investors in the medical
and healthcare sectors during the market development and consolidation phases
over the next decade.

The objective of this report is to provide a high level overview of healthcare
reforms in China and Hong Kong SAR together with a brief discussion of their
implications.

We hope you find the analyses in this report useful and we would be pleased to
discuss the findings with you.




Andrew Weir
Partner in charge, China
Infrastructure, Government & Healthcare




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
2       Healthcare in China




                                                             Healthcare statistics



                                                             In 2008, total health expenditure per capita was USD 139 in China, compared
                                                             with USD 1,532 in Hong Kong SAR, USD 3,138 in Japan and USD 4,403 in
                                                             Australia. Total health expenditure as a proportion of GDP was 4.2 percent in
                                                             China, compared with 5.0 percent in Hong Kong SAR, 8.1 percent in Japan and
                                                             8.8 percent in Australia.

                                                             These figures and other statistics presented below suggest an urgent need for
                                                             China to achieve consensus between the public and industry participants and roll
                                                             out concrete plans for healthcare reform in order to create a healthier nation by
                                                             2020.




     Total health expenditure per capita in Hong Kong SAR is eleven times that in China. In Japan, the gap is an even
     greater twenty two times that in China. Total health expenditure as a proportion of GDP in China is half of that in
     Japan and Australia.

     Although China’s birth rate is the highest of Asian countries displayed in the table, life expectancy in China is the
     lowest among all countries displayed in the table.


       Country                            Total health                     Share of total health             Birth rates                       Life expectancy
                                         expenditure                       expenditure in GDP                                                  at birth: total
                                                                                                                                               population

                                         US$ per capita                    % of total GDP                    Per ’000 inhabitants              Years

       China                                         138.7                              4.2                              12.3                              72.4

       Singapore                                    1,169.0                             3.2                               8.3                              80.1

       South Korea                                  1,515.3                             7.2                               9.9                              79.1

       Hong Kong SAR                                1,531.8                             5.0                               7.0                              82.0

       Japan                                        3,137.8                             8.1                               8.0                              82.5

       New Zealand                                  3,174.4                             10                               15.1                              80.3

       UK                                          4,184.6                              8.8                              12.1                              79.5

       Australia                                    4,402.8                             8.8                              12.7                              81.3

       Canada                                       4,796.0                            10.2                              11.0                              80.6

       Netherlands                                  5,041.6                             9.5                              11.0                              80.6

       Switzerland                                  7,302.5                            11.2                               9.5                              81.8

       USA                                          7,422.5                            15.4                              14.3                              78.0

     Source: Euromonitor International from OECD/WHO/national statistics




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Healthcare in China             3




     China’s healthcare statistics
     The number of certified doctors per 100,000 population has been increasing at a slower pace (approximately
     1 percent year-on-year) than the number of hospital beds per 100,000 population, which increased by 2-4 percent
     annually.


     Number of persons employed in health institutions

                                                                                                   2003             2004              2005             2006              2007

       Certified (assistant) doctors (1,000 persons)                                              1,868            1,906             1,938             1,995            2,013

       Registered nurses (1,000 persons)                                                          1,266            1,308             1,350             1,426            1,543

       Number of certified (assistant) doctors per 100,000 population                               148               150              152               154               154

     Source: National Bureau of Statistics, China Statistical Yearbook 2008


     Number of beds in health institutions

                                                                                                   2003             2004              2005             2006              2007

       Hospitals and health centres (1,000 units)                                                 2,955            3,046             3,135             3,271            3,438

       Sanatoriums (1,000 units)                                                                      48               54                52                46                43

       Maternity and child care centres (1,000 units)                                                 81               87                94                99              106

       Other health institutions (1,000 units)                                                        80               81                87                96              114

       Number of hospital beds per 100,000 population (units)                                       234               240              245               253               263

     Source: National Bureau of Statistics, China Statistical Yearbook 2008



     Number of health institutions (2007)                                                                   Persons employed in healthcare
                                                                                                            institutions by occupation (2007)
                                1.02% 0.62%
                         1.2%                                                                                                 4.11%
                                                                                                                    6.04%

                    10.84%
                                                                                                                     8.79%


              20.28%




                                       66.04%
                                                                                                                                  81.06%*

          Clinics                                      Maternity and child care centres                          Medical technical personnel

          Hospitals and health centres                 Sanatoriums, specialised                                  Logistic workers
                                                       prevention & treatment centres,
          Other institutions                           and research institutions of                              Managerial personnel
                                                       medical science                                           Other technical personnel
          Centre for Disease Control and
          Prevention
                                                                                                            * This includes certified doctors and assistant doctors, registered
                                                                                                              nurses, pharmacist, and lab technicians

     Source: National Bureau of Statistics, China Statistical Yearbook 2008                                 Source: National Bureau of Statistics, China Statistical Yearbook 2008




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
4       Healthcare in China




      Hong Kong SAR’s healthcare statistics
      Registered healthcare professionals (2007)

        Type of Professional                                                                            Total           Healthcare professionals to population

        Doctors                                                                                       11,961                                                          1:582

        Chinese medicine practitioners
         Registered                                                                                    5,540                                                       1:1,257
         Limited registration                                                                             79                                                              -
         Listed                                                                                        2,847                                                       1:2,446

        Dentists                                                                                       2,025                                                       1:3,439

        Nurses                                                                                        36,965                                                          1:188

        Midwives                                                                                       4,693                                                       1:1,484

        Medical laboratory technologists                                                               2,661                                                       1:2,617

        Physiotherapists                                                                               2,086                                                       1:3,338

        Optometrists                                                                                   1,947                                                       1:3,576

        Pharmacists                                                                                    1,722                                                       1:4,044

        Radiographers                                                                                  1,628                                                       1:4,277

        Occupational therapists                                                                        1,268                                                       1:5,491

        Dental hygienists                                                                                 249                                                     1:27,964

        Chiropractors                                                                                      97                                                     1:71,785

      Source: Department of Health, HKSAR



      The number of hospitals under the Hospital Authority represents 37 percent of total number of health institutions in
      Hong Kong SAR, while these hospitals contributed to 80 percent of the total number of hospital beds in
      Hong Kong SAR.


      Number of health institutions in                              Number of hospital beds in
      Hong Kong SAR (2007)                                          Hong Kong SAR (2007)
                                                                                      2%

                                                                                 8%                                              Hospitals under the Hospital
             21%                                                                                                                 Authority
                                                                         10%
                                          37%                                                                                    Private hospitals

                                                                                                                                 Nursing homes

                                                                                                                                 Hospitals under correctional
                                                                                                                                 institutions
            30%
                                 12%                                                       80%

      Source: Department of Health, HKSAR                           Source: Department of Health, HKSAR




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Healthcare in China             5




Healthcare reform in China 



China’s National Development and Reform Commission released its national
healthcare reform proposal in an October 2008 paper entitled “Chinese medical
reform draft open to public debate”. The proposal is a policy guideline for the
overall direction of the country’s healthcare system over the next 10-20 years. In
January 2009, a final draft for the healthcare reform was approved by the central
government.

The 11th Five Year Plan touches on three specific areas of healthcare reform:
a comprehensive healthcare system; improvement of systems to increase
efficiency; and short-term goals. The following is a brief summary of the draft
reforms.1


Components of a comprehensive healthcare system:
Public healthcare services
• Disease prevention, health education, mother and infant care, mental hygiene,
  emergency rescue, blood supply, supervision and monitoring, and family
  planning


Medical services
• Non-profit medical institutions will remain the main providers, complemented
  by private organisations

• Accelerate the building up of a rural medical network where hospitals at the
  county level are the frontline, those at the rural town level are the backbone
  and those at the village level are the foundation of the reform

• Build up a mechanism in which urban community healthcare institutions and
  urban hospitals share the burden

• Involve both western and Traditional Chinese Medicine (TCM) in the provision
  of services


Medical insurance
• Basic medical insurance complemented by insurance of other forms, such as
  medical help activities administered by labour unions and community groups,
  and those provided by insurance companies

• Encourage unions to initiate mutual medical coverage


Supply of medicine
• Nurture a competitive pharmaceutical industry, improve the pricing mechanism
  and strengthen regulatory controls




1   “Chinese medical reform draft open to public debate”, released by National Development and Reform Commission, People’s Republic of
    China, October 2008




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
6       Healthcare in China




                                                             Improvement strategies to increase system efficiency:
                                                             1) Implement a management system where provincial governments formulate
                                                                resource allocation standards, specifically for the planning of the number, size,
                                                                distribution and function of health institutions
                                                             • 	Separate the income and expenditure of prescription medicines from that of
                                                                dispensation

                                                             • 	Look into effective ways to reform the current system of complementing
                                                                prescription with dispensation

                                                             2) Government shall assume the leading role in the provision of public healthcare
                                                                and basic medical services. These include:
                                                             • Public healthcare services will be funded by the government and provided
                                                               equally to rural and urban citizens

                                                             • The financial burden of basic medical services to be shared by the
                                                               government, the community and individuals

                                                             • Special medical care to be paid by the individual or through commercialised
                                                               insurance plans

                                                             3) The central government and local governments increasing their involvement in
                                                                the provision of healthcare services
                                                             • Local governments taking greater responsibility for basic medical protection for
                                                               city/county citizens and the construction of public health institutions

                                                             • The central government subsidising vaccination and cross-regional efforts in
                                                               pandemic prevention

                                                             4) A mechanism to price medical services and medicine is to be set up
                                                             • Services provided by non-profit medical institutions shall be priced by the
                                                               government

                                                             • Others can price their services themselves

                                                             5) The government shall focus more on monitoring the provision of healthcare
                                                                services, medical insurance and issues with medicines. Organisations and
                                                                individuals shall be encouraged to give their opinions

                                                             6) Innovation in pharmaceuticals shall be the highlight of technological
                                                                development. The structure and size of tertiary educational institutions is to be
                                                                adjusted to accommodate this aim

                                                             7) A revamped system of information sharing on healthcare issues and medical
                                                                insurance shall be developed and enhanced with the aim of increasing
                                                                transparency

                                                             8) A comprehensive legal system for healthcare is to be set up to:
                                                             • speed up legislation

                                                             • reiterate enforcement of laws and regulations




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Healthcare in China             7




Short-term goals:
By 2011:
• Achieve basic medical insurance coverage that reaches all urban and rural
  residents

• Improve the accessibility and service standards of basic healthcare facilities.

• Reduce the cost for residents to receive medical services


Between 2009 and 2011:
(i)   Accelerate the development of the basic medical insurance system by:

• raising the coverage of basic medical insurance for urban workers, urban
  residents and rural cooperative medical insurance to over 90 percent of the
  population in three years

• raising the level of subsidy for urban resident medical insurance and rural
  cooperative medical insurance to RMB 120 per head by 2010

(ii) Develop a comprehensive regulatory system for pharmaceutical selection,
     manufacture and supply

(iii) Improve grass-roots access to medical and healthcare services by focusing
      on the development of county-level hospitals (including TCM practice),
      rural clinics, village clinics in remote areas and community hygiene services
      centres in distressed regions

(iv) Promote equal access to basic public healthcare services by:

• formulating and implementing more projects on basic public healthcare
  services

• developing a standardised health records database across the country from
  2009

• relying more on TCM practice

(v) Push forward reforms at public hospitals by:

• implementing trials in 2009, then commencing the reforms stage by stage
  from 2011

• reforming management structures, operations and supervision mechanisms

• reforming compensation mechanisms

• accelerating the diversification of medical practices

An estimated RMB 850 million will be injected by all levels of government over
the following three years to achieve these short-term goals.




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
8       Healthcare in China




                                                             Implications of the planned
                                                             healthcare initiatives in China
                                                             Since 2007, a number of initiatives to address the issues of access to and
                                                             affordability of healthcare services for its ageing population were announced.

                                                             The three major initiatives below depend on particular factors in order to be
                                                             successful.


                                                             Rolling out the New Rural Cooperative Medical System
                                                             This initiative was first promoted by the Chinese authorities in 2003 to improve
                                                             the rural healthcare system, and involves setting up health clinics in every town
                                                             and establishing a Rural Co-operative Medicare Fund. Under this latter scheme,
                                                             residents in rural areas contribute to a collective insurance pool, which is
                                                             supplemented by local and central governments. This fund would then be used
                                                             to reimburse rural residents for medical expenses incurred.


                                                             Keys to success:
                                                             • 	A communications campaign utilising all forms of media will be important
                                                                to improving rural residents’ understanding and subsequent adoption of the
                                                                voluntary co-operative medical system. Promotion of the scheme and clear
                                                                articulation of its benefits is important to its success.

                                                             • 	Investment in the infrastructure, for example labour resources and
                                                                technology, will also be required to support the rural scheme effectively. This
                                                                includes developing systems for tracking, managing and monitoring residents
                                                                who contribute to the fund and are entitled to coverage.


                                                             Establishing an urban healthcare service based on
                                                             community facilities
                                                             In 2006, the State Council Rural Co-operative Medicare Fund initiated a new
                                                             system of dividing resources and delineating responsibilities between national
                                                             hospitals and community medical centres. Hospitals are responsible for the
                                                             provision of comprehensive medical services for people with serious illnesses
                                                             (including surgery), while community centres focus on preventative medical
                                                             services, for example, the provision of vaccinations and child healthcare
                                                             protection.

                                                             The delivery of services in both these settings depends on whether the
                                                             government can attract suitably qualified staff to both urban and rural settings.


                                                             Key to success:
                                                             • 	Developing a scheme to help ensure that adequate training institutions and
                                                                programmes are in place to support, develop and foster the education of an
                                                                appropriately trained and qualified medical and healthcare workforce.




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Healthcare in China             9




Enhancing regulations for the manufacture, distribution
and prescription of medicine

There are approximately 4,500 pharmaceutical companies in China, the majority
of which are small players with limited local market reach. Rapid consolidation
between medium and large players in the sector is anticipated since the Chinese
government has been encouraging industry consolidation with an effort to
improve the Good Manufacturing Practise (GMP) standard, enforce the GMP
certification and to better control the pricing of drugs.

In contrast to the United States where pharmaceutical distribution is dominated
by a few major players, there are more than 12,000 pharmaceutical distributors
and chain stores in China. With the launch of the healthcare reform, the Chinese
government has made inroads in establishing a more streamlined pharmaceutical
distribution network and lowering costs along the supply chain. This creates
a strong incentive for large distributors and retail chains to speed up the
investment they need in order to survive and outrun their peers.

The introduction of more stringent regulations by the central government on
pharmaceuticals has implications not only for the pharmaceutical industry, but
also for hospitals and doctors who prescribe medicines. While international
pharmaceutical companies are looking to develop their manufacturing interests
in China, it will take time for them to gain confidence in the safety and quality of
products under a system that they have little experience of.

In addition, hospitals and medical practitioners have relied on the income derived
from prescribing medicine to supplement their incomes, which created a less-
than-ideal incentive environment and increased prescription rates.


Keys to success:
• 	Providing accurate and reliable information regarding these new regulations
   will help all parties involved in the manufacture, distribution and prescription of
   pharmaceutical products and help maintain regulatory compliance.

• 	Continuing to enhance quality and safety standards in line with international
   standards for the manufacture and prescription of pharmaceuticals.

• 	Designing a monitoring and reporting system to ensure that prescription
   rates are appropriately linked to patient records and to patient outcomes.




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
10      Healthcare in China




                                                             Healthcare reforms in
                                                             Hong Kong SAR
                                                             In October 2008, the Chief Executive of Hong Kong SAR announced in his Policy
                                                             Address that the government will launch a series of new initiatives to enhance
                                                             healthcare services for the people of Hong Kong.

                                                             The Policy Address on healthcare reform recognises the need to enhance primary
                                                             care, promote public-private partnerships, develop an electronic health record
                                                             system, and strengthen the healthcare safety net.2


                                                             Enhance primary care:
                                                             • Introduce basic primary care service models, focusing on preventive care and a
                                                               primary care register based on the family-doctor concept

                                                             • Explore a primary care delivery model – “the community health centre”
                                                               – to coordinate the efforts of different service units in delivering primary
                                                               care services, including general out-patient services, outreach community
                                                               healthcare services, nurse clinic services, allied health services, and specialist
                                                               services for relatively simple cases

                                                             • Explore the feasibility of delivering services under the community health centre
                                                               model through tri-partite collaboration among the public sector, the private
                                                               sector and non-governmental organisations


                                                             Promote public-private partnerships:
                                                             • Encourage and facilitate the development of private hospitals at specific sites
                                                               and formulate policies to ensure that the premiums for such land are fair to
                                                               private hospitals and the public

                                                             • Attract talent from around the world to enhance training, exchanges and
                                                               enhance the professional competence of healthcare personnel

                                                             • Implement a series of pilot measures to promote public-private partnerships,
                                                               including purchasing primary care services and hospital services from the
                                                               private sector, subsidising the public to receive preventive care provided by
                                                               the private sector, and establishing medical centres of excellence in paediatrics
                                                               and neuroscience


                                                             Healthcare financing arrangements:3
                                                             • The first stage public consultation conducted from March to June 2008 aimed
                                                               at informing the public on the pros and cons of reforming the current financing
                                                               arrangements through introducing six possible supplementary financing
                                                               proposals:

                                                                  -   Social health insurance
                                                                  -   Out-of-pocket payments
                                                                  -   Medical savings accounts
                                                                  -   Voluntary private health insurance


                                                             2   “2008-09 Policy Address”, Hong Kong Special Administrative Region Government
                                                             3   “Report on First Stage Policy Consultation on Healthcare Reform”, published by Food and Health Bureau, Hong Kong Special Administrative
                                                                 Region Government, December 2008




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Healthcare in China            11




     -	 Mandatory private health insurance
     -	 Personal healthcare reserve

• The following broad principles were derived from this first stage consultation:

     -	 To preserve the existing public healthcare safety-net for all, while providing
        better and wider choices for individuals who are using or able to afford
        private services

     -	 To implement financing reform step-by-step based on the views of the
        public, and consider proposals by stages, with a view to reaching long-term
        solutions

     -	 To consider standardised and incentivised arrangements to facilitate access
        to better protection and choices on healthcare, with necessary flexibility to
        cater for the needs of different age/income segments of the population

     -	 To be in line with the concept of “money-follows-patient” under the
        healthcare reform, while ensuring sufficient protection to users on quality,
        price transparency and cost-effectiveness

     -	 To retain the HKD 50 billion fiscal reserve, pending a decision on
        supplementary financing, and to consider how the funding could be used to
        assist the implementation of supplementary financing

• The Food and Health Bureau plans to launch the second stage public
  consultation in the second half of 2009 to encourage further discussion

In February 2009, the Financial Secretary of Hong Kong SAR delivered a speech
on the Hong Kong SAR Budget 2009/2010, which touched on the topic of
medical and health:4

• The government has implemented a number of pilot projects based on the
  concept of “money-follows-patient”, including the Influenza Vaccination
  Subsidy Scheme and the Elderly Health Care Voucher Pilot Scheme

• The government has pledged to increase health expenditure to 17 percent
  of recurrent expenditure by 2012. Actual health expenditure for 2006/2007
  represented 14.7%4 of the total recurrent public expenditure. Expenditure of
  the Department of Health and Hospital Authority for 2006/07 was HKD 32.9
  billion5

• The government will increase the recurrent subvention for the Hospital
  Authority over the next three financial years by about HKD 870 million a year.4
  Recurrent subvention indicated by the government for 2008/09 is HKD 29.8
  billion6

• The government has earmarked HKD 840 million4 over the next three financial
  years to implement various complementary measures to strengthen primary
  care services and support patients suffering from chronic diseases, promote
  public-to-private partnership, and develop a territory-wide electronic health
  record system



4   “The Budget 2009-2010”, Hong Kong Special Administrative Region Government
5   “Hong Kong Annual Digest of Statistics 2008”, published by Census and Statistics Department, Hong Kong Special Administrative Region
    Government
6   “Hospital Authority Annual Plan 2008-2009”, published by Hospital Authority, Hong Kong Special Administrative Region Government




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
12      Healthcare in China




                                                             Implications of the reforms –
                                                             Hong Kong SAR

                                                             Focus on primary care
                                                             The expansion and better utilisation of primary care services provides
                                                             the foundation for improving the health of the population. The concept of
                                                             multidisciplinary teams and the development of stronger links between
                                                             public, private and non-government sectors will help to reduce the number of
                                                             unnecessary hospitalisations.

                                                             A solid primary care model of service delivery will assist practitioners in the
                                                             ongoing management of patients with chronic diseases. This, in conjunction with
                                                             targeted prevention programmes, will help improve the health of the community.


                                                             Keys to success:
                                                             • 	Collaboration between sectors is essential to the success of an improved
                                                                primary care model. Promotion of the strengths of each of the public,
                                                                private and non-government organisations and development of a model for
                                                                collaboration will be the foundation.

                                                             • 	Decisions regarding prevention activities should be strategic and utilise the
                                                                strengths and experience of each of the sectors to progress the longer term
                                                                goals of attaining better health outcomes for the population of Hong Kong SAR.


                                                             Enhancing public-private partnerships
                                                             The Chief Executive of Hong Kong SAR has stated that promoting public-private
                                                             partnerships (PPP) in the healthcare sector is one of the priorities for the Hong
                                                             Kong region. With this in mind, two pilot programmes were launched in 2008:

                                                             i) 	 the launch of an electronic healthcare record system (“e-healthcare”) to
                                                                  facilitate better information sharing between public and private medical
                                                                  service providers, and

                                                             ii) 	 the development of the proposed North Lantau Hospital, where the Hong
                                                                   Kong SAR Hospital Authority is exploring ways in which private hospital
                                                                   operators may be able to provide and/or share services at the same site.




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Healthcare in China            13




       Implementation of an e-healthcare system

       Considerations                                                       Challenges
       Impact on how healthcare services are delivered                      • Obtaining buy-in from health professionals

                                                                            • Training and education for potential users of the new system
                                                                              (including doctors, nurses, hospital administrators pharmacists,
                                                                              and insurance companies)
       Data privacy and security                                            • Defining who manages, updates and maintains these records

                                                                            • Designing a legal process and governance framework to
                                                                              recognise (and limit) the right to access and use these records
       Degree of record sharing between healthcare                          • Agreeing a voluntary vs. mandatory framework
       service providers
                                                                            • Assessing the need and benefits associated with greater
                                                                              adoption

                                                                            • Designing an implementation plan that balances speed against
                                                                              robust consultation and testing


       Development of a healthcare PPP

       Considerations                                                       Challenges
       Transition management between project phases                         • Managing potential operational disruption as Phase 2
       and private and public stakeholders                                    commences on a site adjacent to existing facilities

                                                                            • Training, communications and change management activities
                                                                              to support employees potentially impacted by a shared
                                                                              services facility or transfer arrangement
       Provision of IT services over the life of the project                • Being able to respond to the pace of change in the industry
                                                                              and technology over a longer time horizon that may complicate
                                                                              issues such as:

                                                                                - IT security
                                                                                - System continuity of critical IT applications
                                                                                - Technical obsolescence
       Integration of public and private hospitals and                      • Managing issues regarding patient flow and referral patterns
       healthcare service delivery
                                                                            • Agreeing arrangements to share access to high cost, high tech
                                                                              equipment and services

                                                                            • Agreeing the parameters for any potential Centre of Excellence
                                                                              to be established for a specific service




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
14      Healthcare in China




                                                             Keys to success:
                                                             • 	Evaluating the effectiveness of these pilot programs will help to determine
                                                                the success of public-private medical sector partnerships which are relatively
                                                                new to the region. The evaluation process will be a necessary step before
                                                                wider roll-outs are considered and implemented.

                                                             • 	Safeguarding the privacy of personal data for the planned e-healthcare
                                                                system is crucial to obtaining public support for this project. This does discount
                                                                the essential aspects involved in the design of the supporting technology.


                                                             Medical funding reforms
                                                             As the elderly population increases, the government has anticipated that
                                                             the demand for healthcare services (and associated funding) will increase
                                                             substantially in the 21st century.

                                                             The ratio of the working population (aged between 15 to 64) to the elderly
                                                             population (aged 65 or above) was 6:1 in March 2008, and is expected to
                                                             become 5:1 in 10 years’ time and 3:1 in 20 years’ time. Overall, public health
                                                             expenditure is projected to increase from approximately HKD 38 billion in 2004 to
                                                             approximately HKD 78 billion in 2015 and approximately HKD 127 billion in 2025.9
                                                             Much of this increase can be attributed to the challenges presented by an ageing
                                                             population.

                                                             To plan for this challenge, the Hong Kong SAR government has proposed
                                                             reforms to the way in which healthcare funding is arranged and moving towards
                                                             a mechanism that recognises and rewards performance in an attempt to enhance
                                                             patient care through improved efficiency and service. The medical funding
                                                             arrangement reforms represent a significant culture change for stakeholders
                                                             in the healthcare community and institutions (including doctors, patients and
                                                             hospital administrators).


                                                             Key to success:
                                                             • 	Structured change management will be required to assist medical
                                                                practitioners and hospital administrators to improve their awareness of
                                                                efficiency and cost-effectiveness considerations while they deliver quality
                                                                health services.




                                                             9   “Factsheet on Healthcare Reform”, published by Food and Health Bureau, Hong Kong Special Administrative Region Government, March 2008




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Healthcare in China            15




Conclusion 



In China, rolling out a rural cooperative medical system, establishing an urban
healthcare service based on community facilities and enhancing the regulations
for the pharmaceutical sector are some of the main areas of healthcare reform
in which investors need to identify opportunities and prepare to adapt to the
challenges that may arise. Investors and stakeholders should also pay attention
to the implications of the healthcare reforms in Hong Kong SAR, including the
enhancement of primary care services and the development of new healthcare
financing arrangements, including PPPs.

The healthcare reforms in China and Hong Kong SAR will offer many
opportunities for investors in the markets’ development and consolidation phases
over the next decade. For example, there may be opportunities for the Central
government and regulators to partner with supportive market players in the
medical and healthcare sectors at the provincial level to overcome the challenges
ahead and capitalise on the keys to success identified in order to transform the
healthcare system in China by 2020.




© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
16      Healthcare in China




                                                             About KPMG



                                                             KPMG is a global network of professional firms
                                                             providing audit, tax and advisory services, with an
                                                             industry focus. With more than 123,000 people
                                                             worldwide, the aim of KPMG member firms is to
                                                             turn knowledge into value for the benefit of clients,
                                                             people, and the capital markets.




KPMG China                                                   Audit                                                         technical, business and market skills
                                                                                                                           with an appetite for delivering answers
KPMG China has more than 8,000                               Clients look to KPMG member firms                             that work to the individual client.
                                                             to provide independent and objective                          We are able to assist with corporate
professionals working in 12 offices.
                                                             assurance on the reliability of financial                     transactions and restructuring, help
These offices are located in Beijing,
                                                             information for statutory, management,                        develop corporate governance, risk
Shenyang, Qingdao, Shanghai,
                                                             and external capital raising purposes.                        and compliance programmes, and
Nanjing, Chengdu, Hangzhou, Fuzhou,                                                                                        deliver performance and techology­
                                                             We have extensive experience and
Guangzhou, Shenzhen, Hong Kong and                                                                                         related strategies, in order to achieve a
                                                             knowledge in initial public offerings and
Macau.                                                                                                                     competitive advantage.
                                                             capital raising exercises in local and
                                                             international markets including listed
Our experience                                               and unlisted funds. Our US Capital
                                                                                                                           Global Healthcare Group
                                                             Markets Group, located in China, helps
For over 60 years in this region, KPMG                       facilitate SEC filing reviews in the US
                                                                                                                           In recognition of the fast growth
has built a reputation for providing                         Capital markets.
                                                                                                                           occurring in the healthcare industry,
quality services to a wide range of                                                                                        KPMG has formed the Global
clients in both the private and public                       Tax                                                           Healthcare Group, enabling us to
sectors. Our single management                                                                                             share industry knowledge and training
structure allows efficent and rapid                          KPMG’s tax professionals analyse                              amongst member firms. This allows
allocation of resources wherever our                         organisations and proactively
                                                                                                                           us to assist clients in pursuing
clients are located in China.                                identify tax-related opportunities
                                                                                                                           opportunities and implementing
                                                             and challenges. Services include tax
                                                                                                                           changes necessitated by industry
                                                             restructuring, tax compliance and
Understanding your                                           planning, tax due diligence, indirect                         developments. The Global Healthcare
business                                                     taxes, transfer pricing, international                        Group also comprises of a large
                                                             executive services, regulatory, and                           number of healthcare sector specialists
KPMG member firms are committed                              foreign exchange services.                                    with extensive knowledge in serving
to providing quality services to our                                                                                       clients in the healthcare sector across
clients. To help meet our clients’                                                                                         the world.
                                                             Advisory
needs, KPMG China has drawn on
all of our key service areas and has                         KPMG’s Advisory services tackle the
formed the Healthcare practice. This                         challenges of growth, performance and
multi-disciplinary group with industry                       governance that face all companies
knowledge, focus and experience,                             around the world. Known for tackling
provides audit, tax, due diligence                           difficult challenges – no matter where
and other quality business advisory                          in the world they arise – KPMG
services to our clients in this sector.                      professionals are able to combine



© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Contact us



Andrew Weir                                          Simon Ho
Partner in charge                                    Partner
Infrastructure, Government &                         Infrastructure, Government &
Healthcare                                           Healthcare
China                                                Beijing
Tel: +852 2826 7243                                  Tel: +86 (10) 8508 7021
andrew.weir@kpmg.com.hk                              simon.ho@kpmg.com.cn


Benny Liu                                            Peter Wong
Partner in charge                                    Partner
Infrastructure, Government &                         Infrastructure, Government &
Healthcare                                           Healthcare
Guangzhou                                            Hong Kong SAR
Tel: +86 (20) 3813 8118                              Tel: +852 2826 7152
benny.liu@kpmg.com.hk                                peter.wong@kpmg.com.hk


Stephen Ip                                           Colin Waugh
Partner                                              Director
Infrastructure, Government &                         Infrastructure, Government &
Healthcare                                           Healthcare
Shanghai                                             Hong Kong SAR
Tel: +86 (21) 2212 3550                              Tel: +852 2978 8263
stephen.ip@kpmg.com.cn                               colin.waugh@kpmg.com.hk




  The information contained herein is of a general nature and is not intended to address the           © 2009 KPMG, a Hong Kong partnership
  circumstances of any particular individual or entity. Although we endeavour to provide accurate      and a member firm of the KPMG network
  and timely information, there can be no guarantee that such information is accurate as of the date   of independent member firms affiliated with
  it is received or that it will continue to be accurate in the future. No one should act upon such    KPMG International, a Swiss cooperative. All
  information without appropriate professional advice after a thorough examination of the particular   rights reserved. Printed in Hong Kong.
  situation.
                                                                                                       KPMG and the KPMG logo are registered
                                                                                                       trademarks of KPMG International, a Swiss
                                                                                                       cooperative.
                                                                                                       Publication date: July 2009
www.kpmg.com.cn

www.kpmg.com.hk



Beijing                                   Qingdao                             Shenyang
8th Floor, Tower E2, Oriental Plaza
      4th Floor, Inter Royal Building 
   27th Floor, Tower E, Fortune Plaza 

1 East Chang An Avenue
                   15 Donghai West Road
               59 Beizhan Road

Beijing 100738, China 
                   Qingdao 266071, China
              Shenyang 110013, China

Tel : +86 (10) 8508 5000
                 Tel : +86 (532) 8907 1688
          Tel : +86 (24) 3128 3888

Fax : +86 (10) 8518 5111
                 Fax : +86 (532) 8907 1689
          Fax : +86 (24) 3128 3899





Shanghai                                  Nanjing                             Chengdu
50th Floor, Plaza 66 
                    46th Floor, Zhujiang No.1 Plaza
    18th Floor, Tower 1, Plaza Central 

1266 Nanjing West Road
                   1 Zhujiang Road
                    8 Shuncheng Avenue

Shanghai 200040, China
                   Nanjing 210008, China
              Chengdu 610016, China

Tel : +86 (21) 2212 2888
                 Tel : +86 (25) 8691 2888
           Tel : +86 (28) 8673 3888

Fax : +86 (21) 6288 1889
                 Fax : +86 (25) 8691 2828
           Fax : +86 (28) 8673 3838





Hangzhou                                  Guangzhou                           Fuzhou
8th Floor, West Tower, Julong Building
   38th Floor, Teem Tower 
            25th Floor, Fujian BOC Building

9 Hangda Road
                            208 Tianhe Road
                    136 Wu Si Road

Hangzhou 310007 China

                  ,                       Guangzhou 510620, China
            Fuzhou 350003, China

Tel : +86 (571) 2803 8000
                Tel : +86 (20) 3813 8000
           Tel : +86 (591) 8833 1000

Fax : +86 (571) 2803 8111
                Fax : +86 (20) 3813 7000
           Fax : +86 (591) 8833 1188





Shenzhen                                  Hong Kong                           Macau
9th Floor, China Resources Building 
     8th Floor, Prince’s Building 
      24th Floor, B&C, Bank of China Building

5001 Shennan East Road
                   10 Chater Road
                     Avenida Doutor Mario Soares 

Shenzhen 518001, China
                   Central, Hong Kong
                 Macau

Tel : +86 (755) 2547 1000
                Tel : +852 2522 6022
               Tel : +853 2878 1092

Fax : +86 (755) 8266 8930
                Fax : +852 2845 2588
               Fax : +853 2878 1096

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Healthcare in china

  • 1. Healthcare in China I N FRAST R U C T U R E , G OV E R N ME NT & H E A LT H C A R E
  • 2. Contents 1 Introduction 2 Healthcare statistics 5 Healthcare reform in China 8 Implications of the planned healthcare initiatives in China 10 Healthcare reforms in Hong Kong SAR 12 Implications of the reforms – Hong Kong SAR 15 Conclusion 16 About KPMG © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 3. Healthcare in China 1 Introduction Healthcare reform has been one of the key topics on the government agenda both in China and Hong Kong SAR. In China, a basic framework for the medical and healthcare system is being developed with consolidation in the pharmaceuticals sector likely. In Hong Kong SAR, considerations regarding the promotion of public-private partnerships in the healthcare sector and medical funding reforms were addressed during the first stage of public consultation in 2008. Developed countries, such as Australia and Japan, have well defined medical and healthcare systems and strictly regulated pharmaceutical markets. The rapid economic growth of China over the last decade has brought about fundamental demographic changes and shifted the balance between the country’s urban and rural populations. These changes are the drivers behind the government’s development of a national healthcare reform plan, which aims to provide a basic framework for medical services and the healthcare system for the short and longer term. As a result, we are seeing opportunities for investors in the medical and healthcare sectors during the market development and consolidation phases over the next decade. The objective of this report is to provide a high level overview of healthcare reforms in China and Hong Kong SAR together with a brief discussion of their implications. We hope you find the analyses in this report useful and we would be pleased to discuss the findings with you. Andrew Weir Partner in charge, China Infrastructure, Government & Healthcare © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 4. 2 Healthcare in China Healthcare statistics In 2008, total health expenditure per capita was USD 139 in China, compared with USD 1,532 in Hong Kong SAR, USD 3,138 in Japan and USD 4,403 in Australia. Total health expenditure as a proportion of GDP was 4.2 percent in China, compared with 5.0 percent in Hong Kong SAR, 8.1 percent in Japan and 8.8 percent in Australia. These figures and other statistics presented below suggest an urgent need for China to achieve consensus between the public and industry participants and roll out concrete plans for healthcare reform in order to create a healthier nation by 2020. Total health expenditure per capita in Hong Kong SAR is eleven times that in China. In Japan, the gap is an even greater twenty two times that in China. Total health expenditure as a proportion of GDP in China is half of that in Japan and Australia. Although China’s birth rate is the highest of Asian countries displayed in the table, life expectancy in China is the lowest among all countries displayed in the table. Country Total health Share of total health Birth rates Life expectancy expenditure expenditure in GDP at birth: total population US$ per capita % of total GDP Per ’000 inhabitants Years China 138.7 4.2 12.3 72.4 Singapore 1,169.0 3.2 8.3 80.1 South Korea 1,515.3 7.2 9.9 79.1 Hong Kong SAR 1,531.8 5.0 7.0 82.0 Japan 3,137.8 8.1 8.0 82.5 New Zealand 3,174.4 10 15.1 80.3 UK 4,184.6 8.8 12.1 79.5 Australia 4,402.8 8.8 12.7 81.3 Canada 4,796.0 10.2 11.0 80.6 Netherlands 5,041.6 9.5 11.0 80.6 Switzerland 7,302.5 11.2 9.5 81.8 USA 7,422.5 15.4 14.3 78.0 Source: Euromonitor International from OECD/WHO/national statistics © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 5. Healthcare in China 3 China’s healthcare statistics The number of certified doctors per 100,000 population has been increasing at a slower pace (approximately 1 percent year-on-year) than the number of hospital beds per 100,000 population, which increased by 2-4 percent annually. Number of persons employed in health institutions 2003 2004 2005 2006 2007 Certified (assistant) doctors (1,000 persons) 1,868 1,906 1,938 1,995 2,013 Registered nurses (1,000 persons) 1,266 1,308 1,350 1,426 1,543 Number of certified (assistant) doctors per 100,000 population 148 150 152 154 154 Source: National Bureau of Statistics, China Statistical Yearbook 2008 Number of beds in health institutions 2003 2004 2005 2006 2007 Hospitals and health centres (1,000 units) 2,955 3,046 3,135 3,271 3,438 Sanatoriums (1,000 units) 48 54 52 46 43 Maternity and child care centres (1,000 units) 81 87 94 99 106 Other health institutions (1,000 units) 80 81 87 96 114 Number of hospital beds per 100,000 population (units) 234 240 245 253 263 Source: National Bureau of Statistics, China Statistical Yearbook 2008 Number of health institutions (2007) Persons employed in healthcare institutions by occupation (2007) 1.02% 0.62% 1.2% 4.11% 6.04% 10.84% 8.79% 20.28% 66.04% 81.06%* Clinics Maternity and child care centres Medical technical personnel Hospitals and health centres Sanatoriums, specialised Logistic workers prevention & treatment centres, Other institutions and research institutions of Managerial personnel medical science Other technical personnel Centre for Disease Control and Prevention * This includes certified doctors and assistant doctors, registered nurses, pharmacist, and lab technicians Source: National Bureau of Statistics, China Statistical Yearbook 2008 Source: National Bureau of Statistics, China Statistical Yearbook 2008 © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 6. 4 Healthcare in China Hong Kong SAR’s healthcare statistics Registered healthcare professionals (2007) Type of Professional Total Healthcare professionals to population Doctors 11,961 1:582 Chinese medicine practitioners Registered 5,540 1:1,257 Limited registration 79 - Listed 2,847 1:2,446 Dentists 2,025 1:3,439 Nurses 36,965 1:188 Midwives 4,693 1:1,484 Medical laboratory technologists 2,661 1:2,617 Physiotherapists 2,086 1:3,338 Optometrists 1,947 1:3,576 Pharmacists 1,722 1:4,044 Radiographers 1,628 1:4,277 Occupational therapists 1,268 1:5,491 Dental hygienists 249 1:27,964 Chiropractors 97 1:71,785 Source: Department of Health, HKSAR The number of hospitals under the Hospital Authority represents 37 percent of total number of health institutions in Hong Kong SAR, while these hospitals contributed to 80 percent of the total number of hospital beds in Hong Kong SAR. Number of health institutions in Number of hospital beds in Hong Kong SAR (2007) Hong Kong SAR (2007) 2% 8% Hospitals under the Hospital 21% Authority 10% 37% Private hospitals Nursing homes Hospitals under correctional institutions 30% 12% 80% Source: Department of Health, HKSAR Source: Department of Health, HKSAR © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 7. Healthcare in China 5 Healthcare reform in China China’s National Development and Reform Commission released its national healthcare reform proposal in an October 2008 paper entitled “Chinese medical reform draft open to public debate”. The proposal is a policy guideline for the overall direction of the country’s healthcare system over the next 10-20 years. In January 2009, a final draft for the healthcare reform was approved by the central government. The 11th Five Year Plan touches on three specific areas of healthcare reform: a comprehensive healthcare system; improvement of systems to increase efficiency; and short-term goals. The following is a brief summary of the draft reforms.1 Components of a comprehensive healthcare system: Public healthcare services • Disease prevention, health education, mother and infant care, mental hygiene, emergency rescue, blood supply, supervision and monitoring, and family planning Medical services • Non-profit medical institutions will remain the main providers, complemented by private organisations • Accelerate the building up of a rural medical network where hospitals at the county level are the frontline, those at the rural town level are the backbone and those at the village level are the foundation of the reform • Build up a mechanism in which urban community healthcare institutions and urban hospitals share the burden • Involve both western and Traditional Chinese Medicine (TCM) in the provision of services Medical insurance • Basic medical insurance complemented by insurance of other forms, such as medical help activities administered by labour unions and community groups, and those provided by insurance companies • Encourage unions to initiate mutual medical coverage Supply of medicine • Nurture a competitive pharmaceutical industry, improve the pricing mechanism and strengthen regulatory controls 1 “Chinese medical reform draft open to public debate”, released by National Development and Reform Commission, People’s Republic of China, October 2008 © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 8. 6 Healthcare in China Improvement strategies to increase system efficiency: 1) Implement a management system where provincial governments formulate resource allocation standards, specifically for the planning of the number, size, distribution and function of health institutions • Separate the income and expenditure of prescription medicines from that of dispensation • Look into effective ways to reform the current system of complementing prescription with dispensation 2) Government shall assume the leading role in the provision of public healthcare and basic medical services. These include: • Public healthcare services will be funded by the government and provided equally to rural and urban citizens • The financial burden of basic medical services to be shared by the government, the community and individuals • Special medical care to be paid by the individual or through commercialised insurance plans 3) The central government and local governments increasing their involvement in the provision of healthcare services • Local governments taking greater responsibility for basic medical protection for city/county citizens and the construction of public health institutions • The central government subsidising vaccination and cross-regional efforts in pandemic prevention 4) A mechanism to price medical services and medicine is to be set up • Services provided by non-profit medical institutions shall be priced by the government • Others can price their services themselves 5) The government shall focus more on monitoring the provision of healthcare services, medical insurance and issues with medicines. Organisations and individuals shall be encouraged to give their opinions 6) Innovation in pharmaceuticals shall be the highlight of technological development. The structure and size of tertiary educational institutions is to be adjusted to accommodate this aim 7) A revamped system of information sharing on healthcare issues and medical insurance shall be developed and enhanced with the aim of increasing transparency 8) A comprehensive legal system for healthcare is to be set up to: • speed up legislation • reiterate enforcement of laws and regulations © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 9. Healthcare in China 7 Short-term goals: By 2011: • Achieve basic medical insurance coverage that reaches all urban and rural residents • Improve the accessibility and service standards of basic healthcare facilities. • Reduce the cost for residents to receive medical services Between 2009 and 2011: (i) Accelerate the development of the basic medical insurance system by: • raising the coverage of basic medical insurance for urban workers, urban residents and rural cooperative medical insurance to over 90 percent of the population in three years • raising the level of subsidy for urban resident medical insurance and rural cooperative medical insurance to RMB 120 per head by 2010 (ii) Develop a comprehensive regulatory system for pharmaceutical selection, manufacture and supply (iii) Improve grass-roots access to medical and healthcare services by focusing on the development of county-level hospitals (including TCM practice), rural clinics, village clinics in remote areas and community hygiene services centres in distressed regions (iv) Promote equal access to basic public healthcare services by: • formulating and implementing more projects on basic public healthcare services • developing a standardised health records database across the country from 2009 • relying more on TCM practice (v) Push forward reforms at public hospitals by: • implementing trials in 2009, then commencing the reforms stage by stage from 2011 • reforming management structures, operations and supervision mechanisms • reforming compensation mechanisms • accelerating the diversification of medical practices An estimated RMB 850 million will be injected by all levels of government over the following three years to achieve these short-term goals. © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 10. 8 Healthcare in China Implications of the planned healthcare initiatives in China Since 2007, a number of initiatives to address the issues of access to and affordability of healthcare services for its ageing population were announced. The three major initiatives below depend on particular factors in order to be successful. Rolling out the New Rural Cooperative Medical System This initiative was first promoted by the Chinese authorities in 2003 to improve the rural healthcare system, and involves setting up health clinics in every town and establishing a Rural Co-operative Medicare Fund. Under this latter scheme, residents in rural areas contribute to a collective insurance pool, which is supplemented by local and central governments. This fund would then be used to reimburse rural residents for medical expenses incurred. Keys to success: • A communications campaign utilising all forms of media will be important to improving rural residents’ understanding and subsequent adoption of the voluntary co-operative medical system. Promotion of the scheme and clear articulation of its benefits is important to its success. • Investment in the infrastructure, for example labour resources and technology, will also be required to support the rural scheme effectively. This includes developing systems for tracking, managing and monitoring residents who contribute to the fund and are entitled to coverage. Establishing an urban healthcare service based on community facilities In 2006, the State Council Rural Co-operative Medicare Fund initiated a new system of dividing resources and delineating responsibilities between national hospitals and community medical centres. Hospitals are responsible for the provision of comprehensive medical services for people with serious illnesses (including surgery), while community centres focus on preventative medical services, for example, the provision of vaccinations and child healthcare protection. The delivery of services in both these settings depends on whether the government can attract suitably qualified staff to both urban and rural settings. Key to success: • Developing a scheme to help ensure that adequate training institutions and programmes are in place to support, develop and foster the education of an appropriately trained and qualified medical and healthcare workforce. © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 11. Healthcare in China 9 Enhancing regulations for the manufacture, distribution and prescription of medicine There are approximately 4,500 pharmaceutical companies in China, the majority of which are small players with limited local market reach. Rapid consolidation between medium and large players in the sector is anticipated since the Chinese government has been encouraging industry consolidation with an effort to improve the Good Manufacturing Practise (GMP) standard, enforce the GMP certification and to better control the pricing of drugs. In contrast to the United States where pharmaceutical distribution is dominated by a few major players, there are more than 12,000 pharmaceutical distributors and chain stores in China. With the launch of the healthcare reform, the Chinese government has made inroads in establishing a more streamlined pharmaceutical distribution network and lowering costs along the supply chain. This creates a strong incentive for large distributors and retail chains to speed up the investment they need in order to survive and outrun their peers. The introduction of more stringent regulations by the central government on pharmaceuticals has implications not only for the pharmaceutical industry, but also for hospitals and doctors who prescribe medicines. While international pharmaceutical companies are looking to develop their manufacturing interests in China, it will take time for them to gain confidence in the safety and quality of products under a system that they have little experience of. In addition, hospitals and medical practitioners have relied on the income derived from prescribing medicine to supplement their incomes, which created a less- than-ideal incentive environment and increased prescription rates. Keys to success: • Providing accurate and reliable information regarding these new regulations will help all parties involved in the manufacture, distribution and prescription of pharmaceutical products and help maintain regulatory compliance. • Continuing to enhance quality and safety standards in line with international standards for the manufacture and prescription of pharmaceuticals. • Designing a monitoring and reporting system to ensure that prescription rates are appropriately linked to patient records and to patient outcomes. © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 12. 10 Healthcare in China Healthcare reforms in Hong Kong SAR In October 2008, the Chief Executive of Hong Kong SAR announced in his Policy Address that the government will launch a series of new initiatives to enhance healthcare services for the people of Hong Kong. The Policy Address on healthcare reform recognises the need to enhance primary care, promote public-private partnerships, develop an electronic health record system, and strengthen the healthcare safety net.2 Enhance primary care: • Introduce basic primary care service models, focusing on preventive care and a primary care register based on the family-doctor concept • Explore a primary care delivery model – “the community health centre” – to coordinate the efforts of different service units in delivering primary care services, including general out-patient services, outreach community healthcare services, nurse clinic services, allied health services, and specialist services for relatively simple cases • Explore the feasibility of delivering services under the community health centre model through tri-partite collaboration among the public sector, the private sector and non-governmental organisations Promote public-private partnerships: • Encourage and facilitate the development of private hospitals at specific sites and formulate policies to ensure that the premiums for such land are fair to private hospitals and the public • Attract talent from around the world to enhance training, exchanges and enhance the professional competence of healthcare personnel • Implement a series of pilot measures to promote public-private partnerships, including purchasing primary care services and hospital services from the private sector, subsidising the public to receive preventive care provided by the private sector, and establishing medical centres of excellence in paediatrics and neuroscience Healthcare financing arrangements:3 • The first stage public consultation conducted from March to June 2008 aimed at informing the public on the pros and cons of reforming the current financing arrangements through introducing six possible supplementary financing proposals: - Social health insurance - Out-of-pocket payments - Medical savings accounts - Voluntary private health insurance 2 “2008-09 Policy Address”, Hong Kong Special Administrative Region Government 3 “Report on First Stage Policy Consultation on Healthcare Reform”, published by Food and Health Bureau, Hong Kong Special Administrative Region Government, December 2008 © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 13. Healthcare in China 11 - Mandatory private health insurance - Personal healthcare reserve • The following broad principles were derived from this first stage consultation: - To preserve the existing public healthcare safety-net for all, while providing better and wider choices for individuals who are using or able to afford private services - To implement financing reform step-by-step based on the views of the public, and consider proposals by stages, with a view to reaching long-term solutions - To consider standardised and incentivised arrangements to facilitate access to better protection and choices on healthcare, with necessary flexibility to cater for the needs of different age/income segments of the population - To be in line with the concept of “money-follows-patient” under the healthcare reform, while ensuring sufficient protection to users on quality, price transparency and cost-effectiveness - To retain the HKD 50 billion fiscal reserve, pending a decision on supplementary financing, and to consider how the funding could be used to assist the implementation of supplementary financing • The Food and Health Bureau plans to launch the second stage public consultation in the second half of 2009 to encourage further discussion In February 2009, the Financial Secretary of Hong Kong SAR delivered a speech on the Hong Kong SAR Budget 2009/2010, which touched on the topic of medical and health:4 • The government has implemented a number of pilot projects based on the concept of “money-follows-patient”, including the Influenza Vaccination Subsidy Scheme and the Elderly Health Care Voucher Pilot Scheme • The government has pledged to increase health expenditure to 17 percent of recurrent expenditure by 2012. Actual health expenditure for 2006/2007 represented 14.7%4 of the total recurrent public expenditure. Expenditure of the Department of Health and Hospital Authority for 2006/07 was HKD 32.9 billion5 • The government will increase the recurrent subvention for the Hospital Authority over the next three financial years by about HKD 870 million a year.4 Recurrent subvention indicated by the government for 2008/09 is HKD 29.8 billion6 • The government has earmarked HKD 840 million4 over the next three financial years to implement various complementary measures to strengthen primary care services and support patients suffering from chronic diseases, promote public-to-private partnership, and develop a territory-wide electronic health record system 4 “The Budget 2009-2010”, Hong Kong Special Administrative Region Government 5 “Hong Kong Annual Digest of Statistics 2008”, published by Census and Statistics Department, Hong Kong Special Administrative Region Government 6 “Hospital Authority Annual Plan 2008-2009”, published by Hospital Authority, Hong Kong Special Administrative Region Government © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 14. 12 Healthcare in China Implications of the reforms – Hong Kong SAR Focus on primary care The expansion and better utilisation of primary care services provides the foundation for improving the health of the population. The concept of multidisciplinary teams and the development of stronger links between public, private and non-government sectors will help to reduce the number of unnecessary hospitalisations. A solid primary care model of service delivery will assist practitioners in the ongoing management of patients with chronic diseases. This, in conjunction with targeted prevention programmes, will help improve the health of the community. Keys to success: • Collaboration between sectors is essential to the success of an improved primary care model. Promotion of the strengths of each of the public, private and non-government organisations and development of a model for collaboration will be the foundation. • Decisions regarding prevention activities should be strategic and utilise the strengths and experience of each of the sectors to progress the longer term goals of attaining better health outcomes for the population of Hong Kong SAR. Enhancing public-private partnerships The Chief Executive of Hong Kong SAR has stated that promoting public-private partnerships (PPP) in the healthcare sector is one of the priorities for the Hong Kong region. With this in mind, two pilot programmes were launched in 2008: i) the launch of an electronic healthcare record system (“e-healthcare”) to facilitate better information sharing between public and private medical service providers, and ii) the development of the proposed North Lantau Hospital, where the Hong Kong SAR Hospital Authority is exploring ways in which private hospital operators may be able to provide and/or share services at the same site. © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 15. Healthcare in China 13 Implementation of an e-healthcare system Considerations Challenges Impact on how healthcare services are delivered • Obtaining buy-in from health professionals • Training and education for potential users of the new system (including doctors, nurses, hospital administrators pharmacists, and insurance companies) Data privacy and security • Defining who manages, updates and maintains these records • Designing a legal process and governance framework to recognise (and limit) the right to access and use these records Degree of record sharing between healthcare • Agreeing a voluntary vs. mandatory framework service providers • Assessing the need and benefits associated with greater adoption • Designing an implementation plan that balances speed against robust consultation and testing Development of a healthcare PPP Considerations Challenges Transition management between project phases • Managing potential operational disruption as Phase 2 and private and public stakeholders commences on a site adjacent to existing facilities • Training, communications and change management activities to support employees potentially impacted by a shared services facility or transfer arrangement Provision of IT services over the life of the project • Being able to respond to the pace of change in the industry and technology over a longer time horizon that may complicate issues such as: - IT security - System continuity of critical IT applications - Technical obsolescence Integration of public and private hospitals and • Managing issues regarding patient flow and referral patterns healthcare service delivery • Agreeing arrangements to share access to high cost, high tech equipment and services • Agreeing the parameters for any potential Centre of Excellence to be established for a specific service © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 16. 14 Healthcare in China Keys to success: • Evaluating the effectiveness of these pilot programs will help to determine the success of public-private medical sector partnerships which are relatively new to the region. The evaluation process will be a necessary step before wider roll-outs are considered and implemented. • Safeguarding the privacy of personal data for the planned e-healthcare system is crucial to obtaining public support for this project. This does discount the essential aspects involved in the design of the supporting technology. Medical funding reforms As the elderly population increases, the government has anticipated that the demand for healthcare services (and associated funding) will increase substantially in the 21st century. The ratio of the working population (aged between 15 to 64) to the elderly population (aged 65 or above) was 6:1 in March 2008, and is expected to become 5:1 in 10 years’ time and 3:1 in 20 years’ time. Overall, public health expenditure is projected to increase from approximately HKD 38 billion in 2004 to approximately HKD 78 billion in 2015 and approximately HKD 127 billion in 2025.9 Much of this increase can be attributed to the challenges presented by an ageing population. To plan for this challenge, the Hong Kong SAR government has proposed reforms to the way in which healthcare funding is arranged and moving towards a mechanism that recognises and rewards performance in an attempt to enhance patient care through improved efficiency and service. The medical funding arrangement reforms represent a significant culture change for stakeholders in the healthcare community and institutions (including doctors, patients and hospital administrators). Key to success: • Structured change management will be required to assist medical practitioners and hospital administrators to improve their awareness of efficiency and cost-effectiveness considerations while they deliver quality health services. 9 “Factsheet on Healthcare Reform”, published by Food and Health Bureau, Hong Kong Special Administrative Region Government, March 2008 © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 17. Healthcare in China 15 Conclusion In China, rolling out a rural cooperative medical system, establishing an urban healthcare service based on community facilities and enhancing the regulations for the pharmaceutical sector are some of the main areas of healthcare reform in which investors need to identify opportunities and prepare to adapt to the challenges that may arise. Investors and stakeholders should also pay attention to the implications of the healthcare reforms in Hong Kong SAR, including the enhancement of primary care services and the development of new healthcare financing arrangements, including PPPs. The healthcare reforms in China and Hong Kong SAR will offer many opportunities for investors in the markets’ development and consolidation phases over the next decade. For example, there may be opportunities for the Central government and regulators to partner with supportive market players in the medical and healthcare sectors at the provincial level to overcome the challenges ahead and capitalise on the keys to success identified in order to transform the healthcare system in China by 2020. © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 18. 16 Healthcare in China About KPMG KPMG is a global network of professional firms providing audit, tax and advisory services, with an industry focus. With more than 123,000 people worldwide, the aim of KPMG member firms is to turn knowledge into value for the benefit of clients, people, and the capital markets. KPMG China Audit technical, business and market skills with an appetite for delivering answers KPMG China has more than 8,000 Clients look to KPMG member firms that work to the individual client. to provide independent and objective We are able to assist with corporate professionals working in 12 offices. assurance on the reliability of financial transactions and restructuring, help These offices are located in Beijing, information for statutory, management, develop corporate governance, risk Shenyang, Qingdao, Shanghai, and external capital raising purposes. and compliance programmes, and Nanjing, Chengdu, Hangzhou, Fuzhou, deliver performance and techology­ We have extensive experience and Guangzhou, Shenzhen, Hong Kong and related strategies, in order to achieve a knowledge in initial public offerings and Macau. competitive advantage. capital raising exercises in local and international markets including listed Our experience and unlisted funds. Our US Capital Global Healthcare Group Markets Group, located in China, helps For over 60 years in this region, KPMG facilitate SEC filing reviews in the US In recognition of the fast growth has built a reputation for providing Capital markets. occurring in the healthcare industry, quality services to a wide range of KPMG has formed the Global clients in both the private and public Tax Healthcare Group, enabling us to sectors. Our single management share industry knowledge and training structure allows efficent and rapid KPMG’s tax professionals analyse amongst member firms. This allows allocation of resources wherever our organisations and proactively us to assist clients in pursuing clients are located in China. identify tax-related opportunities opportunities and implementing and challenges. Services include tax changes necessitated by industry restructuring, tax compliance and Understanding your planning, tax due diligence, indirect developments. The Global Healthcare business taxes, transfer pricing, international Group also comprises of a large executive services, regulatory, and number of healthcare sector specialists KPMG member firms are committed foreign exchange services. with extensive knowledge in serving to providing quality services to our clients in the healthcare sector across clients. To help meet our clients’ the world. Advisory needs, KPMG China has drawn on all of our key service areas and has KPMG’s Advisory services tackle the formed the Healthcare practice. This challenges of growth, performance and multi-disciplinary group with industry governance that face all companies knowledge, focus and experience, around the world. Known for tackling provides audit, tax, due diligence difficult challenges – no matter where and other quality business advisory in the world they arise – KPMG services to our clients in this sector. professionals are able to combine © 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
  • 19. Contact us Andrew Weir Simon Ho Partner in charge Partner Infrastructure, Government & Infrastructure, Government & Healthcare Healthcare China Beijing Tel: +852 2826 7243 Tel: +86 (10) 8508 7021 andrew.weir@kpmg.com.hk simon.ho@kpmg.com.cn Benny Liu Peter Wong Partner in charge Partner Infrastructure, Government & Infrastructure, Government & Healthcare Healthcare Guangzhou Hong Kong SAR Tel: +86 (20) 3813 8118 Tel: +852 2826 7152 benny.liu@kpmg.com.hk peter.wong@kpmg.com.hk Stephen Ip Colin Waugh Partner Director Infrastructure, Government & Infrastructure, Government & Healthcare Healthcare Shanghai Hong Kong SAR Tel: +86 (21) 2212 3550 Tel: +852 2978 8263 stephen.ip@kpmg.com.cn colin.waugh@kpmg.com.hk The information contained herein is of a general nature and is not intended to address the © 2009 KPMG, a Hong Kong partnership circumstances of any particular individual or entity. Although we endeavour to provide accurate and a member firm of the KPMG network and timely information, there can be no guarantee that such information is accurate as of the date of independent member firms affiliated with it is received or that it will continue to be accurate in the future. No one should act upon such KPMG International, a Swiss cooperative. All information without appropriate professional advice after a thorough examination of the particular rights reserved. Printed in Hong Kong. situation. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Publication date: July 2009
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