Mr. McGuire: I want to say one word to you. Just one word.

Benjamin: Yes, sir.

Mr. McGuire: Are you listening?

Benjamin: Yes, I am.

Mr. McGuire: Plastics.

From the movie, The Graduate.

"Where have you gone, Joe DiMaggio?
Our nation turns its lonely eyes to you.
What's that you say, Mrs. Robinson?
Joltin' Joe has left and gone away."

From the song, Mrs. Robinson, by Simon & Garfunkel

Earlier this year, in a post entitled, China Has Health Care Too I talked about health care as one of the great opportunities for foreign businesses in China:

A few months ago I was on a China panel at Northwestern's Kellogg Business School where, among other things, we were asked to list China's best opportunities. I stressed that because I am not a China business expert, I would have to answer the question based entirely on what I was seeing of my firm's clients and, based on that, I listed health care, technology, and food.

If I had to pick just one of the three, I would pick health care and technology (I know I said one, but hey, it's MY blog). I would pick these two now because even within just the last few months, China's government has made clear, both in its policy statements and in its spending, that it is going to be increasingly emphasizing these two during the next few years.

Health care as an opportunity in China is huge. Plastics huge. Bigger even than plastics huge. The other day, I was talking with a client with a not so small medical company (I am being intentionally vague here) that he is actually thinking of shutting down here in the U.S. "because the opportunities and profits in China are just so much greater."

So with China healthcare being such a big thing, I was absolutely thrilled when Micah Schwalb agreed to do a guest post on it. Micah is just recently back in the U.S. after completing his LL.M in Chinese law from Peking University to go with his US based JD degree. Micah has his own blog called boulder2beijing.

So without further ado, I give you Micah's post on China healthcare:

Healthcare produced a lot of news items, lobbying dollars, and shouting this year. As of this writing, Google News is tracking 17,027 articles just about Obama's speech on reform efforts. But while the debate rages on in the U.S., China announced a healthcare plan back in April that, in theory, will provide "universal access to basic public health services." Signaling its importance, the plan has the imprimatur of both the Central Committee of the Communist Party of China and of the State Council, China's highest executive body.

The current state of affairs informs the plan. In China, the majority of in-patient facilities are state-owned and state-run, while many outpatient facilities like village clinics are privately owned. But many "doctors" and healthcare workers in rural clinics did not attend college, let alone medical school. (See page 5 of this PDF for further details) The rural poor receive about one fourth the healthcare subsidies urban residents enjoy. In terms of individual healthcare expenditures, 52% are out of pocket, 8% are private, and 40% are public. Much like American trauma centers, healthcare institutions in China receive grades, but public insurance plans will not pay for services in certain grades of hospitals, and the trust placed in "grade three" hospitals leads to severe overutilization of those top-notch facilities. (Check out this paper by IBM for more details)

China's effort (sub. req'd) seeks to alter domestic by covering familiar ground: standaridized digital records and universal coverage; improved primary and preventative care through expanded community clinics and increased numbers of primary care physicians; reduced drug costs achieved through price controls and centralized purchasing; and reformed payment mechanisms for hospitals and doctors. Central planners will determine "appropriate" levels of funding, staffing, and equipment for state-owned facilities. "Doctors" and "nurses" working in community clinics will receive additional training. The Chinese government will make large investments in state-run, lower-graded institutions while privatizing more state-owned hospitals. To finance it all, the PRC will use a "multi-channel fundraising mechanism with clear responsibilities and reasonable sharing among the state, entities, families and individuals to achieve social mutual assistance." After years of economic reform, government will assume a stronger role in the Chinese healthcare system.

"Payer" details also bear mentioning here. The government will subsidize the cost of basic drugs on an "approved list" that will integrate with a national formulary. Small modifications to the existing public insurance system will yield four types of public insurance: one plan for employed urban residents, another plan for unemployed urban residents and migrant rural workers in urban areas, a pooling option for rural residents called "new-type cooperative medical care" that's been around since 2003, and a fourth plan described as the "urban-rural medical assistance system."

As in the current system, China's "new" plan still distinguishes between "basic" and "special" medical services, stating that: The cost of basic medical services shall be reasonably shared by the government, society and individuals. The cost of medical services for special needs shall be paid by individuals directly or paid by commercial health insurance.

So the government will subsidize Tamiflu for someone with the sniffles, but advanced Parkinsonian tremor will result in a bill for the deep-brain stimulator.

But China's plan is no cure-all. The tobacco monopoly is not mentioned. Subsidies for rural people will only amount to about $20 per capita per year. The following statement taken from the annual report of a NASDAQ-traded manager of private Chinese hospitals explains the regulatory risks:

[F]uture legislative reforms may be highly diverse, including stringent infection control policies, improved rural healthcare facilities, introduction of health insurance policies, regulation of reimbursement rates for healthcare services, increased regulation of the distribution of pharmaceuticals and numerous other policy matters.

So there is a light at the end of the tunnel, but it may be a bear with a flashlight.

On the other hand, changes to Chinese healthcare present opportunities for foreign businesses. China's growing middle class will continue to pay a premium (pun intended) for private insurance and private care, as well as foreign medical brands. Foreign investors will pick up some bargains when local governments sell off more public hospitals.Hospital IT will be huge and centralized purchasing of drugs and devices will be a volume-driven boon for suppliers on the approved lists. Less obvious, perhaps, are the opportunities in micro-pharmacies and micro-clinics, cooperative hospitals, emergency medical services, distance education, telemedicine, home monitoring equipment, and hospital management.

More broadly, improved healthcare should increase total productivity and economic growth, while allowing Chinese consumers to save less and spend more on consumer goods. Better primary care should also reduce the risks associated with the transmission of infectious diseases like SARS and H1N1. And, finally, kids with better healthcare tend to spend more time in school, which leads to a better-educated population. So, if the Central Committee and the Standing Committee get it right, China's plan should be a very good thing for everyone.