Medical reform in China has been lagging, and private hospitals hardly play a role, because patients to not trust them, and medical staff does not want to leave state-funded career. Beida business professor Jeffrey Towson explains on his weblog what could be a road to reform, with the help of investment bankers.
I argue the shortest path to this situation is to merge 200 existing small public hospitals under a large and well-run commercial SOE. Hence my argument for investment bankers.
We let the M&A bankers start rolling up smaller public hospitals into 5-10 big SOE hospital chains. Pull 100-200 small state-owned (and not particularly well-run) hospitals together under one well-managed commercially-focused SOE (there are several). And then let that group knit the hospital mix together into a functioning and modern chain.
One SOE that comes to mind for this type of SOE consolidation strategy is China Resources. They have done exactly this in other sectors (beer, retail). This approach would also create a clear role for private money in public hospitals: to finance the deals, provide incentives and upgrade facilities. Nobody is going to invest private money in today’s small, stand-alone SOE hospitals. But a larger the SOE M&A roll-up could attract private capital.
And my biggest argument for this approach is it doesn’t require fighting or replacing the entire existing system. Private hospitals and insurance can then develop slowly in parallel.
Jeffrey Towson is the co-author of The One Hour China Book (2017 Edition): Two Peking University Professors Explain All of China Business in Six Short Stories
Are you interested in more stories by Jeffrey Towson? Do check out this list.