I OVERVIEW

China's healthcare system is mainly composed of the healthcare services sector, the healthcare insurance sector, and the drugs and medical equipment sector, which are supervised by three separate government departments. Specifically, the PRC National Health Commission (NHC)2 is responsible for supervising the medical institutions and medical services industry, the Ministry of Human Resources and Social Security is responsible for formulating the basic healthcare insurance system and policy and for managing healthcare insurance funds, and the State Drug Administration (SDA)3 is responsible for drug and medical equipment registration and supervision.

II THE HEALTHCARE ECONOMY

i General

Healthcare services can be divided into basic healthcare services and special healthcare services, depending on coverage scope and extent of the specific services.

Basic healthcare services

Basic healthcare services are composed of public healthcare services and basic medical services. The scope of basic public healthcare services in China has been revised and expanded since the launch of China's healthcare reform in 2009. The National Basic Public Healthcare Service Standards (Third Edition), promulgated in 2017, stipulate that basic public healthcare services consist of 13 types of services, including residents' health file management, vaccinations, health administration for special groups (children aged under six, pregnant women, the elderly, and patients with hypertension, type 2 diabetes, severe mental disorders and tuberculosis), infectious diseases and public healthcare emergency reporting and treatment, and so on.

Special healthcare services

In addition to basic healthcare services, the Chinese healthcare system also includes special healthcare services, which refer to medical services provided by medical institutions to satisfy special medical needs, such as specified surgical operations, full nursing care, special wards, specialist outpatient services and medical cosmetic surgery.

ii The role of health insurance

China's basic healthcare insurance system currently includes a basic urban employee healthcare insurance system, a healthcare system for urban residents and a new rural cooperative healthcare insurance system. Among these, the basic urban employee healthcare system is compulsory, and requires all urban employers and employees to contribute to the system. Urban residents who are not covered by the basic urban employee healthcare insurance system, including students, children and other non-employed urban residents, may voluntarily choose to purchase the urban resident healthcare insurance. A new rural cooperative healthcare insurance system, the rural medical mutual aid system, has been designated for rural residents and is mainly funded by government financial appropriations and supplemented by individual and collective contributions. Rural residents may choose to participate in the system at their discretion.4

According to the Opinions on the Integration of the Basic Healthcare Insurance System for Urban and Rural Residents promulgated by the State Council in 2016, the above three basic healthcare insurance systems will be integrated into a unified basic healthcare insurance system applicable to both urban and rural residents. At present, the healthcare insurance system for urban residents and the new rural cooperative medical insurance system have been successfully integrated.

iii Funding and payment for specific services

In addition to basic healthcare services, medical institutions also provide special healthcare services to satisfy non-basic medical needs. Special healthcare services may be provided by both public and non-public medical institutions. However, the amount of special medical services provided by public medical institutions is limited, and cannot exceed 10 per cent of all healthcare services that the institutions provide.

According to the relevant provisions of the current basic healthcare insurance system in China, the cost of special healthcare services will not be covered by the national healthcare insurance system. Such costs are to be directly undertaken by the individual incurring the costs or reimbursed by commercial health insurance.5

III PRIMARY / FAMILY MEDICINE, HOSPITALS AND SOCIAL CARE

i China's healthcare services system

China's healthcare service system is developed under a dual structure for urban and rural areas. The rural healthcare system is composed of three grades of medical institutions, which are county hospitals, township hospitals and village clinics. The urban healthcare system is also made up of three levels of medical institutions, which are the regional central hospitals, community healthcare service centres, and clinics and infirmaries. Densely populated cities also have tertiary hospitals with advanced technology and equipment. The entire healthcare service system is known as the 'dual and three grades' system.

ii Graded treatment system

In China, patients can freely choose the hospitals from which to receive medical treatment. However, for a long time, public hospitals have often been overcrowded because they possess better medical resources.6 By contrast, community hospitals are less frequently visited, although they provide more accessible and convenient healthcare to residents. In response to this issue, the General Office of State Council, in September 2015, promulgated the Guidance on Promoting Graded Medical Treatment System Construction to alleviate overcrowding and promote the rational allocation of medical resources. The guidance describes a graded medical treatment system framework and stipulates that, by 2020, China will improve the graded medical treatment system through graded treatment methods for primary initial diagnoses, two-way referrals, divisions for acute and chronic diseases, and communication between institutions.

Meanwhile, China is actively establishing and improving the healthcare services system for the elderly: community healthcare service centres provide continuous health management and medical care; general medical institutions provide convenience for the elderly to make appointments and consultations with doctors; in addition, elderly care institutions meeting certain conditions may establish geriatric disease hospitals, rehabilitation centres and nursing homes that, if qualified, may be designated as being within the scope of basic healthcare insurance for urban and rural residents.7

iii Application of electronic medical records

Electronic medical records are an important means to promote healthcare services informatisation and will help to improve the quality and efficiency of medical services. In 2010, the Ministry of Health, a predecessor to the PRC National Health and Family Planning Commission (NHFPC), initiated work on its hospital informatisation construction pilot scheme, focusing on the promotion of electronic medical records.8 Since then, the use of electronic medical records has been gradually phased in across the country. In 2017, the NHFPC promulgated the Regulations on the Management of Electronic Medical Records Applications (for Trial Implementation), which stipulate a series of requirements for the content, writing and saving, use and storage of electronic medical records. The Regulations, together with a series of supporting national and industry standards for electronic medical record systems, data management and medical terminology, constitute the management framework for electronic medical records in China.

iv Personal information protection

The Provisions on Administration of Medical Records in Medical Institutions stipulate that medical institutions and their medical staff should keep strictly confidential the personal information contained in patients' medical records and should not disclose personal information for non-medical, teaching or research purposes.

Recently, the government has promulgated a series of laws and regulations and judicial interpretations, with the purpose of more effectively protecting citizens' personal information. The General Provisions of the Civil Law, implemented on 1 October 2017, for the first time defines the right of citizens to their personal information as an independent civil right. The Cybersecurity Law and the Interpretations on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Infringement of Citizens' Personal Information, which came into force on 1 June 2017, provide more solid protections for personal information by defining the constitutive elements for several criminal acts involving the infringement of personal information and significantly reducing the threshold for imposing criminal penalties on personal information infringement. Additionally, the Measures for Administration of Population Health Information (for Trial Implementation) has also set basic requirements for the administration of population health information, such as categorised management, local storage systems and tracking. The Measures for Administration of National Health and Medical Big Data Standards, Security and Services (for Trial Implementation) require local storage of health and medical big data. Furthermore, a voluntary national standard, the Information Security Technology – Guide for Health Information Security, which is being drafted, will provide detailed guidance on the use and protection of personal health information after the standard becomes effective.

IV THE LICENSING OF HEALTHCARE PROVIDERS AND PROFESSIONALS

i Regulators

The NHFPC is the department primarily responsible for approving the establishment of medical institutions in China, and for practice approval and administrative oversight. Specifically, the NHFPC is responsible for:

  1. developing medical institutions, medical technology applications, medical quality, medical safety and medical service policy and organisational standards;
  2. developing medical personnel practice and service standards;
  3. formulating medical institution and healthcare industry administrative measures and exercising supervision;
  4. participating in drug and medical equipment clinical trial administration; and
  5. leading the oversight of nationwide medical institution assessments, and for developing public hospital operating oversight, performance evaluations and assessments.

ii Institutional healthcare providers

Establishment of medical institutions

Medical service providers that intend to set up medical institutions and practise medicine in China must comply with the Medical Institutions Establishment Plan, and fully consider the location and coverage radius of the medical institutions, the distribution of medical resources and medical service needs.

The approval process before a medical institution may commence operations can be divided into two steps: establishment approval and approval to practise medicine. When preparing to establish a medical institution, the medical institution operator should submit a detailed report to the NHFPC to describe the establishment preparation plans, including site selection, diagnosis and treatment projects, institution size (number of ward beds), funding sources and planning, personnel status, management system and so on. Construction of medical institutions may commence after obtaining the approval of the NHFPC and acquiring the approval for establishment of medical institutions. After completing the necessary preparatory work before the medical institutions commence business, such as site construction, equipment purchase, personnel hiring and system construction, the medical institutions should apply to the NHFPC to practise medicine and apply for the issuance of the Permit for Medical Institutions to Practise Medicine.

Penalties for medical institution violations

When practising medicine, medical institutions must strictly comply with the approved business scope and approved medical treatment projects, the relevant laws and regulations and technical medical standards. Medical institutions that practise business without a permit for medical institutions to practise medicine, or whose medical treatment activities exceed the scope specified therein, may be imposed with fines, have illegal income, drugs and equipment confiscated, and have their practice permits revoked.

New regulations for doctors establishing personal clinics

In February 2017, the NHFPC revised the Rules for Implementation of the Regulations on Administration of Medical Institutions, to delete the stipulation that 'personnel in services with medical institutions, retired due to illness or suspended from duty without pay shall not apply to establish medical institutions'. In May 2019, NHC, together with four other authorities, jointly issued the Circular on Printing and Issuing the Opinions on the Pilot Programme for the Promotion and Development of Clinics, which encourages doctors who have practised for over five years with intermediate qualifications or higher to establish specialist clinics on a full- or part-time basis. This is regarded as a major signal of reforms in China that will permit doctors to freely practise medicine and establish private clinics.

iii Healthcare professionals

In China, physicians, nurses and pharmacists must practise medicine in accordance with the Law on Licensed Doctors, the Regulations on Nurses and the Regulations on Administration of Medical Institutions and other relevant administrative requirements.

Medical practice by medical practitioners

Medical practitioners are subject to a registration system. Candidates who possess the requisite degree, have work experience as an assistant physician or have practised medicine after engaging in clinical practice for a certain period under the guidance of a practising physician may sit for the medical practitioner licensing examination. Upon passing the examination, candidates may obtain a medical practitioner's licence and may register to practise medicine with the healthcare administrative department.

The registration of medical practitioners will remain valid indefinitely. However, registered medical practitioners are subject to an assessment of their professional abilities, work performance and professional ethics by an agency under the purview of the NHFPC on a regular basis. Those practitioners who failed the assessment will be ordered to suspend their practice for three to six months to receive training and continuing medical education.

Anyone who practises medicine without completing registration will be ordered to cease practising, subject to the confiscation of illegal income and medical equipment and imposed with a fine at least 100,000 yuan by the healthcare department. If serious consequences result from unauthorised practice, such as causing injury to visiting patients, spreading or potentially spreading diseases, the violator will be regarded subject to criminal liability in accordance with the Article 236 of the Criminal Law, which stipulates liabilities for the illegal practice of medicine.

Foreigners wishing to practise medicine in China (e.g., foreign-registered physicians) need to first obtain an invitation or employment from a domestic Chinese hospital before applying for a Temporary Licence for Foreign Physicians to Practise Medicine in the People's Republic of China, which allows foreign physicians to perform clinical diagnosis and patient treatment in China for no more than one year. Foreigners who intend to become long-term physicians in China must pass the national medical practitioners licensing examination and obtain a practice certificate before registering as medical practitioners.

Practice by nurses

Candidates intending to practise nursing also need to pass a qualification examination and complete registration to commence practice. Prior to practice registration, candidates need to complete the prescribed professional nursing courses and engage in clinical nursing practice for a certain period. Registered nurses should practise nursing at their registered practice location. Nursing practice registrations are valid for five years. Upon expiry of the term, registered nurses may apply to the health administrative department to renew their registrations.

Multi-site practice

The previous Interim Measures for Registration of Medical Practitioners stipulated that physicians were only permitted to practise medicine at the medical institution registered as their place of practice, which effectively meant that physicians could only practise medicine at one medical institution. Since the promulgation by the NHFPC9 of the new Measures for Administration of Registration of Medical Practitioners, doctors may practise medicine at multiple medical institutions in multiple locations.

V NEGLIGENCE LIABILITY

Medical institutions and physicians that harm patients during the provision of medical services are held liable in accordance with the relevant provisions of Chapter 7 of the Tort Liability Law, 'Medical Damage Liabilities'. Liability is determined based upon the fault liability principle and, to some extent, in accordance with the presumption of fault principle.10 In addition, the Regulations on Handling Medical Accidents also specify rules related to the prevention, handling, technical evaluation and administration of medical malpractice cases. When physical injury occurs, if the relevant liability is not provided for in the Tort Liability Law or the Regulations on Handling Medical Accidents, the relevant provisions may apply from the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in Hearing Personal Injury Compensation Cases.

i Overview

When hearing a medical dispute, the courts often assess whether the medical institutions should be subject to liability based on three aspects. First, whether the medical institution is at fault and the role the medical institution played in contributing to the malpractice. Second, the cause and effect between the fault of the medical institution and damage suffered by the patient. Third, the scope of loss suffered by the patient. In general, a medical malpractice determination is regarded as a neutral and credible basis to determine the allocation of fault between medical institutions and patients. Unless the procedure for making the medical malpractice determination was not lawful, courts tend to depend upon the determination to allocate fault attributable to the medical institution and to decide the liabilities to be undertaken by the medical institution.

ii Notable cases

The dispute over medical damages between Shen Bo, Meng Xiaoxia and the Second Affiliated Hospital of Zhengzhou University in 201411 is of notable significance with respect to application of the presumptive fault principle in determining the liability of medical institutions. In this case, the plaintiff argued that the defendant hospital should bear full responsibility for the death of the patient because the hospital had committed serious malpractice in treating the patient and had tampered with medical records for the purpose of avoiding responsibility. However, the defendant argued that the hospital revised the medical records solely for the purpose of improving the content of the records and that there was no substantial difference between the original records and the modified records. The defendant's argument was not adopted by the court for lack of reasonableness. In fact, both the first instance and the second instance courts found that the hospital was presumed to be at fault and subject to primary liability for the malpractice claim, as it had tampered with and concealed medical records and failed to give a reasonable explanation for that conduct.

VI OWNERSHIP OF HEALTHCARE BUSINESSES

China's medical and healthcare system is established on the basis of the basic healthcare insurance system, whereby public medical institutions are obliged to provide the substantial part of basic healthcare services. Public medical institutions include government-funded medical institutions and medical institutions run by state-owned enterprises. For historical reasons, public medical institutions have easier access to high-quality medical resources, including scientific research and teaching, clinical trials, advanced equipment and professionals.

In recent years, the government has encouraged social capital to invest in the establishment of medical institutions and to participate in the provision of medical services. However, while the number of private medical institutions has exceeded public medical institutions,12 the public health institutions still occupy an unshakably dominant position in the medical services market because of the high-quality medical resources that they possess.13

Medical institutions can be categorised into non-profit medical institutions and for-profit medical institutions according to their operating objectives. Non-profit medical institutions primarily serve the social public interest and generate revenues to cover the cost of healthcare services, with any amounts remaining only being used for the purpose of improving the institution, such as improving medical treatment conditions, importing technologies, and developing new healthcare service programmes. Conversely, for-profit medical institutions return economic profits to investors. Public medical institutions and socially funded medical institutions are generally non-profit medical institutions, while private medical institutions can voluntarily choose to be non-profit or for-profit. The Chinese government manages non-profit and for-profit medical institutions according to their categorisation and is inclined to support non-profit medical institutions through taxation, pricing and other policies.14

Foreign-invested medical institutions wishing to enter the Chinese market should refer to the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2018), which restricts foreign investment in medical institutions to the form of a Sino-foreign equity or contractual joint venture. The Interim Measures for Administration of Sino-Foreign Joint Venture and Contractual Joint Venture Medical Institutions further stipulate the total amount of investment, the minimum proportion of Chinese capital or equity and the term of operations of Sino-foreign joint venture and contractual joint venture medical institutions. In addition, the local Medical Institution Organisation Plan should also be complied with when establishing foreign-invested medical institutions. Foreign capital or equity is not allowed to exceed 70 per cent in foreign-invested medical institutions.

VII COMMISSIONING AND PROCUREMENT

As mentioned above, China's healthcare services are divided into basic healthcare services and special healthcare services. Basic healthcare services include public healthcare services and basic medical services. Public healthcare services are regarded as a form of public goods, which are mainly funded by government outlays and provided to urban and rural residents on an equal basis. Medical services for treating non-basic diseases, or those regarded as discretionary diagnosis and treatment measures are considered special healthcare services.

China is committed to optimising the price of medical services and drugs. Since the latter half of 2018, China has begun to carry out a pilot 'centralised procurement policy' for certain drugs in 11 cities, which centralised the procurement of drugs by public medical institutions across regions. Procurement will be made in large quantities and thus reduce transaction costs, encourage pharmaceutical companies to reduce drug prices, and relieve the burden on patients.15 After assessing the effect of enforcement of the pilot policy, China is contemplating expanding the coverage of this centralised procurement policy step by step and ultimately converting it to a stable, long-term policy.

VIII MARKETING AND PROMOTION OF SERVICES

In China, the publication of medical, pharmaceutical, medical equipment and health food advertising is subject to content reviews by the advertising authorities prior to publication.16 Advertising review organs include SDA, NHC and State Administration for Market Regulation.

In accordance with the provisions in the Advertising Law, drug and medical device advertising cannot include:

  1. assertions or guarantees as to efficacy and safety;
  2. efficacy rates or cure rates;
  3. comparisons of the safety or effectiveness of drugs or medical devices with those of other medical institutions;
  4. the use of advertising spokespersons to endorse or provide testimonials; and
  5. medical advertising disguised as health and well-being advice.

According to the Law Against Unfair Competition, discounts or transfers of profits between transaction parties in selling drugs and medical equipment do not undermine the interests of third parties or customers and thus are considered market behaviour rather than bribery under the law.17 When a transaction party intends to give a discount to the other party or pay a commission to middlemen, the party should express its intentions clearly and enter the items truthfully in its accounting records.

IX FUTURE OUTLOOK AND NEW OPPORTUNITIES

'Internet plus' and medical big data are currently two popular concepts in the medical services market in China. Many start-ups and investment institutions are especially focused on emerging businesses in these areas, including telemedicine, internet hospitals, mobile medicine, smart medicine and other medical service sub-sectors.

These emerging forms of healthcare have played a significant role in promoting the diversification of medical services as advocated by the state. Government regulators are gradually opening and expanding the application of internet and big data technology in medical services. On 12 April 2018, the State Council promulgated Opinions on Promoting the Development of 'Internet plus Healthcare', promoting a comprehensive Internet plus Healthcare service system, encouraging medical institutions to apply internet and other information technology in developing the scope and content of healthcare services, allowing medical institutions to develop 'internet hospitals' that provide online diagnosis of common disease and follow-up consultations for chronic diseases, supporting medical institutions to cooperate with third-party organisations to establish internet information platforms for long-distance healthcare consultations, health management and other services, and increasing the exchange of medical resources and information.

In September 2018, NHC and the State Administration of Traditional Chinese Medicine jointly promulgated three documents concerning Internet plus Healthcare, namely Measures for Administration of Online Medical Diagnosis (for Trial Implementation), Measures for Administration of Online Hospitals (for Trial Implementation), and Good Practices for Telemedicine Services (for Trial Implementation), which means the industry-focused 'Internet Medical Policy' has finally been implemented. However, as a new medical service model, these new Measures take a relatively conservative attitude to internet medical services from the following perspectives:

  1. internet hospitals and internet-based diagnosis services must rely on bricks-and-mortar medical institutions, and be subject to advance market access administration and governmental approval;
  2. a unified provincial-level supervision platform has to be established before implementing market access management of internet hospitals to ensure a baseline for medical quality and safety for the new internet medical services (also, all medical institutions that carry out internet-based diagnosis activities are required to keep traceable records during the whole process and provide administrative authorities with access to data);
  3. internet-based diagnosis services are restricted to subsequent consultations for certain common diseases, chronic diseases and Internet-plus family doctor signing services. No internet-based diagnosis services may be provided to patients seeking initial medical consultations; and
  4. telemedicine services may only be carried out between bricks-and-mortar medical institutions.

Furthermore, with respect to the fast-developing field of gene detection and diagnosis, the most recent Guidance Catalogue of Foreign Investment Industries provides that the 'development and application of human stem cells, gene diagnosis and treatment technology' still falls within the catalogue of prohibited industries for foreign investment, and therefore foreign capital continues to be blocked from gene detection and diagnosis projects in China.

X CONCLUSIONS

In 2009, the government of China launched a new round of healthcare reforms. At present, this round of reforms is ongoing and continues to face significant difficulties. Integrating urban and rural resident insurance systems, improving the graded healthcare system, implementing electronic medical records, allowing doctors to practise medicine more freely, piloting centralised procurement policy, and achieving the optimal allocation of medical resources are all difficulties being faced during the current reform effort. The reforms also present an unprecedented opportunity for social capital to participate in the medical and health industry that cannot be overlooked.


Footnotes

1 Min Zhu is a partner at Han Kun Law Offices. The firm also wishes to acknowledge the contributions to this publication by Serina Wei, an associate at the firm.

2 The duties of the former PRC National Health and Family Planning Commission were merged into the newly established PRC National Health Commission following the implementation of the Programme for the Reform of State Council Organs on 18 March 2018.

3 The SDA was newly established under the supervision of the State Administration for Market Regulation following the implementation of the Programme for the Reform of State Council Organs.

4 China Health Industry Bluebook (2017), pages 13 and 14 (China Medical Indus Info Ctr, 2017) (Bluebook 2017).

5 Opinions of the CPC Central Committee and the State Council on Deepening Reform of the Medical and Healthcare Systems, Article 10 (CPC Central Comm, St Council, promulgated 17 March 2009).

6 Bluebook 2017 at page 16.

7 See Circular of the General Office of the State Council on Transmitting and Issuing the Guiding Opinions of the Health and Family Planning Commission and Other Departments on Promoting Integration of Medical and Elderly Care Services (No. 84, 2015).

8 Circular of the Ministry of Health on Launching Electronic Medical Records Pilot Reform and Working Plan for Electronic Medical Records Pilot Reform (Ministry of Health, promulgated 28 September 2010).

9 See footnote 2.

10 Tort Liability Law of the People's Republic of China (Standing Comm, Nat'l People's Cong, promulgated 26 December 2009, effective 1 July 2010). Article 54 provides that medical institutions bear compensatory liability in cases where both the medical institution and medical practitioners are at fault for harming patients during diagnosis and treatment. Article 55 stipulates that medical practitioners must fully explain the medical risks of treatment and alternatives to treatment and receive consent from the patient or family, failure by a medical practitioner to do so that results in harm to the patient will subject the medical institution to compensatory liability. Article 58 provides for the presumption of fault by the medical institution in cases where the medical institution conceals, refuses to provide, forges, tampers with or destroys case data in a dispute in violation of laws and regulations or other medical standards.

11 Ref doc No.: (2014) Zheng Min Yi Zhong Zi No. 500.

12 According to the latest statistics for April 2017.

13 Bluebook 2017 at page 16.

14 Non-profit medical institutions established by the government enjoy financial subsidies from the government of the corresponding level. Other non-profit and for-profit medical institutions do not enjoy such subsidies. Non-profit medical institutions price their healthcare services according to the direction of the government and enjoy corresponding preferential tax policies. For-profit medical institutions enjoy freedom to set the prices, carry out autonomous operation and pay taxes according to laws and regulations. See this in Proposals for the Categorised Management of Medical Institutions in Urban and Rural Areas, No. 233, 2000.

15 The cities included in the pilot centralised procurement policy are Beijing, Tianjin, Shanghai, Chongqing, Shenyang, Dalian, Xiamen, Guangzhou, Shenzhen, Chengdu and Xi'an. The pilot drugs are chosen from the generic drugs that have passed a consistency evaluation for quality and efficacy. For details of the policy, please refer to the Circular of the General Office of the State Council on Printing and Issuing the Plan for the Government's Pilot Organisation of the Centralised Procurement and Use of Medicine (Guo Ban Fa (2019) No. 2).

16 Advertising Law of the People's Republic of China, Article 46 (Standing Comm, Nat'l People's Cong, amended 24 April 2015, effective 1 September 2015).

17 Note: if the transaction parties involve state-owned entities (e.g., public hospitals), such transfers of profits may damage the value of state-owned assets. Therefore, under the framework of Criminal Law, if a transaction party gives benefits to another party that is a state-owned enterprise, public hospital or other state-owned entity, the act may constitute the crime of offering bribes to entities, and the act of accepting such benefits by a state-owned enterprise or public hospital may constitute a crime of accepting bribes by the entity.