Why China’s hospitals are going out of business in the middle of a pandemic
Thousands of private hospitals have gone bankrupt during the pandemic, and public hospitals are feeling the pain, too. But COVID is not the only disease they’re suffering from.
Yesterday at 3 p.m., bids opened in the sale of Suqian City Maternity Hospital in Jiangsu Province on Jingdong Paimai, the auctioning platform of JD.com 京东集团. The opening price for the hospital, including all its real estate, facilities, and equipment, was 426 million yuan ($61.15 million). The privately owned hospital had entered bankruptcy in April this year, and a court ruled in September that it should be reorganized.
By 8:30 p.m., the auction had attracted 7,000 viewers, but as yet no bids had been placed.
The lack of interest has been common in recent hospital auctions, of which there have been many. By the end of 2020, there were a total of 35,394 public and private hospitals in China, and they are all suffering.
Jiaozuo Tongren Hospital in Henan Province, a general private hospital, for example, went bankrupt in January 2022. Since October 29, the hospital and its assets have been publicly auctioned three times, but all three auctions were unsuccessful. A fourth auction was scheduled to take place on December 3, with the opening price cut down from 440 million yuan ($63.16 million) to 264 million yuan ($37.90 million), but was ultimately postponed. According to one report, Alibaba’s 阿里巴巴集团 judicial auctioning platform for selling seized and debt-ridden assets will dispose of 20 hospitals in December alone. Most of these hospitals have already entered bankruptcy proceedings, while the rest are on the verge of doing so.
The COVID shock to private healthcare
The diagnosis is not hard to make: COVID has almost stopped the flow of clientele to hospitals, drastically reducing their revenues and profits. The latest data by the National Health Commission is only for 2020, but in that year, the total number of visits to public and private hospitals was 7.74 billion, a decrease of nearly 1 billion from the previous year and the first annual decline since 2003.
According to the China Health Statistical Yearbook, in 2021, 23,500 private hospitals reported a total net loss of 130 billion yuan ($18.66 billion), an average loss of 5.53 million yuan ($793,920) per hospital. According to the Tianyancha 天眼查 company database, in 2021, the number of newly registered enterprises containing the word hospital was 408, an increase of 110% year-on-year, but the number of shut-down enterprises containing this word amounted to 6,268, an increase of 80% year-on-year. According to the Qichacha 企查查 database, there were at least 100 hospital bankruptcies in 2021. As per the National Enterprise Bankruptcy Platform, since early 2020, there have been 768 bankruptcy cases related to hospitals. But the number is likely far larger: The vice president of the China Hospital Association has stated that since the start of the epidemic in 2020, more than 2,000 private hospitals have gone bankrupt.
Private hospitals are more exposed than public hospitals to COVID’s privations. Public hospitals currently provide about 85% of medical care in China. While public hospitals focus mostly on general medical care, private hospitals usually offer more specialist medical services like ophthalmology and stomatology, which are more likely to be the subject of reductions in what consumers may consider unnecessary spending, and procedures to be avoided during a pandemic. And while people would often travel across the country to attend a particular private hospital for its specialized medical care, COVID and the lockdowns have cut this traveling outpatient clientele to a minimum.
And unlike public hospitals, private hospitals do not benefit from government subsidies such as rent reductions and deferred payments of social security.
The last straw: Drug sales reform
Public hospitals have not been immune from these afflictions. For example, the Fourth People’s Hospital in Leshan, Sichuan Province, has been closed since July 2021 due to insolvency, but because it’s a public institution, the hospital cannot declare bankruptcy, and is still paying some workers a basic salary of 1,000–2,000 yuan ($143–287) per month.
Yet COVID is not the only problem menacing China’s hospitals, public or private. A massive additional factor infecting hospitals’ bottom line has been the implementation of a centralized drug procurement system in 2020. Hospitals used to be able to charge markups on pharmaceutical products, and such drug sales were fundamental to hospitals’ ability to turn a profit (and also the source of illicit drug sales, hence the reform). In 2012, for example, the revenue from drug sales accounted for 44.3% of the total revenue of public hospitals, but after the procurement reforms of 2020, this proportion dropped to 30.6%. In fact, much of the debt of China’s hospitals is owed to drug companies.
It may appear somewhat ironic, but COVID has exacted a terrible toll on China’s hospitals, and private hospitals have borne the brunt of this. But COVID was in fact the last straw that forced thousands of private hospitals into bankruptcy after the reform of centralized drug procurement in 2020.
