From Chaotic Expansion to Orderly Development: The 30-Year-Old Private Healthcare Sector Charts Its Next Course

The development of private healthcare can be divided into three stages. The 1.0 era, from 1993 to 2003, was owner-centric and profit-driven; the 2.0 era, from 2003 to 2013, was physician-centric and focused on growth; and the 3.0 era, beginning in 2013, is patient-centric and reputation-driven.

The past development of private healthcare has gone through an era of unregulated growth, driven by a multitude of factors including the social environment, regulatory intensity, and medical demand. As an industry that has historically been relatively closed, shrouded in mystery, or seldom in the public spotlight, private healthcare deserves a more nuanced and comprehensive public perception.

Looking Ahead: Over the Next Three Decades, Private Healthcare Should Assume Greater Medical Responsibilities and Social Functions to Demonstrate Its Value

The aforementioned remarks were made by Wu Xidong, President of Putian Pharmaceutical and Medical Device Network. In an exclusive interview with VCBeat (WeChat ID: vcbeat), he repeatedly shared his insights on the future development of private healthcare. He believes that, driven by policy support, internal improvements, and shifting end-user medical demands, the private healthcare sector will have greater room for growth, with its capabilities being effectively utilized and gradually unleashed.

Guided by this thesis, VCBeat intends to conduct a brief analysis of the private healthcare industry and outline its trajectory over the next three decades.

The Fundamental Theory of Futurology: Futurology cannot predict the future; rather, it uses historical phenomena as a basis, sets relevant value parameters, and employs dynamic deviations as factors of quantitative change to broadly outline the trajectory of events.

From the perspective of future historiography, private healthcare’s value parameters are its competitive factors, dynamic deviations represent the probability of stochastic events, and event trajectories remain confined within established frameworks.

Public perception of private healthcare is largely shaped by emotional amplification of sporadic incidents. The spread of such incidents through self-media multiplies and magnifies their impact, while the underlying management processes in healthcare remain little known to the public. The Baidu Hemophilia Bar incident and the Wei Zexi case are typical examples. What the public knows is how these events unfolded, but the delineation of responsible parties and follow-up managerial actions have been left unresolved, which aligns with the patterns of information dissemination.

Consequently, external narratives on private healthcare often inevitably involve subjective verification and presumptive reasoning.

VCBeat also fell into this value vortex regarding Wu Xidong’s narrative on the 2.0 era of private healthcare. We believe that the “2.0 era” described by Wu does not exhibit physician-centric characteristics—such as building physicians’ personal brands or realizing their individual professional value. Wu himself pointed out that this perspective is judged from the standpoint of private healthcare operators, given his many years of experience in private healthcare management.

He elaborated that, from the perspective of private healthcare administrators, a key focus of hospital management in this era is the deliberate recruitment of renowned physicians and experts. This contrasts with VCBeat’s interpretation that doctors have achieved personal branding and value at this stage; while such individual branding exists, it is not the primary characteristic.

Bias from internal and external perspectives leads to different perceptions of the same event, and this value bias is showing a trend of amplification.

A private hospital internally dismissed an incompetent manager, allowing his successor to learn from the mistakes. However, if one relies solely on industry observations, regional characteristics, or moral considerations, this universally applied metric will inevitably relegate observers to the status of outside experts.

What comes to mind first when aiming to operate a hospital successfully? Considerations include whether there are supportive government policies, the availability of medical resources such as renowned physicians and experts, brand value amplification, high-quality service, precise cost control, and streamlined patient care processes.

Certainly, it can also be categorized according to the upstream and downstream segments of the industry chain. This includes upstream pharmaceuticals, medical devices, and consumables; internal management; and external reputation. The spectrum ranges from the supply side to the demand side, with each value segment involving both outputs and inputs.

Whether employing Porter’s Five Forces model or PEST analysis, policy considerations invariably serve as the foundational and most critical starting point in analyzing competitive factors within the private healthcare sector. Indeed, for the healthcare industry, favorable policy support is an absolute determinant of success. For instance, in pioneer cities like Sanming, Fujian, which have vigorously promoted comprehensive reforms of urban public hospitals, there is limited room for development in the private healthcare sector, as a robust public health system has largely met the medical needs of local residents.

In parallel with the advancement of comprehensive reforms in urban public hospitals, healthcare reform authorities have also placed emphasis on the development of private healthcare.

“Since the 18th National Congress of the Communist Party of China in 2012, there has been a comprehensive realignment of the direction of national healthcare reform. From 2014 to the present, a series of policies related to healthcare reform have also been introduced. This can be summarized as ‘one goal, two key levers, and three separations.’”

One objective is to implement a tiered diagnosis and treatment system. This involves stratification by region, medical specialty, and population, specifically characterized by triaging patients based on the urgency and severity of their conditions as well as the complexity of treatment. Corresponding healthcare institutions assume responsibility for diagnosis and treatment, supported by policies such as medical consortia, medical communities, remote consultations, and family doctor contract services.

Initially, the prevailing model of internet hospitals was designed to meet the demand for remote consultation services. Following their nationwide rollout, they have gradually evolved into a government-led initiative, with leadership shifting from information technology companies to local health authorities. Equipped with privileges such as medical insurance budget allocations and electronic prescription authority, these platforms now serve as pilot projects for implementing tiered diagnosis and treatment systems.

The two key initiatives are the reform of public hospitals and the support for private hospitals. The reform of public hospitals, exemplified by the “Sanming Model,” has been rolled out nationwide as a classic case study of healthcare reform. This year, the “Beijing Healthcare Reform” is being advanced as a new model. Multiple issues within the public healthcare system are undergoing reform, including those related to pharmaceuticals, medical services, testing and inspection, and rehabilitation and nursing care.

Healthcare Reform Concerns the Vital Interests of the General Public

Of course, the comprehensive reform of public hospitals in urban areas is a systematic endeavor. Intermediate measures, such as abolishing the administrative ranks of public hospitals and restructuring the staffing system for public institutions, have encountered a certain degree of resistance. From the perspective of physician training, unresolved issues—including changes to medical students’ academic programs, compensation for residents in standardized training, internship stipends, and criteria for research output and professional title evaluation—have led to gaps in the cultivation and retention of medical talent. On the patient side, not all types of conditions have benefited from the healthcare reforms, which often results in patient resistance to these changes. Nevertheless, it is undeniable that healthcare reform will continue to advance steadily. As a systemic project that has been on the agenda for over a decade, high-level commitment to reform remains firm, while specific details still require gradual assimilation and careful management.

Support for private hospitals can be broadly summarized into three key measures. First, encouraging social capital to invest in healthcare: relevant State Council documents have proposed relaxing market entry barriers, broadening financing channels, promoting resource contribution, and optimizing the development environment, thereby establishing a foundational framework for privately-run healthcare institutions. Second, providing a series of preferential policies, including land allocation, tax reductions and exemptions, and inclusion in the national medical insurance system. Third, liberalizing multi-site practice for physicians (to facilitate the flow of medical talent from the public sector to private institutions) and granting private hospitals the authority to confer professional titles. In simple terms, these three measures ensure that private hospitals can “enter the market,” “gain a foothold,” and “thrive.”

The crux of the matter is that the challenges of “difficult and expensive access to medical care” can only be resolved through market-oriented approaches. An increased number of hospitals and physicians, coupled with competition among them, naturally incentivizes relevant stakeholders to invest in physician training and optimize diagnosis and treatment systems, thereby ensuring highly targeted efforts.

The “three separations” refer to the separation of pharmaceuticals from medical services, the separation of medical testing from clinical care, and the separation among medical institutions. The direction is clear: the abolition of drug markups cuts off the practice of subsidizing healthcare providers through drug sales, further controls the proportion of drug expenditures, and encourages the outflow of prescriptions. This aims to curb the previous model of using opaque drug profits to subsidize medical staff—a pathway already recognized by regulators. The key logic behind separating pharmaceuticals from medical services lies in transparentizing previously unregulated, gray-area profits. Although this does not yet resolve the mismatch between healthcare workers’ compensation and their workload, such dynamic adjustments will naturally feature in the next phase of policy planning as one factor wanes and another waxes.

The precursor to the separation of medical treatment and diagnostic testing is “mutual recognition of test results,” primarily targeting public hospitals to avoid redundant examinations and control healthcare expenditures. Following the implementation of mutual recognition, the separation of medical treatment and diagnostic testing entails decoupling diagnostic services from public hospitals and assigning them to specialized institutions, with test results recognized by hospitals at all levels. VCBeat has previously published special reports on third-party clinical laboratories and hemodialysis centers. Currently, specialized companies in China are already engaged in these businesses, and both the market size and the number of entrants are expected to continue growing in the future.

"Separation of Physicians from Hospitals" refers to the decoupling of doctors from individual hospitals, specifically through the liberalization of multi-site practice. On April 1 this year, the newly revised "Administrative Measures for Physician Practice Registration" stated that physicians may engage in multi-site practice with "no limit on the number of locations and permission to practice across different regions," bringing initial resolution to the long-debated issue of multi-site practice. In fact, the advancement of initiatives such as medical consortiums, tiered diagnosis and treatment, and telemedicine all rely on multi-site practice as a foundation. By addressing the mobility of physician resources, compliant patients will gradually shift their healthcare-seeking behavior and change their habits. As an ancillary outcome, should multi-site practice by public hospital physicians in private hospitals be considered? This represents one of the key directions for future development.

Returning to the discussion on competitive factors in private healthcare, with policy conditions largely in place, private healthcare providers should advance across multiple dimensions—management, technology, service, and ecosystem—to enter a new stage of development.

To break the deadlock, Wu Xidong offered four recommendations: reduce operating costs, improve staff competence, enhance service efficiency, and resolve the crisis of trust.

For any private hospital, economic benefit is a key measure of its success, given its distinction from the non-profit nature of public healthcare. The public-welfare attribute of medical services is not incompatible with economic interests. In other sectors, such as urban development, transportation, and energy, a process of “state retreat and private advance” has also occurred, wherein the relationships among stakeholders have achieved a balanced equilibrium through long-term practice. Private healthcare is equally subject to this dynamic. With the influx of cross-industry capital, the development of private healthcare is actually accelerating in terms of growth rate. Such investors should prioritize long-term return on investment rather than rushing to extract profits.

From the perspective of operating costs, expenditures in the private healthcare sector are concentrated in several areas, including the procurement of equipment, pharmaceuticals, and other supplies; personnel salaries; and marketing expenses. For a considerable period, marketing served as the primary driver for private healthcare institutions, with marketing expenditures far exceeding those in other categories. These institutions established dedicated departments to handle promotion, leveraging public communication channels and new media platforms for dissemination, which incurred substantial costs. In contrast, public hospitals have made minimal investments in this area and lack the incentive to do so, primarily because they do not face a shortage of patients. According to statistics from the National Health and Family Planning Commission, the ratio of patient visits between public and private healthcare systems is 9:1, despite there being no significant difference in the number of institutions.

Private Healthcare Systems Lack Sufficient Public Credibility Compared to Public Healthcare Systems

To reduce operating costs, the first expense that should be eliminated is viral marketing. Of course, a concern arises here: given the already low patient volume, will cutting marketing expenditures further weaken customer acquisition capabilities? It is worth noting that this type of customer acquisition method is inherently unsustainable and suffers from a mismatch between investment and effective conversion rates. Moreover, the inflated costs, when amortized, are unfair to patients who ultimately enter the private healthcare system. In other words, either long-term observation will help private medical institutions recognize the inherent flaws of such marketing strategies, or change must be driven from within.

Enhancing personnel quality and service efficiency stems from value alignment with the end recipients. A common perception is that private healthcare should offer superior services compared to public healthcare, as exemplified by maternity hospitals such as United Family Healthcare and Amcare. Service quality can be evaluated using two sets of indicators: either clinical expertise surpassing that of public healthcare institutions, or a stronger service orientation than that of public counterparts. As previously mentioned, private healthcare has already achieved comparable standards to the public hospital system in terms of talent development and career advancement. Furthermore, restrictions on the flow of talent from public to private healthcare have been partially lifted, establishing the necessary conditions for building a robust workforce in the private sector. Physicians who have left the public system to establish physician groups can also serve as a supplement to medical resources in private healthcare; collaboration between these entities warrants attention. In an environment where private healthcare is fully developed and competitive, consumer choice will drive healthcare institutions to continuously improve their services.

The most critical issue lies in how private healthcare providers can overcome the crisis of trust and establish credibility and a positive reputation. This is particularly important as public confidence in private healthcare has been undermined by social sentiments amplified through media dissemination, and rebuilding such confidence requires long-term processes and sustained efforts. Behind several extreme and malicious incidents, there is not only a lack of moral boundaries among certain types of medical institutions but also deficiencies in the management of cross-sectoral healthcare organizations. Building confidence necessitates constraining profit-driven behaviors from an ethical standpoint and implementing clear managerial restrictions. Based on private healthcare alliances, stakeholders can negotiate feasible documents such as basic drug formularies, clinical practice guidelines, and fee schedules to serve as mechanisms for industry self-regulation. In addition to visible exploitative practices, invisible and more covert safety issues deserve greater attention.

The value of private healthcare lies in its role as an integral part of the medical system, obligating it to assume medical responsibilities. Its corporate nature also enables it to command premium pricing by offering personalized diagnosis and treatment along with high-quality services. The key to breaking through current challenges is to remain true to the original mission of healthcare and not be constrained by profit-driven motives.

“The future of private healthcare should be viewed from three perspectives: political status, social status, and industry status. In terms of political status, private healthcare will become a major component in achieving tiered diagnosis and treatment, facilitating the advancement of national healthcare reform; from a social standpoint, it will meet the public’s diverse and multi-level medical needs; regarding its industry status, it will serve as an integral part of the healthcare system, acting as a significant complement to the public hospital system by addressing high-end and personalized diagnostic and treatment demands.” As an eyewitness to these developments, the President of Putian Pharmaceutical and Medical Device Network described the future of private healthcare to VCBeat (WeChat ID: vcbeat).

Since 2011, the number of private medical institutions has increased by more than 1,000 each year. By the end of 2015, according to statistics from the National Health and Family Planning Commission, the number of private and public medical institutions was roughly equivalent; however, differences remained in terms of departmental specialties, as well as significant disparities in patient visits and healthcare expenditure.

“Although the current market shares are not yet equal, private healthcare should not focus on competing with public healthcare for existing resources. Instead, we should prioritize expanding the overall market by addressing needs that public healthcare cannot or is unable to meet.”

Amid favorable policy conditions, investor enthusiasm for private healthcare continues to surge. According to incomplete statistics, listed companies executed over 200 investment and M&A deals targeting the private healthcare sector last year alone, with total transaction values exceeding RMB 40 billion. Following acquisition or controlling stake purchases by listed companies, private healthcare entities are expected to achieve greater standardization and transparency in their management structures, financial practices, and corporate reputation.

An interesting phenomenon is that there are still relatively few private healthcare entities directly listed on China’s capital markets. Aier Eye Hospital and Topchoice Medical stand out as the larger private specialty providers. Meanwhile, other pharmaceutical companies are aggressively acquiring hospitals, both to secure market share and to leverage this as a strategic narrative. The sector is currently a hot spot, with strong optimism regarding its long-term growth potential.

Previously, there was widespread debate that internet healthcare (mobile health) had a suppressive effect on the development of private healthcare. VCBeat asked Wu Xidong for his perspective. He stated that internet healthcare, or mobile health, is not yet closely integrated with offline services; even within the frameworks of internet hospitals and internet medical consortia, its relevance to physical operations remains insufficiently pronounced.

Medical practice itself requires offline examinations and diagnoses as support, which cannot be completed online. If internet healthcare falls into the misconception of understanding the internet but not medicine, it is easily proven to be an unviable model.

“Turbulent Thirty Years” notes, “In an era of great upheaval, the pursuits and wild imaginings of a generation of Chinese people as they approached modern commercial civilization—even their impetuosity and naivety—deserve respect.” For private healthcare, this argument remains valid. We conclude with this thought.