Rural focus may upset the multinational apple cart

Zhang Jingsen, the dean of a hospital in Lucheng, a county-level city in southern Shanxi province is not excited about the news that the Chinese government plans to help institutions like his as part of the 850 billion yuan health reform plan.

Zhang's hospital, a subsidiary of the Tianji Coal Chemical Industry Group Co (Tianji Group), a State-owned enterprise, currently gets around 3.5 million yuan every year from the parent firm. This, accounts for nearly half of its operating costs. But with the Tianji Group planning a restructuring late this year and an initial public offering, Zhang has to face the risk that he may no longer get funds from his parent company.

"The new board of directors (after the restructuring) may not continue the funding. The reform plan is also not clear on whether the government will take us over," he said. Zhang said he would be more prudent now on making fresh investments for hospitals unless he is clear about the future.

It is not clear how many hospitals are facing such problems. But Zhang's case indicates the complexity of China's planned healthcare reform. While the government has said it would invest 850 billion yuan for health reform, it is still not sure how much of it is additional investment.

China's 850 billion yuan investment in healthcare reform is expected to generate additional orders of 1.2 to 1.5 billion yuan each year for IT facilities over the next three years, far less than earlier estimates, said Xiao Hongliang, analyst with research firm IDC.

He said bulk of the new spending would be on construction of government infrastructure such as the national medical insurance network and drug distribution network, while some funds will also go to hospitals in rural areas.

Sekiguchi Mitsuo, general manager of Canon's medical equipment business in China, feels that multinational firms may find it difficult to penetrate the rural market as they have only limited budgets. Canon expects most of its growth in China's healthcare market over the next few years to come from the big hospitals in urban areas.

As a result of the country's rigid medical system, China's quality health resources allocation is unbalanced between urban and rural areas. Resources such as expensive medical equipment and professional doctors are mainly centralized in the Grade 3 hospitals in big cities, while the rural areas have small- and medium-sized hospitals with fewer patients and tighter budgets. It is these distortions that has queered the pitch for IT facilities.

Liu Fan, assistant president, Peking University People's Hospital, also feels that big hospitals like his would not benefit much from the government investment. "The investment will mostly go to rural areas and I don't think hospitals like us would get anything," he said.

Liu added that his hospital, which normally spends around 10 million yuan for information technology, does not have plans to increase IT investments in the coming years as it already has a comprehensive system and network. "But we plan to increase the proportion of IT services in our total investment," he said.

According to an earlier report made by China Hospital Information Management Association (CHIMA) and Accenture, The White Paper on China's Hospital Information Systems, services accounted for 13 percent in China's healthcare IT investment, far lower than the world average of 58.9 percent.

"With many of the Chinese hospitals in urban areas planning to fast track their computerization programs, the demand for IT solutions will also grow from the traditional desktops and networks to high-quality computing, storage and virtualization," said Richard Lee, vice-president, Dell China. He said his company would focus on providing simplified IT solutions in China.

(China Daily 04/27/2009 page12)