July 10, 2012

Administrative Measures of Sino-Foreign Equity Joint Venture and Sino-Foreign Contractual Joint Venture Medical Institutions (Revised Draft for Comment)

Issuing Body: Ministry of Health
Issuing Date: April 13, 2012
Effective Date: N/A

China's Ministry of Health has taken steps to further open China's healthcare market, releasing a draft version of changes to the Tentative Measures on Administration of Sino-Foreign Equity Joint Venture and Sino-Foreign Contractual Joint Venture Medical Institutions ("Medical Institution Tentative Measures"), which were jointly issued in May 2000 by the Ministry of Health and Ministry of Foreign Trade and Economic Cooperation, the predecessor to the Ministry of Commerce. The proposed new rules, known as the Administrative Measures of Sino-Foreign Equity Joint Venture and Sino-Foreign Contractual Joint Venture Medical Institutions ("Medical Institution Administrative Measures"), were released for public comment on April 13, 2012. While retaining the basic framework of the Medical Institution Tentative Measures, the revised rules would make several substantive and procedural changes in the establishment of joint venture medical institutions, such as increasing the minimum total investment to RMB100 million (RMB 50 million in central and western China), streamlining approval procedures, and allowing wholly foreign-owned medical institutions as well as nonprofit facilities.

Background

The Ministry of Health and Ministry of Foreign Trade and Economic Cooperation issued the Medical Institution Tentative Measures in May 2000 (effective July 1, 2000) as part of China's World Trade Organization commitment to open the nation's healthcare service market. Those rules for the first time allowed foreign investors to establish hospitals and clinics in China, with Chinese partners, and subject to certain key limits. Foreign ownership, for example, was capped at 70 percent, and all facilities had to be for-profit institutions.

The 2011 version of China's Foreign Investment Industrial Guidance Catalogue, which became effective January 30, 2012, paved the way for changes in the healthcare industry, moving medical institutions from the "restricted" category to "permitted." In addition, the Opinions on Further Encouraging and Guiding Privately Owned Capital to Establish Medical Institutions, which were jointly issued in December 2010 by the National Development and Reform Commission, Ministry of Health, Ministry of Commerce, Ministry of Finance, and Ministry of Human Resources and Social Security, called for cancellation of the limit on foreign ownership percentages in medical institutions and for allowing qualified foreign investors to establish wholly foreign-owned medical institutions on a pilot basis.

Key Elements of the Revised Draft Measures

In their current form, the Medical Institution Administrative Measures would effect a number of important substantive and procedural changes:

  • The new rules would allow joint venture medical institutions to be established as either profit-making ventures or non-profit facilities.
  • Establishment of a joint venture medical institution would need to be approved by provincial-level offices of the Ministry of Health, the State Administration of Traditional Chinese Medicine, and the Ministry of Commerce. The entire approval process should be completed within 60 working days. At present, under the Medical Institution Tentative Measures, the approval process is more complicated and time-consuming, and involves local, provincial, and central offices of the Ministry of Health, the central-level State Administration of Traditional Chinese Medicine, and the central-level Ministry of Commerce (as successor to the Ministry of Foreign Trade and Economic Cooperation).
  • Under the proposed Medical Institution Administrative Measures, the minimum total investment in a joint-venture hospital is RMB100 million, but that amount is lowered to RMB50 million for joint-venture hospitals located in central and western China. Chinese investors must own at least 30 percent of the joint venture, as a percentage of equity. Joint-venture hospitals may have an operating term of no more than 30 years. These changes would significantly increase both the minimum total investment (which is now RMB20 million) and the maximum operating term (now 20 years).
  • Extension of the operating term of a joint-venture hospital will be subject to approval from provincial-level offices of the Ministry of Health and Ministry of Commerce, with the approval process being completed within 20 working days. Currently, approval for an extension of the operating term must be secured from the central Ministry of Health and Ministry of Commerce, and takes 45 working days.
  • In the publicly released draft version of the Medical Institution Administrative Measures, a merger or acquisition of an existing joint-venture hospital would be subject to the same approval process as would a newly established joint-venture hospital.
  • Like the Medical Institution Tentative Measures, the new rules would make a joint-venture hospital an independent legal person entity. Branch hospitals in China are forbidden.
  • The draft Medical Institution Administrative Measures encourage joint-venture hospitals to participate in commercial insurance.
  • The proposed Medical Institution Administrative Measures say the equity percentages of foreign and Chinese investors may be adjusted, based on practical considerations. Similarly, the new law implies that the requirements for establishing a wholly foreign-owned hospital may gradually be relaxed in the future. The Medical Institution Tentative Measures do not allow the establishment of wholly foreign-owned hospitals.

Conclusion

The period for public comment on these proposed revisions to the Medical Institution Tentative Measures ended May 16, 2012. The Ministry of Health and Ministry of Commerce are now reviewing and interpreting those comments.

The Tentative Measures will be repealed when the final version of the Medical Institution Administrative Measures takes effect. In their current form, the new rules would further open China's healthcare market to foreign investors. At the same time, however, the new rules attempt to attract higher-quality investments by instituting higher capital thresholds.

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