Private-hospital owner keeps costs down but service on the up

Yan Yubin said he has been closely following government policies, a practice that may account for his success.

Yan, the owner of Xi'an Jiren Hospital, was one of the first private hospital operators in China and one of the few able to maintain fast growth. He has ambitious plans to continue expansion.

"The government is currently encouraging private investment in the medical care sector and strengthening medical services in the grassroots market. It's really good news. I am expanding my hospital - a new building and more diversified services," Yan said.

Founded in 2001, Xi'an Jiren Hospital is located in Hu county, around a one-hour drive from downtown Xi'an, Shaanxi province. The six-story building, while old looking on the outside, has 300 beds and 350 employees, of whom 282 are medical care practitioners. It is currently providing comprehensive medical services for more than 1 million people in Hu county and neighboring rural areas.

"Construction of our new building is scheduled to start in May and be completed next June. It will add 500 beds for us," said Yan. "In addition to the current traditional department every hospital has, I will open rehabilitation and traditional-Chinese-medicine-styled maternity and gynecology divisions."

The National Development and Reform Commission issued policies last May and December encouraging private domestic and overseas investors to set up medical institutions, including hospitals, clinics and health service centers at various levels. At the same time State-owned hospitals can outsource some of their services to them.

Under the 12th Five-Year Development Plan (2011-15) for the medical industry, hospital beds in private medical institutions will be available for 20 percent of the nation as a whole by 2015. At the same time, the non-public institutions are expected to provide services for 20 percent of the nation's patients.

China now has more than 8,000 private hospitals and clinics, mainly small in size and specializing in certain areas such as dental care, tumor treatment and maternity. They account for 36 percent of the total number of medical institutions across the nation. Hospital beds at these private institutions only make up 8 percent of the total and they treat fewer than 10 percent of all patients, according to the Chinese Hospital Association.

"The government has reiterated its support for private investment (in the medical care sector) so I must follow its line," said Yan, 51, who has been a doctor for 12 years. "What the government encourages must be what the Chinese people need. Following the policies means I can do something to help the government satisfy the people and, meanwhile, make my life better."

Startup business

Born into a rural family with nine sisters and brothers in 1961, Yan's childhood was full of struggle in the face of poverty. Things turned worse when he was affected by poliomyelitis at the age of 2. He dropped out of school after primary education because the middle school was too far from his home and transportation in the mountainous area was a challenge even for the able-bodied. Yan started educating himself at home about traditional Chinese medicine, a subject his parents chose for him.

Thanks to years of hard study and repeated requests, Yan, despite being handicapped and lacking a full education and official qualifications, was specially approved by the local government to become a doctor in 1987 at a county-level hospital, where he obtained knowledge about treatment and how to operate a hospital.

"I really thank the government and the people who helped me get the job. I have been seeking a chance to repay them," he said.

Based on experience and scientific research, Yan developed a traditional Chinese medicine for treating sterility that was awarded a national patent in the late 1990s. He sold it for 40 million yuan ($6.3 million) - his first pot of gold - and considered opening a private hospital because the government was encouraging startups amid a market-oriented reform and medical care in rural areas was in short supply.

Yan bought land from the county government and built the six-story hospital for nearly 20 million yuan. He purchased equipment and invited professional health workers to join him using another 17 million yuan. "Buying the land and equipment and infrastructure construction went smoothly thanks to government support. The most difficult thing was recruiting senior and high-quality professionals," Yan said, adding that he visited a senior physician, who was working in a big State-owned hospital, nearly 20 times to convince him to move to Xi'an Jiren. The first group of 20 professionals were mainly from key hospitals. All were gifted an apartment neighboring the hospital and offered monthly payment of three times their previous salary.

Although everything seemed well prepared, attracting patients to Xi'an Jiren was still a problem because they were accustomed to visiting two State-owned hospitals in the county town at that time.

"We have senior professionals and high-quality equipment - all examination devices were purchased from international giant GE Healthcare. On top of this, what could make us more competitive were prices and services," said Yan.

Patients customarily complained about the service from State-sector doctors and nurses, who were demoralized by low salaries and busy work schedules. The lack of competition for State-owned hospitals didn't help the situation.

For Xi'an Jiren, the big challenge was keeping medical care charges down, especially because it is in a rural area where patients are very price-sensitive, said Yan.

"We did not advertise - a tactic the majority of private hospitals adopt - at all, which saved a large amount of money," said Yan.

The registration fee at Xi'an Jiren was 1 yuan in the early 2000s, compared with 3 yuan in State-owned hospitals. The hospitalization fee, including medical care and accommodation charge, for each patient was 300 to 400 yuan lower than that at State-owned ones.

"I did not look for quick money. What I cared about most was the number of patients. I squeezed the profit margin for more patients. They could experience our services, equipment and the recovery process and could recommend Xi'an Jiren to their relatives, neighbors and friends," said Yan, adding that the hospital depends on this word-of-mouth advertising to increase the number of patients, thereby increasing sales and sustaining development.

Feng Jianping, a local farmer, always comes to Xi'an Jiren when he or his family members are ill. "It's cheap compared with State-owned hospitals and the doctors and nurses are very nice," said Feng, who suffered from serious hepatitis several years ago and recovered there.

"I trust the doctors here and tell people around us to come here," he said.

"Hospitals are a very unique industry. Their reputation will determine growth or decline, even survival or death," said Zhu Hengpeng, a researcher at the economic research institute under the Chinese Academy of Social Sciences.

Over the last 10 years, Xi'an Jiren's patient visits increased by 18 to 20 percent annually to exceed 100,000 last year, with sales revenue growing at 26 percent. The hospital's fixed assets are worth 150 million yuan currently. In general, a hospital can break even over eight to 10 years after its establishment. Xi'an Jiren turned a profit after eight years.

Liao Jiamei, administration director of the hospital, has been here since the very early days. "During the first several years, I worried so much. How long can this hospital survive? Few patients came here," she recalled. "Now what I worry about is how to coordinate everything because the beds are always full and many patients are waiting outside. Construction of the new building cannot be finished overnight."

Government relations

Yan's namecard lists his titles. They include deputy of Hu county people's congress, member of the standing committee of Hu county's political consultative conference, vice-chairman of the local industry and commerce federation and vice-director of Hu county disabled persons federation.

"I maintain a close relationship with government at all levels and communicate with them. I know there are many problems in China, especially in rural areas, because the nation is still in a developing stage. But I believe complaints are useless. Suggestions and communication are the way to solve problems. Talking with officials in a practical manner is useful," he said.

Zhu said that Yan's strategy is really smart.

"He follows the government policy to earn government support. Besides, the medical care sector is not only an elastic industry with a promising future but also a business inevitably greatly influenced by policies and government initiatives," he said.

In addition to the new building, Yan also plans to diversify Xi'an Jiren's business. As a handicapped person, the first thing he considered was a rehabilitation service. China's medical care insurance now includes this area, making it affordable to poorer patients.

The number of patients suffering from paralysis is increasing in China due to the high incidence of cardiovascular diseases and traffic accidents. As people earn more and pursue a higher quality of living, they have realized the importance of rehabilitation.

Now the hospital has set up an 80-square-meter gym for the service. The province-level Disabled Persons Federation invested 2 million yuan in it.

Yan will also open a nursing home for the elderly after the hospital renovation is finished and everything is on track. "The government called on social investment in this sector because China is becoming an aging society," Yan said.

Statistics from the Ministry of Civil Affairs show that people at the age of 65 and above numbered 123 million in China last year, accounting for 9.1 percent of the population. The figure is expected to reach 20 percent by 2030.

Under the new medical reform plan, to reduce costs the government decided to stop hospitals relying on drug sales for their revenues. Instead they were told they should enhance service quality and are allowed to increase service charges.

The government said it will increase subsidies to the State-owned hospitals and income from service charges will be used to upgrade infrastructure and increase doctors' salaries.

The government said on April 18 that it will carry out trials in 300 State-owned county-level hospitals.

"I have raised a proposal to our congress urging the government to put some of our private hospitals into the trial program," Yan said. "Patients in our hospital could get drugs at lower prices and we could get subsidies to further improve our services. I think that's fair."

liujie@chinadaily.com.cn

(China Daily 04/26/2012 page14)