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Govt announces new rules allowing nonprofit status for private hospitals

By Cong Mu (Global Times)

07:58, May 22, 2012

The Ministry of Health issued a notice on its website yesterday saying that the government would allow private investors to set up hospitals as nonprofit medical institutions, which would bring more tax benefits to new private hospitals.

The State Council in November 2010 asked the Ministry of Health and other related ministerial departments to encourage and guide private capital to establish more hospitals, and the new announcement, backdated to April 13, is a step to implement such a policy, the ministry said in the statement.

The social, or private, capital can apply to set up for-profit or nonprofit medical institutions according to their business goals, the ministry said, scrapping a rule issued in 2000 stipulating that individually owned township clinics and incorporated, jointly incorporated as well as China-foreign joint-venture medical institutions should be generally categorized as for-profit organizations.

As for the private hospitals already established as for-profit organizations, the ministry said that it would come up with another regulation to define how they can change their business categories. It did not provide a timetable.

"The new measure can help encourage hospitals under different forms of ownership to compete on a level playing field, because both private and State-owned hospitals can now enjoy the same tax, land and wage policies. As a result, the move will improve hospitals' service quality and benefit the patients," Yu Deming, chairman of the Chinese Pharmaceutical Enterprises Association, a Beijing-based national trade body, told the Global Times yesterday.

"It also sends a signal to the State-owned hospitals that competition is going to be fiercer," Yu said. The market size of medical services in China is about 100 billion yuan ($15.8 billion) a year, according to Yu.

Nonprofit hospitals' medical services incomes from such practices as checkup, diagnosis and treatment are exempt from taxation, while for-profit hospitals have to pay all the taxes after a three-year grace period, according to the Ministry of Finance and the State Administration of Taxation.

As of the end of March, there were 8,864 private hospitals in China, up over 21 percent year-on-year, according to the statistics released by the Ministry of Health last week.

But the number of patients treated in the private hospitals was still negligible, only around 3 percent of a total of 1.6 billion treatments in the first quarter of 2012.

Hospitals are heavy-asset investments. They are difficult to manage and the investment-return period is usually longer than eight years. Private investors are reluctant to invest in the area if the playing field is not level, a Shenzhen-based analyst told the Global Times.

To let the patients enjoy the benefits brought by an increasing number of private hospitals, China should allow doctors and nurses to work freely in different hospitals under different forms of ownership, Yu said.

Currently, doctors working in State-owned hospitals are only allowed to work in two additional places with permission.

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