Key points when private equity funds invest in private hospitals

With the large flow of private capital into the medical industry, an increasing number of private equity (PE) funds have been taking their places at the banquet. This column will look at four key points warranting attention when PE funds invest in private hospitals.

Nature of private hospitals. Pursuant to the Notice on the Issuance of the Implementing Opinions on Classifying Urban and Rural Medical Institutions, medical institutions are on the whole divided into non-profit medical institutions and for-profit medical institutions. Income of a non-profit medical institution is used to cover medical service costs and the balance of income and expenditures may only be used for its own development.

The profits derived from the medical services provided by a for-profit medical institution may be used as economic returns to investors. Whether it can smoothly sell the shares it holds and profit thereon is one of the key points of attention for a PE fund manager, whereas in practice, due to the frequent reports of private capital meeting frustration when attempting to divest from non-profit hospitals, such hospitals obviously offer little draw for PE.

If a non-profit private hospital can be converted to a for-profit private hospital, subsequent to administrative approval, it may attract some attention, but a certain degree of difficulty exists in practice.