I was recently having dinner with Dan Harris from China Law Blog. Our conversation zeroed in on what he and his China lawyers are seeing in terms of changes in enforcement by Chinese officials towards foreign businesses. He noted that they are seeing a variety of what I will call “pushbacks” by the Chinese authorities towards foreign businesses since the election. Now, this could all be accidental or purely opportunistic, but what his firm is seeing are more and more instances where long-standing instances of corners that have been cut in China around licensing status, paying Chinese help off the books, or other widely accepted work-arounds that foreign companies have used since China began to open to Foreign Direct Investment (FDI) in the 80s.
Why this is all changing now is open to everyone’s various interpretations, but it is happening, and the implications to foreign companies in healthcare cannot be overlooked. Rubicon continues to get retained by a number of senior care, home healthcare, rehabilitation and other healthcare delivery platforms to evaluate and provide guidance on their respective licensing strategies. I’ve written this many times before, but these calls happen at one of two times: early, when we can help drive licensing strategy, or late, when we are trying to help fix a problem that has presented itself with your Chinese partner, or local government authority.
We have put particular emphasis in our practice on home healthcare. Because home healthcare as a service is not helpfully called out by any relevant government regulatory body, they end up being are governed by what sort of services Chinese law stipulates must be done by businesses that have a medical institution license. Services that do not fall within this body of law can be safely assumed to be within the scope of an acceptable home healthcare business. These approved home healthcare services are lower-acuity in nature (shopping, hygiene, medication management, ambulatory assistance, etc.). The nursing station license provides another option, but is somewhat new to both foreign investors and to Chinese regulators who are used to nursing stations as an alternative to community / primary care clinics. There is reason to believe, that a foreign company can enter through the less burdensome license and transition to the more involved license over time. This transition may be a natural by-product of a foreign entrant’s business model and can be formally explored during negotiations with authorities. What cannot – and never should be – done is taking a position of asking forgiveness instead of permission when you are caught. As my conversation with Dan Harris illustrated, “getting caught” carries with it quite severe and personal penalties in China, even with someone as seemingly trivial as the language of your business license’s scope.
Another good example beyond the licensing scope of where your regulatory strategy needs experienced eyes has to do with answering the question of who can legally work within your WFOE and in what capacity?
For home healthcare, the approved scope of your business license does more than drive what sort of services that can be deployed in the home. In addition, the business scope can – if not properly anticipated – create unforeseen complications relative to the sort of workforce a foreign home healthcare provider can legally employ. The most obvious limitation here is specific to nurses. If you successfully pursue a medical institution or nursing station license, nurses can be legally employed and can carry out traditional nursing activities (IV-administered fluids and medications, enteral feeding, PICC lines, respiratory therapy, and broad rehabilitation services). If a foreign company successfully pursues a home healthcare license through the AIC/MOC, the WFOE may legally employ nurses, but these nurses may not carry out nursing activities. In practice, the nurses will be limited to activities that would be understood as caregiver services in the west. In China, doctors and nurses must be formally registered with a specific medical institution. In the case where a foreign company’s license is under negotiation or review, the presence or plan to hire nurses is likely to trigger the more involved medical institution license.
A proper understanding of regulatory risks around workforce requires understanding how Chinese MOH (local health bureau officials specifically) will interpret the presence of a nurse within a WFOE that is not licensed as a medical institution. In cases where a family member believes their loved one has been mistreated or has died due to care received at the hands of a home healthcare agency, Chinese MOH authorities are likely to look specifically at the type of medical equipment in use at the home, whether the activity of the nurse resembles that of what they would expect to traditionally occur within the hospital, and whether appropriate supervision existed.
There are two documents that officials will use to guide their understanding of the type of workforce that is acceptable for a home healthcare company. Knowing how officials view these documents, and how in particular they associate what these documents call out as an acceptable workforce in the home, is another important guard rail when setting your business up in China. While it is possible for a home healthcare licensed company to employ nurses in China, these nurses have strict boundaries around the sort of care they will be allowed to provide in the home. These same nurses could provide much broader services if the business has a medical institution license. In the case of problems where officials come in to inspect the business, the presence of nurses as a primary component of your workforce will almost assuredly trigger their review of the foreign company’s business license. If that license is home healthcare versus medical institution, then a problem is likely.
In summary, it is worth pointing out something we wrote in our 2015 survey of the senior care and home healthcare industry in China:
Today, many Chinese senior care and healthcare regulators are accommodating more loosely defined services as part of the “business scope of services” during the registration and licensing process versus what was allowed in previous regimes. This reflects the current attitude at the highest levels of China’s central government around the encouragement of foreign investment into these sectors; however, other sectors of the Chinese economy ranging from telecom to manufacturing are seeing regulators begin to crack down on their actual approved scope of services and what they have been doing within their business for years. Today’s lax attitude towards FDI should not be confused with how regulators are likely to view the scope of services a foreign company is approved for in the mid-to-long term. Shortcuts around scope of services, and getting a commercial license that accommodates certain healthcare services absent a formal MOH or Health Bureau approval, should be seen as having a very finite shelf life.
The opportunity in China is compelling, and because of this, take your time, complete your due diligence, and do not cut corners when it comes time to building your licensing strategy!