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SHANGHAI-- As China tries to privatize an overburdened public healthcare system, private hospitals face a shortage ... of doctors.

The bottleneck - the result of resistance from both public hospitals and doctors themselves - could dent a drive to reform China's hospital sector, just as investors flock to a healthcare delivery market that's set to more than double to $600 billion by the end of the decade, according to consultancy Bain & Co.

Part of the problem is that doctors across most of China need permission from the state-owned hospitals where they practice before they can also work in the private sector. And many public hospitals don't want to let their best doctors go.

"Some government-owned hospitals are hampering doctors somewhat from going outside," said Charles Elcan, president of Chinaco Healthcare Corp (CHC), whose 500-bed hospital in the eastern city of Cixi admitted its first patient in July. "Some are very much open and support it, and some of them don't," added Elcan. "It's an ongoing challenge."

The Cixi hospital, a joint venture with local government, is operating at just a fifth of its capacity for in-patients, and is looking to recruit more doctors. CHC has invested close to 1 billion yuan ($163 million) in the project and is eyeing other hospitals for acquisition and development.

Privatization is a key plank in China's push to revamp an unpopular national healthcare system, blighted by crowded hospitals, corruption and simmering tension between patients and staff. China wants to raise the number of private hospital beds to a fifth of the total by next year.

The reforms have attracted local and overseas investors looking to take a slice of China's healthcare bill. McKinsey & Co expects total healthcare spending, including drugs and medical devices, to hit $1 trillion by 2020.

Late last month, private equity group Trustbridge Partners broke ground on a $500 million general hospital in Shanghai. German hospital operator Artemed Group, Chinese drugmaker Fosun Pharmaceutical, investment firm TPG Capital and property developers China Vanke and Evergrande are also investing in Chinese hospitals.

All That Glitters

Despite widespread dissatisfaction with public hospitals, a challenge for private institutions - even those boasting world-class equipment and sparkling decor - is that some Chinese patients are still dubious about the quality and affordability of private care.

"Private hospitals are expensive and you often can't claim for reimbursement from national insurance. Plus, I trust the level of medical care at public hospitals more," says Cai Jiejing, a 27-year-old researcher in Shanghai.

As a result, while almost half of China's 24,700 hospitals are private, most healthcare is still delivered by public institutions, with some 84 percent of in-patients coming through public facilities, according to a Deutsche Bank report in June.

State hospitals depend on drug sales and tests for their revenues, making hospitals fertile ground for bribes from pharmaceutical companies, unnecessary drug prescriptions and excessive testing. Patients start queuing outside top hospitals before dawn, only to get as little as 2-3 minutes with a doctor.

Government Drive

Beijing wants to open the sector as China's burgeoning middle class, ageing society and environmental pollution fuel demand for more and better healthcare.

Currently, patients flock to the top hospitals for care because of the perceived poor quality of local primary care institutions, putting enormous pressure on big city hospitals.

Over the last five years, Beijing has expanded national health insurance coverage, encouraged greater private investment in the sector, and sought to control drug costs. It has also raised the threshold for foreign ownership of hospitals. In August, it loosened rules to allow foreign investors to wholly own hospitals in seven cities and provinces.

Beijing views relaxing rules on private investment in the sector both as a way to offer more options for patients and as a fillip for the reform of public hospitals, said Ellon Xu, Shanghai-based principal at consultancy Bain.

However, at a local level, public hospital leaders are often reluctant to even share their best doctors, let alone see them leave. Private rivals have to pay a premium to bring in star names, lure doctors from abroad or opt for younger doctors seeking a career boost. Only in August did Beijing become the first municipality to let doctors work in more than one place without permission from their boss.

Part of the problem, doctors say, is that public hospitals are shortstaffed.

China has 1.4 physicians per 1,000 people, compared to 2.4 in the United States and 2.8 in the UK, according to the World Health Organization. The number of doctors per 1,000 patients fell 26 percent in public hospitals and 16 percent in private hospitals between 2008 and 2012, according to Deutsche Bank.

While health authorities acknowledge a shortage, their focus is on getting more doctors for rural areas. The National Health and Family Planning Commission set targets in 2011 for increasing the numbers and quality of primary care physicians in these areas by 2020, in part through improvements in education.

However, the difficulties in attracting Chinese doctors to the private sector go beyond government policy.

Zhu Yan, who left a good job at the prestigious Peking Union Medical College Hospital to start his own clinic in the southern city of Shenzhen, ticked off a list of issues that prevent more doctors from working in private hospitals: Chinese doctors prefer the security and prestige of state hospitals; private hospitals want to hire older, more experienced doctors, but it's mostly younger doctors who are motivated to leave; public hospitals haven't figured how they would pay physicians who divide their time between private and public sectors; and public hospitals are already at full capacity, and don't want to risk losing any doctors.

Prestige

The Trustbridge-invested hospital, known as Shanghai Jiahui International Hospital and due to be completed in 2017, aims to bring Chinese doctors from North America and use U.S. management techniques to help reward and retain staff, said Gilbert Mudge, president of Boston-based hospital group Partners HealthCare International, which is a consultant to Jiahui.

While there are examples of successful private hospitals in China, reputation and prestige, a key draw for patients, take years to build and depend on the quality of doctors. That puts new private hospitals at a disadvantage - at least initially.

Investors often see the business opportunity in hospitals without understanding how challenging they are to run well, Mudge said.

"Anyone who came in in a private sector mode and thought, well, I'm a land developer, I can run a hospital, I can build a hospital and run it - I think they're underestimating the complexity of healthcare."