Chinese health and judicial authorities are examining alleged medical insurance fraud at psychiatric hospitals in Hubei province, a case that raises questions for insurers and public fund managers about controls on specialised inpatient services and long-term care demand.
According to The Diplomat’s report, an investigation by Beijing News described several private psychiatric institutions in the cities of Xiangyang and Yichang that allegedly admitted people without mental illness and billed public medical insurance for inpatient treatment that was not provided. The report said hospitals typically recorded around 140 yuan per patient per day in charges and sought reimbursement for most of that amount under government-run medical insurance, while offering patients free or low-cost hospitalisation. Some facilities reportedly had only a small number of patients, while others accommodated more than 100 at a time, implying that aggregate monthly claims could run into hundreds of thousands of yuan across the group. The pattern suggests a reliance on psychiatric admission status and diagnosis codes as the basis for repeated claimable expenses.
According to the undercover reporting, conditions in some hospitals were described as poor. Patients were said to have been subjected to physical and verbal abuse and to have been required to clean hospital areas, bathe other patients, and perform other routine work. The report also indicated that discharge could be difficult to obtain, even when families, staff, and patients agreed that no psychiatric condition justified continued hospitalisation. In at least one case, prolonged confinement was linked to suicide. Beijing News reported that local awareness of questionable offers had grown, noting that a public hospital in Xiangyang displayed a poster advising residents to be cautious about psychiatric facilities advertising free treatment.
According to China Daily’s report, China’s National Health Commission (NHC) said on Feb. 5 that it had dispatched officials and experts to supervise investigations into suspected medical insurance fraud at psychiatric hospitals in Xiangyang and Yichang. The NHC said it “has attached great significance” to recent media reports, which alleged that hospitals admitted people without mental illnesses, misused medical insurance funds, and infringed on patients’ rights. According to a statement aired by China Central Television, a central team will supervise and guide local authorities as they investigate and handle any violations in line with existing laws and regulations.
The commission urged health departments nationwide to increase oversight of psychiatric institutions and related departments, standardise medical services, and “effectively safeguard patients’ rights and public health.” For insurers and administrators of medical security schemes in Asia, the case illustrates the exposure that can arise in benefit areas where inpatient stays are discretionary, clinical assessments are specialised, and local monitoring capacity is uneven.
The Beijing News investigation and subsequent commentary suggest that two main groups were recruited by the Hubei hospitals: individuals with alcohol dependence seeking a place to stay, and older people attracted by offers of free food and accommodation. Many of the elderly patients reportedly came from rural areas, where pension income is limited and government services are less developed. Long-running rural-to-urban migration has also left some older residents in villages with fewer working-age family members living nearby to provide daily support.
Analysts cited by The Diplomat pointed to structural pressures in China’s “90-7-3” elder care model, under which about 90% of seniors are expected to receive care at home from family members, 7% in community-based services, and 3% in institutions. The model assumes that most older people will have relatives willing and able to provide care, and that community and institutional services will be available and financially accessible when needed.
In Xiangyang, a nurse quoted by Beijing News said institutional elder care generally costs around 1,000 yuan per month. Government figures show that the average pretax wage for a rural migrant worker last year was just under 5,000 yuan. For low-income seniors, the offer of free room and board in a hospital setting can therefore appear financially attractive compared with standard institutional fees. Demographic projections point to further strain. The World Health Organization estimates that by 2040, a little over 400 million people in China will be aged 60 or above, around 100 million more than at present. Without parallel expansion and regulation of long-term care and health services, public and private payers may continue to encounter schemes that target older, low-income populations and exploit oversight gaps.
The Hubei investigations are unfolding against the backdrop of a broader enforcement drive against abuses of China’s medical insurance funds. In August 2025, the Supreme People’s Court (SPC) instructed courts nationwide to intensify action against crimes related to medical insurance fraud, citing the need to protect fund security and public health entitlements. In a statement issued with details of four illustrative cases, the SPC described the national medical insurance fund as people’s “life-saving money” and underlined its role in the system. The court said: “The fund concerns the basic interests of the public and relate to the healthy and sustainable development of the medical security system. It is also crucial for the long-term stability of the country.”
According to SPC data, courts across China concluded 1,156 criminal cases of medical insurance fraud in the previous year, an increase of 131.2% from the year before. More than 402 million yuan (US$55.9 million) in losses was recovered. One case involved a former controller of a private hospital in Datong, Shanxi province, surnamed Ai. A local court found that Ai and six others solicited patients for unnecessary hospitalisations and defrauded the national insurance fund by inflating drug prices, increasing medication and examination fees, submitting false bed occupancy reports, fabricating medical records, and exaggerating medical expenses. By the end of 2020, the hospital had falsely claimed more than 9.7 million yuan from the fund. Ai was sentenced to 13 years and six months in prison and fined 500,000 yuan. The six co‑defendants received prison terms ranging from four to 11 years and fines from 30,000 to 200,000 yuan.
The SPC has also highlighted offenses involving the resale of medicines obtained via medical insurance, noting both financial impact and potential risks to drug quality. In one case, a man surnamed Dai in Fuliang county, Jiangxi province, was sentenced to six years in prison and fined 120,000 yuan for profiting from the illegal resale of medical insurance drugs. Dai, who did not hold a drug distribution license, purchased medicines via WeChat and sold them on between June 2020 and December 2021, earning more than 3.4 million yuan. He made an additional 750,000 yuan from July 2022 until his arrest.
The court has urged judges to monitor emerging fraud methods and called on government departments to reinforce supervision of medical insurance funds. For commercial insurers and social health insurance administrators across Asia, the developments in China point to several technical priorities: closer vetting and monitoring of providers in psychiatry and elder care, wider use of claims data analytics to identify unusual admission and billing patterns, and coordination with health and regulatory authorities to address schemes that target vulnerable patient groups and national insurance pools.
