A cluster of psychiatric hospitals in Hubei has been accused of systematically inducing patients with “free admission” and transport to claim medical-insurance payouts, a scandal that has torn at the seams of one of China’s largest private medical empires. Investigation by The Beijing News identified the core implicated facility, Xiangyang Hengtai Kang Hospital, as a holding of Aier Medical Investment — a non‑listed vehicle ultimately controlled by Chen Bang, founder and de facto controller of listed Aier Eye Hospital Group.
What began as a local healthcare fraud investigation has quickly escalated into a reputational crisis for a group that straddles public markets and opaque private holdings. Aier Eye issued a public statement distancing its listed business from the Xiangyang facility, noting the hospital is a fourth‑tier subsidiary in a joint venture that includes Aier Medical Investment; yet the corporate web through which control flows leaves questions about where responsibility begins and ends.
The episode illuminates the “one body, two faces” architecture at the heart of Aier’s expansion. On the visible face sits Aier Eye, the listed flagship whose market standing and disclosure obligations offer a degree of transparency. Behind it is Aier Medical Investment, a sprawling, non‑listed platform directly 79.99 percent owned by Chen, used to incubate high‑risk, high‑growth businesses from psychiatric wards to biotech and pet hospitals.
That separation is purposeful: isolating controversial or nascent lines in non‑listed entities limits the immediate damage to the stock market image while permitting aggressive expansion. It also creates opportunities for asset transfers, cross‑financing and later injections of matured assets into the listed company — tactics common in Chinese healthcare rollups but now under new scrutiny.
The accused psychiatric network typifies why such structures draw regulatory concern. Psychiatric hospitals rely heavily on inpatient revenue, creating incentives to maximise bed occupancy and lengthen stays. The Aier‑linked network’s declared footprint is large and low‑profile; one provincial site advertises 20 rehab hospitals, 16 of them psychiatric, with Aier stakes varying between 10 and 100 percent through nested subsidiaries.
This is not an isolated problem. Similar compliance failures have surfaced in China’s private cosmetic, fertility and rehabilitation sectors, underscoring a regulatory lag as capital races ahead of governance and oversight. When private operators chase scale and margins in areas with weak external checks, systemic abuse of reimbursement systems becomes possible — and politically combustible.
For investors and regulators the immediate questions are legal exposure and contagion. The listed company’s public markets standing depends on perceived distance from the misconduct, but the reality of concentrated control via non‑listed vehicles complicates that separation. Expect closer scrutiny from health insurance authorities, securities regulators and possibly criminal investigators, alongside pressure for clearer disclosure of related‑party ownership and transaction structures.
The scandal exposes a broader policy dilemma for China’s healthcare system: how to reconcile private capital’s role in expanding care with the need for tighter supervision, stronger governance and insurance‑claim integrity. If enforcement accelerates, it could slow consolidation strategies that have driven rapid private‑hospital expansion — a costly outcome for operators but a necessary correction for public trust and system sustainability.