Inside the dark reality of psychiatric hospitals accused of turning healthy people into ‘patients’

Several privately run psychiatric hospitals in central China are facing scrutiny after an undercover investigation alleged that people with no serious mental illness were admitted in order to siphon money from the country’s public health insurance system.

The controversy first surfaced in an investigation by Beijing News, later reported by the South China Morning Post, which detailed how facilities in Xiangyang, in Hubei, allegedly enrolled healthy individuals as long-term psychiatric patients. According to the report, some were enticed with promises of “free hospitalisation” and low living expenses, an offer that appeared attractive in a system where public insurance reimburses most medical costs.

How the alleged scheme worked

China’s medical insurance structure requires patients to pay only part of their hospital bills, with the state-backed insurance fund covering the remainder. Investigators alleged that once individuals were admitted, hospitals used their personal information to create treatment records and claim reimbursements, even when little or no care was actually provided.

During the undercover probe, a reporter posing as a relative contacted more than 10 psychiatric facilities in Xiangyang. The investigation found that all of them offered free or low-cost stays and encouraged prolonged admissions. “What we hope is that your relative can live here for a long period of time,” a hospital staff member reportedly told the journalist.

The reporter later secured a job as a nurse at Xiangyang Hongan Psychiatric Hospital. Inside, he observed that many patients displayed only mild symptoms, or none at all. Some elderly residents reportedly treated the hospital as a budget nursing home rather than a psychiatric institution.

One nurse quoted in the report admitted he himself had been falsely registered as an inpatient while continuing to work normally. “I do not need to take any medicine or receive any treatment,” he said, adding, “I cooperated with them to cheat the insurance authority.”

Billing documents reviewed during the investigation allegedly showed inflated charges. In one case, a patient who stayed 90 days was billed 12,426 yuan, including more than 6,000 yuan for treatments the patient said never occurred.

Allegations of abuse and recruitment incentives

Beyond fraudulent billing, the report described troubling conditions inside some facilities. Allegations included physical mistreatment, confiscation of patients’ mobile phones, and restrictions on contact with families.

Staff were reportedly offered commissions between 400 and 1,000 yuan for bringing in new patients. At the same time, hospitals received fixed daily reimbursement fees from insurance authorities, creating financial incentives for long-term admissions.

Medical reform expert Xu Yucai told Beijing News that psychiatric institutions were particularly vulnerable to such abuses because of their closed environments and the fragile condition of many patients. Another issue, he said, is that patients often lack the ability to fully understand or challenge their treatment records.

“They cannot properly evaluate whether they have received any medical treatment or not,” he said.