an Economist Intelligence Unit business Healthcare
Understanding China’s Emerging Private
Healthcare Market
Asian Healthcare Titans 2016 | China
A report by The Economist Intelligence Unit
March 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
Contents
Foreword
2
Executive Summary
3
Overview of China’s Healthcare Landscape
4
Opportunities & Challenges in China’s Private Healthcare Sector
6
Common Approaches to Private Healthcare Investment in China
12
Profiles of Key Private Healthcare Facilities in China
15
How Can Clearstate Help Your Business?
20
© The Economist Intelligence Unit Limited 2016
1
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
Foreword
Ivy Teh
Managing Director at Clearstate, an Economist Intelligence Unit business.
Since 2005, China has seen significant reform and expansion of its healthcare system. While healthcare
provision has developed rapidly, China has continued to launch more aggressive reforms to expand
access to care and further improve the quality of care. Over the past four years the Chinese government
has formulated a series of policies to boost private healthcare and integrate it with the public
healthcare system.
The rise of the private healthcare sector, particularly private hospitals, has captured attention
not only from investors, but also from patients, physicians and pharmaceutical and medical device
companies. Both local and foreign companies are investing in the development of specialised and
differentiated private hospitals, along with innovative aged care. However, many private providers
face tough challenges such as difficulties in hiring physicians, dealing with bureaucratic constraints,
or accessing finance. Innovative strategies are required to tap this growing industry successfully.
Clearstate, an Economist Intelligence Unit business, is a healthcare market insight and intelligence
consultancy that specialises in discovering opportunities in emerging economies for pharma, medtech
and health services clients.
In this latest white paper, we focus on China’s emerging private healthcare market, pinpointing the
major trends that will alter this evolving business environment over the next five years. We describe
the government’s efforts to entice the private sector into sharing the nation’s acute care burden to
alleviate overcrowding in the large public hospitals. We also examine the gradual shift in the types of
care and services on offer to the paying patient, as more private investors enter primary and acute care
provision.
Finally, we offer our own views on how local and foreign companies should rethink their business
models and the ways in which they engage with healthcare stakeholders in order to navigate the risks
and benefit from the opportunities ahead.
We hope that you will find this assessment of the rapidly growing private sector interesting, and that
it will give you a new perspective on the development of your business in China.
If you have any opinions you would like to share, then we would welcome your feedback.
Best regards,
Ivy.teh@clearstate.com
2
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
Executive Summary
C
hina’s government is spearheading an aggressive reform of the country’s healthcare system as
it seeks to expand access to care and improve the performance of the healthcare system. While
health spending has risen, however, a rapidly ageing population is only serving to exacerbate the
strains on the public sector as the system struggles to cater for a rising number of patients with
chronic diseases. The government is therefore encouraging the private sector to take over some
of the burden of care delivery, in the hope of developing an efficient mix of public and private
providers and suppliers to serves its citizens’ needs.
In this white paper, we examine the government policies and market opportunities that underpin
private investor confidence in China’s healthcare market, as well as the challenges that are currently
limiting growth. Over the past five years, as China has gradually lifted its previously stringent controls
on market access, the country’s healthcare sector has seen a flurry of private investment deals from
both foreign and local companies. These pioneers have fostered the rapid development of the industry,
as they learnt to navigate the intricacies of engaging local authorities and of operating a healthcare
facility in China.
This paper highlights several prominent private investors of hospitals and aged care centres, and
profiles their market approach in order to pass on the fruits of their experience. We explore how some
have opted for diversification in order to maximise revenue growth, while others have focused on
streamlining costs or deepening their use of local knowledge and expertise, particularly in the area of
hospital management.
© The Economist Intelligence Unit Limited 2016
3
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
OVERVIEW OF CHINA’S HEALTHCARE
LANDSCAPE
The Chinese government is driving the growth of the private
healthcare sector
C
China National Health and
Family Planning Commission
Statistical Yearbook 2015
1
4
hina, the world’s largest nation with a population of 1.3bn people, has inherited a largely hospitalbased healthcare system managed by the Ministry of Health and local governments. This is
supplemented by a vast cadre of village doctors and a newly developed system of grassroots providers.
Government data suggest that in 2014 51.5% of hospitals in China operated in the public sector, which
acts as the main provider of healthcare. Private hospitals typically cater to the needs of a smaller pool
of medical tourists and expatriates, more affluent local citizens and those who seek patient-centric
care.
Accordingly, while public hospitals in China have an average of around 280 beds each, the average
private hospital has just 65 beds. Most of these small private hospitals started off as clinics, often
lacking hospital management capabilities. Furthermore, these hospitals generally lacked a sound
financing model to support scalability. Although an estimated 83.5% of private hospitals are small
(with fewer than 100 beds), growth for these hospitals has lagged that of larger hospitals (with over
100 beds). (See figure 1, page 6.) Over the past few years, many large hospitals have been built and
opened across the country, with joint venture deals and acquisitions driving strong growth in this
segment.
In 2012 the Chinese government announced ambitious plans to develop the private healthcare
sector, in order to relieve the strains on the public healthcare system resulting from the rapid ageing of
the population. It set in motion a series of reforms that aimed to raise the proportion of hospital beds
funded by the private sector to around 20% by 2015. The primary way that the government sought to
ease the public sector burden was by raising the attractiveness of private investment into healthcare.
Under the 13th Five-Year Plan, discussions for which began in mid-2013, healthcare reforms
are structured into three categories—infrastructure development, cost-reduction and expansion
of insurance coverage—with the aim of identifying and nurturing new areas of investment. Key
initiatives include improving access for private investors to develop and acquire private hospitals,
encouraging the development of private aged care facilities and home care services, developing more
comprehensive medical insurance, expanding the scope of physicians’ insurance and establishing
a more efficient mechanism for resolving disputes. In addition, the government is keen to nurture
mHealth by encouraging investment in online healthcare products and information-sharing on cloud
platforms.
However, achieving these goals will be challenging. The private sector in China still faces too many
regulatory and legislative pitfalls, while recruitment is getting more onerous as private investors seek
skilled staff for their newly built or managed private hospitals. The final challenge is to attract enough
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
patients at a price sufficient not only to cover the costs of good care, but also to secure investor
returns.
Statistical comparison of public and private hospitals in China
Public hospitals
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Small
2010
Medium
2011
Large
2012
2013
CAGR -0.3%
Very Large
2014
2015
Hospital beds (m)
5
Hospital visits (m)
5,000
4
4,000
3
3,000
2
2,000
1
1,000
0
2010
2011
2012
2013
CAGR 6.3%
2014
2015
0
Private hospitals
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Small
2010
Medium
2011
Large
2012
2013
CAGR 16.4%
Very Large
2014
2015
Hospital beds (m)
1.4
Hospital visits (m)
700
1.2
600
1.0
500
0.8
400
0.6
300
0.4
200
0.2
100
0.0
2010
2011
2012
2013
CAGR 30.9%
2014
2015
0
Sources: China National Health and Family Planning Commission; Clearstate analysis.
© The Economist Intelligence Unit Limited 2016
5
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
OPPORTUNITIES & CHALLENGES IN CHINA’S
PRIVATE HEALTHCARE SECTOR
OPPORTUNITIES
The government is lowering the barriers to private investment
T
o support the development of the private healthcare sector, the Chinese government has taken
active steps to remove regulatory barriers that previously acted as a deterrent to investors. One
such step came in the late 2011, when the government announced that it would revise China’s Foreign
Direct Investment (FDI) catalogue in 2012 to allow for up to 100% foreign ownership of hospitals under
a Wholly Foreign Owned Entity (WFOE) structure. Previously all investment had to be done via joint
ventures with a minimum of 30% Chinese ownership.
The creation of the China (Shanghai) Pilot Free-Trade Zone in late 2013 provided a more effective
platform for FDI into the healthcare sector. Initially, investors here were discouraged by stipulations
such as a minimum investment threshold of CN¥ 20m (US$3m) and a maximum operating period of
20 years. However, these requirements were lifted in 2014 in a bid to accelerate private investment.
Artemed Group, a German healthcare provider operating eight hospitals and five aged care centres in
Germany, was the first to move. In July 2014, the group signed an agreement to establish China’s first
wholly foreign-owned hospital in the Shanghai Pilot Free-Trade Zone, which is expected to open in
early 2016.
In another key policy change in mid-2014, the Chinese government moved to allow domestic
or foreign private investors to acquire and manage an existing public hospital. Two cities (Beijing
and Tianjin) and four provinces (Jiangsu, Fujian, Guangdong and Hainan) subsequently followed
Shanghai’s lead in providing opportunities for foreign investors to set up or acquire hospitals within
their jurisdiction.
The lifting of restrictions did help to encourage investor interest in China’s healthcare sector,
especially from US-based healthcare providers. According to Dealogic, merger and acquisitions in
China’s healthcare sector totalled at least US$11.3bn in the first eleven months of 2014, continuing an
upward trajectory from at least US$10bn in the same period of 2013.
In addition to foreign ownership policy changes, the Chinese government has taken strides in
removing resourcing barriers by relaxing the requirement for physicians to practise at single sites.
Before the wave of reforms brought on by the 12th Five-Year Plan, the private healthcare sector had
been largely left to its own devices in its struggle to match up to the care standards offered by the
public healthcare system. One major barrier was the regulation barring physicians from working at
multiple sites, which made it difficult for small private hospitals to offer an attractive enough salary
package for skilled physicians to quit their jobs in the public healthcare sector.
6
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
This block was particularly pronounced for elite physicians working in the largest and most famous
Class 3A public hospitals in major cities. Chinese patients flock to such facilities regardless of their
condition in order to obtain care from the best physicians, with most of the costs covered by social
healthcare insurance coverage within the public healthcare system. Elite physicians contemplating
crossing completely over to private hospitals, where patient numbers are far lower, would necessarily
face a significant cut to their income.
Now that the barrier to multi-site practices has been lifted, private providers are in a stronger
position to recruit good physicians. In mid-2015 provincial health authorities in Guangdong also
announced a trial plan to allow nurses in parts of Guangdong to conduct multi-site practices under
the right conditions. Nurses working in tertiary hospitals could start offering specialised outpatient
services in community healthcare settings, while community hospitals could also offer nursing services
at patients’ homes.
With the promulgation of multi-site practice licences as well as the simplification of administrative
procedures for multi-practice sites in late-2014, the Chinese government demonstrates that it is taking
a multi-faceted approach to nurturing China’s private healthcare sector. By helping the development
of “soft infrastructure”, such as staff, it can help to complement the rise of “hard infrastructure” in the
form of hospitals and clinics developed partly through foreign ownership.
Private hospitals in China are also becoming increasingly integrated into the country’s public
healthcare system, with selected private hospitals now eligible to provide reimbursable treatment for
patients funded through social healthcare insurance. In mid-2014 (latest data), 37 private hospitals
in Beijing, 43 in Shanghai, 40 in Hangzhou and 17 in Harbin were earmarked to be included in this
scheme.
Foreign-local consultancy partnerships have also flourished under these new market conditions.
In mid-2014 the University of Pittsburgh Medical Center (UPMC), a US healthcare provider, announced
a five-year consultancy deal with Xiangya Hospital in Hunan Province to establish a 200-bed
international medical centre within its 3,500-bed general hospital. UPMC would provide training to
medical and administrative staff in the centre, make recommendations on technology, procurement
and staffing plans as well as provide telemedicine links to its existing hospitals in Pittsburgh. This
is UPMC’s second consultancy deal in China. Its first was in 2011 when it started providing remote,
second-opinion pathology consultations to KingMed Diagnostics, which is China’s largest independent
medical laboratory.
Small private hospitals offer opportunities for specialisation
and differentiation
The hospital sector is a highly competitive one, while private hospitals have often been squeezed out
of competing for primary care patients due to their exclusion from the social healthcare insurance
system. In order to differentiate themselves from public hospitals and justify the costs to patients
who are paying out-of-pocket, therefore, many locally owned private hospitals have become service-
© The Economist Intelligence Unit Limited 2016
7
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
oriented general hospitals, with a high emphasis placed on the patient experience. The VIP wings
developed within Beijing Hospital exemplify this strategy. In China, general hospitals account for
65.5% of total private hospital beds.
However, around 25.2% of private hospital beds are now provided by specialty hospitals. A rapidly
ageing population combined with the increasingly sedentary lifestyle of China’s urbanised population
have contributed to a rise in chronic diseases, and increased the demand for specialty care in the
healthcare system. Moreover, many private hospitals, particularly the 5% that are foreign-owned, have
ventured into the specialty field in order to differentiate themselves from public hospitals. High-end
specialty care chains include Aier Eye Hospital and Beijing Jiamei Dental, which employ state-of-theart technology to care for their patients.
Recent investments have confirmed investors’ growing interest in specialty care. Delta Health, for
example, is a venture-capital-backed Chinese provider that in 2012 opened its first clinic, DeltaWest
Clinic, offering general outpatient care. It now intends to establish a chain of similar clinics across
Shanghai, but has increasingly started to specialise in the diagnosis and care of cardiovascular
disease. In late 2013, it announced a joint venture with Columbia University’s cardiac surgery and
cardiology division as well as Columbia Heartsource, a US-based physician-led management service
organisation, to open Shanghai Delta Hospital, a world class cardiovascular hospital consisting of 230
beds in its initial phase.
In mid-2015, meanwhile, Columbia Pacific Management (CPM), via its China arm, Columbia China,
announced a major investment into the 200-bed Kaiyuan Orthopaedic Hospital in Shanghai. CPM’s
current Asian portfolio includes 28 hospitals across India and Southeast Asia as well as a number of
outpatient clinics and aged care centres in China. In late 2014 it announced plans to build two 250bed multispecialty hospitals in Wuxi and Changzhou, scheduled to open in 2018. The Kaiyuan venture,
however, marks the first time that CPM will operate a hospital in China, as well as a move towards
specialisation. The company intends to expand the orthopaedic hospital into a 300-bed facility over
the next few years, while bringing its operation under the brand name of Columbia China.
Ambitious government targets on aged care are likely to
encourage foreign projects
China’s population is ageing rapidly. The number of people aged 65 and above will rise from 132m
in 2015 to 331m by 2050, while the number aged 15-64 will fall from 1bn to 849m, according to
projections by the UN Population Division. That will cause the ratio of those aged 65 and above to those
aged 15-64 to triple from 13% in 2015 to 39% by 2050. Moreover, even now, many of China’s urban
workers are too burdened with busy work schedules or too ill-equipped to cope with caring for elderly
family members afflicted with chronic diseases.
Given these trends, it is little surprise that Chinese healthcare provision has quickly extended
beyond primary and tertiary care into aged care. Aware of the growing problem, in 2013 the Chinese
government set itself an ambitious target to have in place 8m aged care beds and 10m aged care staff
by 2020. To achieve this and alleviate the public sector burden, it will need to encourage private
8
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
investment in the aged care sector.
The historic signing of the China-Australia Free Trade Agreement (ChAFTA) in mid-2015 provided
a strong hint of the Chinese government’s intent to import expertise and services in the aged care
sector. Austrade, the Australian government trade commission, has already pinpointed a number of
opportunities for Australian healthcare providers in China’s aged care sector. These include training
and education programmes in human resources, home care services, seniors living apartments or
villages, design and planning for aged care and senior living apartments as well as infrastructure
investment and operation.
Back in 2013, Australia’s oldest provider of home nursing and healthcare services, Royal District
Nursing Service (RDNS), had already taken the initiative to build two major aged care projects in
China, in conjunction with two local organisations: Zhongshan Vocational College and Beijing Real
Estate Association/Geely University. The partnership with Zhongshan Vocational College revolves
around developing and operating an aged care centre that would include 1,500 care places and a
400-bed hospital, training and developing the care staff as well as researching and developing quality
standards, models of care, clinical pathways and operational management.
CHALLENGES
Bureaucratic red tape continues to dampen private investor
confidence
Although the Chinese government is easing regulatory barriers to facilitate greater foreign investment
into the healthcare sector, the reforms have been slow to trickle down to the local provincial
governments, which are still in charge of administering and approving operating licences. Investors
expecting a well-structured and efficient administrative process as they launch their private healthcare
ventures in China will almost certainly be disappointed.
Ensen Care, a subsidiary of Legend Holdings, which is itself the owner of computer manufacturing
giant Lenovo, found this out the hard way during the launch of its aged care centre pilot project,
according to a report in The Economist2. Opening in Changzhou, this pilot project aimed to help
the local government to build up healthcare infrastructure, with private capital subsidising public
spending. In exchange for a subsidised parcel of land, Ensen Care intended to build a hospital and a
community centre which would then be transferred to municipal authorities. Ensen Care had relied on
its formal partnership with the local authorities being sufficient in overcoming any obstacles in the
construction and operating of the project. The company had thus initially projected an investment
return of 7% on the aged care centre.
Now, as it nears the official opening of the aged care centre, one executive told The Economist that
the investment return will be closer to 3%. In the first year of its building project, its struggles with
bureaucratic red tape have so far required it to submit 38 reports to municipal officials to obtain wideranging approvals. The city government even asked Ensen Care to start paying taxes before the aged
© The Economist Intelligence Unit Limited 2016
2015. Looking for ways
to spend. The Economist
[Online]
Available at ”http://
www.economist.com/
news/china/21664238buried-debt-governmentstruggles-lure-investorslocal-projects-looking-ways
2
9
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
care centre had opened for operation, in a bid to boost depleted local public funds. If such bureaucratic
hurdles persist, there is a risk that Ensen Care, and other companies with ambitious investment plans
will shy away from China’s private healthcare sector in future.
Physicians are hamstrung by public sector administration and a
reluctance to work in the private sector
Although the Chinese government has implemented policies to address the dearth of quality physicians
in the private sector, administrative challenges still hinder the use of multi-site physician licences.
Even after the first circular outlining the new rules was published, physicians were still required to
seek permission from their primary employer and to register their multi-site practice with local health
authorities before they could start providing consultations at another facility. This is because their
medical licences are held by the hospitals where they currently work.
The latest circular, which expressly requires local health authorities to simplify the registration
procedure, is a step in the right direction. But it still does not remove the employer consent
requirement outright, which means that it leaves public hospital employers some leeway to restrict the
availability of physicians to work in the private sector. After all, administrators at elite public hospitals
are likely to view a developed private sector as an unwelcome rival and will be loath to weaken their
own establishment by allowing skilled physicians to leave. Some regions are piloting the use of filing
procedures in place of registration for multi-site physician practices. If these pilots prove successful
and the procedure is implemented more widely, then it may eliminate the need for consent from public
employers and empower physicians to be truly mobile.
Even if the administrative barriers were eased for physicians, the most skilled physicians would still
face significant social pressures. The prestige, career security, renown and political benefits associated
with employment at top public and academic hospitals are considerable, while physicians’ evaluations
and promotions are currently based solely on their performance at such hospitals. Any experience they
have acquired at private facilities, or through multi-site practices, is disregarded.
As a result, very few Chinese physicians currently have multi-site practice licenses. For example,
in Shenzhen (one of China’s most affluent and reform-minded cities), none of the 6,000 physicians
is registered for multi-site practice. Private hospitals are most keen to bring on board senior,
experienced physicians in order to attract a larger pool of clientele, but it is far easier to recruit
younger, less experienced physicians who run less risk of undermining their career aspirations.
Financing is hard to obtain, although creative leasing
alternatives are emerging
Private companies looking to build and equip hospitals often find it an uphill task to secure the bank
financing they need to realise their plans. Faced with the tightening of credit conditions by the Chinese
government in recent months, many financial institutions have become more reluctant to lend money.
Moreover, the majority of loans provided to the healthcare sector have traditionally been directed at
10
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
state-managed facilities. If the private sector is to develop rapidly, investors need to be able to secure
funds. This is particularly true for specialist hospitals which rely more than general hospitals on the use
of state-of-the-art technology.
Due to the lack of ready credit from financing institutions, many investors are instead turning
to leasing (rather than purchasing) as a way of procuring such technology. Capital equipment
manufacturers such as Siemens, through Siemens Financial Services (SFS), are providing leasing
services to spread out the purchase price into instalments across several years. In this way medtech
companies and other manufacturers can offer hospitals a one-stop service, combining the financing,
equipment and training into one package and greatly streamlining hospitals’ management processes.
According to SFS, China’s financial leasing market is enjoying double-digit growth rates at present.
In mid-2015 the Chinese government announced that it would lend its support to private hospital
financing by approving share listings and bond sales of qualified private hospitals, as well as by
encouraging financial institutions to provide private hospitals with innovative products. Plans are
also underway to encourage venture capital and financial guarantee institutions to cater to new small
healthcare businesses. Non-profit private hospitals would also stand to receive subsidies from the
government. These are early days, however, and it remains unclear how quickly this statement of intent
will translate into any increase in private hospital financing.
© The Economist Intelligence Unit Limited 2016
11
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
COMMON APPROACHES TO PRIVATE
HEALTHCARE INVESTMENT IN CHINA
B
ased on a statistical report published by the Ministry of Commerce in 2012, total pharmaceutical
sales were estimated at CN¥ 1.11trn (US$180bn) and hospital drug sales accounted for around 80%
of the market. Many pharmaceutical companies see hospitals as prime acquisition targets as they seek
to build distribution channels for their products. There are also several instances of non-healthcare
related companies, including property developers such as Jiangnan Mould & Plastic Technology
Limited and Join-in Holdings, venturing into the hospital market.
These are in addition to the private equity firms, venture capitalist firms, hospital conglomerates
and other investors who are all looking for growth opportunities in this lucrative yet challenging
segment within the healthcare space. Clearstate examines the various approaches adopted by this
broad spectrum of companies in their investment bids.
#1: Diversify business portfolios to achieve higher revenue
growth
Since the Chinese government released the floodgates for hospital investment in 2012, private equity
firms such as Fosun Pharmaceutical, Tomato Holdings, Chindex International, Chinaco Healthcare
Corporation, Concord Medical Services Holding are among those to report robust returns from their
investments in the sector. Fosun Pharmaceutical established trusteeships in several key hospitals and
earned hospital revenue of CN¥ 166.9m in 2012, a 112% increase from 2011. The company has plans to
invest in an additional 500 hospitals across Tier 2 and Tier 3 cities over the next 5-10 years.
Nashville-based Chinaco Healthcare Corporation Ltd (CHC Healthcare), a private hospital group,
recently opened its first replacement hospital, a Class 3A, 500-bed CHC international hospital in Cixi,
Zhejiang province, replacing the existent 150-bed Second People’s Hospital. The facility is China’s first
large-scale joint venture hospital serving both public and private patient populations. Furthermore,
the group is planning to construct one general and three specialty care hospitals in Xiamen Wuyuan
Medical Park.
Through investments such as these, China’s hospital market can secure additional capital infusion
by offering positive returns to investors.
#2: Lateral expansion of existing service offerings
Building joint-venture hospitals or strategic partnerships is a way of filling voids in the healthcare
services and providing a more coherent patient experience. Last year, Chindex International
announced the opening of Beijing United Family Rehabilitation Hospital (BJU Rehab Hospital); this
will add to United Family Healthcare’s (UFH) existing array of healthcare services, which range from
prophylactic care to therapeutic medical and surgical interventions and home health.
12
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
In a contrasting move, The First Affiliated Hospital of China Medical University extended its posthospital care to a private hospital partner, who has a specialty in chronic disease management, as it
did not have internal capabilities in this field. This year, Aier Eye Hospitals announced its intention
of expanding its business vertically into the cosmetic eye surgical hospital business while TC Medical
partnered with Chongqing Research Centre to establish its reproductive care business.
As a result, hospital groups are able to provide more comprehensive care and build strong brand
presences in their respective fields.
#3: Acquire and accumulate hospital management expertise
Over the past few years, Fosun Pharmaceutical has adopted an incremental, stepwise approach
towards building its hospital management experience through the acquisitions of several hospitals,
including Yueyang Guangji Hospital, Suqian Zhongwu Hospital, Changcheng District Central hospital.
The success of Changcheng District Central hospital, with an annual total of 2m patient visits, was
testament to Fosun Pharmaceutical’s ability to manage the hospital well.
Other successfully managed hospitals include Jian Gong Hospital, a Class 2A hospital in Beijing. In
2000, Phoenix Healthcare Group acquired a majority interest in the hospital, and helped to develop
it into one of the city’s largest private general hospitals. In 2010, it became the eighth general
hospital in China to be awarded accreditation from Joint Commission International (JCI), a US-based
accreditation body.
Given that Class 3 hospitals have established a secure foothold in the healthcare sector, companies
venturing into the general care segment have to possess strong management capabilities to attract
sustainable inflow of patient revenue and to outperform rivals.
#4: Streamline channel costs and improve profitability
With the recent government reforms in drug prices and the wave of “patent cliffs’’ across the
pharmaceutical sector, pharmaceutical companies are looking at alternative ways to minimise the risk
of decreased profitability. Since hospitals are central to drug market access, many pharmaceutical
companies see establishing trusteeships and acquiring hospitals as ways to establish distribution
channels and underpin sales.
By owning the hospital, companies are able to bypass distributors and achieve more autonomy on
drugs sales, which are closely tied to the patient pool of the hospital. If the hospitals earn enough
accreditation to be upgraded to Class 3 hospitals, they can expect a greater influx of patients lured by
this enhanced reputation. Most importantly, the removal of middleman greatly reduces administrative
costs and thus improves profit margins for drugs.
However, government reforms aimed at reducing public hospitals’ reliance on drug sales might
threaten this strategy in the future, either through nationwide regulatory changes or simply through
greater pricing competition from the public sector. Currently, a pilot programme is underway in which
public health centres across 100 prefecture-level or above cities are forbidden to impose a mark-up
© The Economist Intelligence Unit Limited 2016
13
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
on drug sales. If this proves successful, then the government aims to extend this rule to all public
hospitals across the country by 2017, affecting the profitability of these distribution channels.
#5: Explore unconventional approaches to improve/maximise
market access
As market competition intensifies amid cost-containment measures and price erosion, many
companies are exploring unconventional business models to improve their market penetration.
Inner Mongolia Furui Medical Science, a company dedicated to the hepatology field, aims to provide
a comprehensive chronic liver disease management service. Its business is split into two segments:
60% of its revenues are derived from drug sales targeted to treat liver fibrosis, while the remaining
40% comes from the sales of its liver imaging system, Fibroscan. In 2012, the company established
Beijing Furui Hospital to provide specialty care in the area of chronic liver management. Its ability to
provide a continuum of care via the provision of its drugs and medical imaging equipment proved to be
an innovative business model that other companies could imitate.
Mayinglong Pharmaceutical Group is a traditional brand enterprise in China. Founded in 1582, it
has a long history of focusing on the anorectal and lower digestive tract field, with its related drug
sales accounting over 40% of the market. Having had the foresight to diversify the business into
operating anorectal specialty hospitals, the company now manages a chain of five hospitals in China.
It has therefore created a virtuous cycle of boosting its own product sales through these hospitals and
strengthening the company’s brand recognition within the field through quality care delivery.
14
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
PROFILES OF KEY PRIVATE HEALTHCARE
FACILITIES IN CHINA
W
e have compiled profiles of several leading private facilities in China, chosen for the robustness
of their management, soundness of their finances and renown as healthcare providers. We have
also examined the investment plans of several major foreign and local private healthcare providers and
companies, announced in the wake of the recent policy changes.
ESTABLISHED HOSPITALS
United Family Hospitals
Chindex was founded in 1981 by Roberta Lipson and Elyse
Beth Silverberg, two Americans who had moved to Beijing
Ownership
Chindex International
in the late 1970s. In 2014, it was acquired by a group led
(acquired by Shanghai Fosun
by Shanghai Fosun Pharmaceutical Group, a subsidiary
Pharmaceutical Group)
of Fosun International. Chindex’s premium healthcare
services are provided through its renowned world-class
hospital system in China, United Family Healthcare (UFH).
Geographic locations Beijing, Shanghai, Guangzhou,
Tianjin, Qingdao
Today, UFH operates a total of over 19 private healthcare
facilities across major cities in China and Mongolia,
including general and rehabilitation hospitals, clinics and
an oncology centre.
Size
~350 beds combined (BJU: 120
beds)
Beijing United Family Hospital (BJU), the flagship UFH
hospital, commenced operations through a JV between
Chindex and the Chinese Academy of Medical Sciences
in 1997. It is JCI-accredited, offering highly-qualified
Growth rate
18.0% revenue growth (2012-
medical staff from around the world, direct billing to over
13)
40 global insurance companies, a 24-hour emergency
room, inpatient and outpatient care, state-of-the-art
operating theatres and 24-hour in-house paediatric,
radiology, pharmacy, and laboratory services.
© The Economist Intelligence Unit Limited 2016
15
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
Shanghai Landseed International Hospital became the
first wholly externally funded hospital, as well as the first
Shanghai Landseed International Hospital
Ownership
Landseed International Medical
Taiwan-funded hospital, to open in mainland China when
Group (Taiwan)
it began operations in mid-2012.
The hospital was built with CN¥ 150m from the Taiwanese
Geographic location
Shanghai
Size
100 beds
Physician strength
30 full-time, 30 part-time
Local patient visits
~150,000 (2013)
Landseed International Medical Group, which has prior
experience operating a hospital in China since entering
into a JV to build the Shanghai Chenxin Hospital in 2002.
It features a comprehensive medical and healthcare centre
with 24-hour outpatient service, 24-hour call centre
services, advanced radiology services and various types of
specialty care.
According to an early-2014 statement by Landseed
Superintendent Chang Huan Chen, the hospital managed
to roughly break even in 2013. However, he also cited the
hurdles in recruiting quality local physicians and the lack
of coverage under the social healthcare insurance scheme
as limiting factors to greater growth.
Aier Eye Hospitals
The first Aier eye hospital was founded in 2001 in Shenyang, and
four more soon followed. The company was incorporated in 2003,
Ownership
Aier Eye Hospital Group (local)
and in 2009 became the first Chinese medical services institution to
be listed on the Shenzhen Exchange. It now operates nearly 50 eye
hospitals and employs a total of 1,400 physicians across the nation.
Geographic locations Shanghai, Guangzhou,
Wuhan, Changsha, Chengdu,
Chongqing, Hefei and more
Its flagship hospital, Shanghai Aier Eye Hospital, is the research and
technology hub of the entire network and serves to consult patients
with the most difficult and rare conditions.
The company has quickly captured a niche in China’s eye care market,
which has a large patient base and weaker competition from public
Number of facilities
Nearly 50 eye hospitals
hospitals. The company estimated that it held 10% of this market in
2011. It has gone from the top ophthalmology group in China, to the
largest ophthalmology hospital chain in the world.
Revenue
CN¥ 1.5bn (2013)
This aggressive expansion policy is set to continue over the coming
years. The company targets to manage 150-200 eye hospitals
by 2020, adding such hospitals primarily in urban areas with
higher population densities. The aim is to expand cutting-edge
technologies, products and services across the entire chain.
16
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
Mayinglong Anorectal Chain Hospitals
Ownership
Mayinglong Pharmaceutical
Group (local)
Mayinglong Pharmaceutical Group is a traditional brand enterprise
in China, founded in 1582. It has a long history of focussing on the
anorectal and lower digestive tract field as its core positioning, and
the company estimates that its anorectal drug sales cover over 40%
Geographic locations Beijing, Wuhan, Xi’an,
Shenyang, Nanjing
of the market.
In a bid to grow its brand strength and extend its market dominance,
Mayinglong Pharmaceutical Group established its first anorectal
Size
500 beds combined
speciality hospital in late-2008 in Wuhan. In the ensuing years, it
has added four more anorectal specialty hospitals in Beijing and
other major cities.
Physician strength
40 chief and deputy chief
physicians
These hospitals have amassed a strong core of physicians who
are experts in China’s anorectal therapy field and are also keenly
involved in scientific research. The physicians regularly partner with
top-level national research institutions to ensure they are using the
most advanced international anorectal diagnosis and treatment
technologies.
Delta Health China
Announced deal
Type
Delta Heath China is an innovative healthcare provider majority
Construction of Shanghai Delta
held by Fidelity Growth Partners Asia and its related party, Moonray
Hospital
Investors.
Acute-care cardiovascular
Delta Health announced in late 2013 a joint venture with Columbia
hospital
University’s cardiac surgery and cardiology division as well as
Columbia Heartsource, a physician-led management service
Size
350 beds (Phase I: 230 beds)
organisation, to open Shanghai Delta Hospital, a world class
cardiovascular hospital. Due to open during 2016, the hospital will
provide end-to-end service for cardiovascular diseases patients,
Geographic location
Shanghai
from early diagnosis, to prevention, intervention and rehabilitation.
The company has also worked closely with other stakeholders
including the Shanghai Health Bureau, the Qingpu District Health
Financing
US$100m loan from China
Merchants Bank
Existing facilities
Shanghai DeltaWest Clinic
Bureau and several public specialist hospitals, to ensure that
services will be at an international standard.
Delta Health would also establish outpatient medical clinics across
Shanghai, with the first, Shanghai DeltaWest Clinic, opened since
mid-2012. Beginning with the soon-to-be-launched Shanghai Delta
Hospital and Shanghai DeltaWest Clinic, DeltaHealth’s strength
and focus will be on the delivery of world-class medical expertise,
superior patient service, and advanced hospital management.
© The Economist Intelligence Unit Limited 2016
17
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
In 2008, Dr. Thomas Frist and his son-in-law Charles Elcan
founded Nashville-based Chinaco Healthcare Corporation,
a privately held company focused on improving healthcare
Chinaco Healthcare Corporation
New launch
Conversion of 150-bed public
hospital (Second People’s Hospital)
delivery in China. Dr Frist was a co-founder of the Hospital
to CHC International Hospital
Corporation of America in Nashville in 1968.
In mid-2014, Chinaco admitted its first patients to its new
500-bed CHC International Hospital in Cixi, a growing city
of 2m located 150 km south of Shanghai. The hospital is the
Type
Class 3A general hospital
Size
Geographic location
500 beds
Cixi
Controlling stake
CHC (70%), local municipal
first-ever joint venture between the company, which owns
70%, and the municipal government of Cixi, which holds
a 30% stake. The project involved converting the Second
People’s Hospital, a 150-bed public facility. It is Chinaco’s
government of Cixi (30%)
first hospital in China.
Being the first large-scale US joint-venture hospital in
China to serve both public and private paying populations,
the hospital has gained international recognition from the
highest levels of government in the US and China, as well as
from the foremost leaders in the investment community.
18
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
Columbia China
Columbia Pacific Management is one of the largest healthcare providers
in Asia, and has been operating 28 hospitals in India and Southeast
Announced deal
Type
Major investment in Shanghai
Asia through Columbia Asia over the past two decades. It announced
Kaiyuan Orthopaedic Hospital
in mid-2015 that it is officially entering the China hospital market
Acute-care orthopaedic hospital
through Columbia China with a major investment in the 200-bed
Shanghai Kaiyuan Orthopaedic Hospital in Shanghai. This will add to its
existing portfolio of three clinics and three aged care centres (managed
Size
200 beds (with planned
expansion to 300 beds)
Geographic location
Shanghai
through another subsidiary, Cascade Healthcare) as well the planned
development of two 250-bed hospitals in Wuxi and Changzhou.
Managing Shanghai Kaiyuan Orthopaedic Hospital gives Columbia China
a foothold in Shanghai’s orthopaedics services market with its full range
of orthopaedic services, as it seeks to develop the Columbia China brand.
Current projects
Two 250-bed hospitals in Wuxi,
Changzhou
Existing facilities
The company plans to expand the hospital into a 300-bed facility over
the coming years.
Three clinics in Shanghai; three
This hospital extends Columbia China’s presence in Shanghai, where the
aged care centres in Beijing,
company opened a multi-specialty clinic in the central Puxi District in
Shanghai
2014 and two plastic and reconstructive surgery clinic in the Changning
District & Huangpu District in 2015. With the two hospitals in Wuxi and
Changzhou due to open in 2018 and its ambitious plans to acquire and
develop a total of 10 hospitals in China by 2025, Columbia China is wellpositioned to drive private-sector growth.
© The Economist Intelligence Unit Limited 2016
19
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
How can Clearstate help your business
E
valuating your investment options is often a long drawn-out process, with strategic plan
development, opportunity assessment, growth projection, exploratory stakeholder engagement,
target shortlisting, fit assessment and commercial due diligence being some of the key steps.
Clearstate, an Economist Intelligence Unit healthcare business, understands the Chinese healthcare
market. We are able to tap into our data-rich resources to offer you market size and share information,
as well as growth forecasts, and have a wide network of hospitals, healthcare and life science panels.
In addition to our market analyses, we have the market-research nous to provide a true, unbiased
depiction of clinical standards, price-points, market reputation, accurate customer insights and
patient experiences, allowing you to build up a complete and confident understanding of a prospective
investment target.
R&D
Develop new products &
solutions to address
untapped and unmet
needs in emerging
customer segments,
geographies and new
adoption shifts
1
20
Strategic
planning
Formulate mid to longterm strategies to
capture opportunities
from forward-looking
trends
2
Customer ecosystem
& unmet needs
Market size & shape
Greenfield adoption
trend
Pricing & margin
analysis
New concept test
Explore localization
Market shifts
prediction
Tradeoffs of
innovation vs. cost
Strategic plan
development
Growth projections
Access
Commercial
Corporate
strategy
Functional disciplines
including pricing and
reimbursement,
government affairs and
advocacy, health
economics and
stakeholder management
Marketing, sales and
communications functions
that require differentiated
positioning and outreach
strategy to maximize
returns and build
customer base
Identify and invest in
organic and inorganic
“greenfield” opportunities
as well as drive strategy
and business
development efforts
3
4
5
Stakeholders influence
map
Competitive benchmark
Stakeholders
engagement models
Channel streamline
Regulatory &
reimbursement trends
Funding programs
Treatment pathway
benchmark
Partner search
Customer insights &
segmentation
Communication
effectiveness
Branding strategy
Technology & business
model innovations
M&A or partnership
potentials search and
profile
Commercial due
diligence
Asset acquisition
assessment
© The Economist Intelligence Unit Limited 2016
Understanding China’s Emerging Private Healthcare Market
Asian Healthcare Titans 2016 | China
About Clearstate
Clearstate (www.clearstate.com), a business of The Economist Intelligence Unit, is a research
consultancy specialising in the Healthcare & Life Sciences sectors in emerging economies.
Clearstate is the go-to research consulting partner for clients seeking greenfield growth
opportunities in fast-growing emerging economies. By leveraging The Economist Intelligence Unit’s
country expertise, we offer analysis of emerging economies’ opaque healthcare environments, as well
as realistic forecasts of market growth.
We have a strong reputation among our clients for the depth of our industry knowledge, our
collaborative approach and our innovative solutioning. We are recognised for consistently listening
and working in partnership with our clients to deliver comprehensive and granular answers beyond the
obvious.
About the Authors
Ivy Teh is the Managing Director at Clearstate, and is an experienced research and strategy consultant
in the healthcare sector in Asia Pacific and emerging markets. She has more than 15 years’ experience
in leading healthcare business and operational strategy consulting projects.
Jonathan Ley is a Senior Associate at Clearstate Greater China, based in Shanghai. He has more than
five years’ experience in conducting and leading market research in the healthcare sector.
The development of this white paper benefited significantly from the support provided by:
Edwin Seah, Associate, Clearstate
Ana Nicholls , Editor Industry Briefing, Economist Intelligence Unit
Contact:
Ivy Teh, Managing Director Clearstate
ivy.teh@clearstate.com
Tel: +65 6715 9228
© The Economist Intelligence Unit Limited 2016
21
While every effort has been taken to verify the
accuracy of this information, The Economist
Intelligence Unit Ltd. cannot accept any
responsibility or liability for reliance by any person
on this report or any of the information, opinions
or conclusions set out in this report.
an Economist Intelligence Unit business Healthcare
LONDON
20 Cabot Square
London
E14 4QW
United Kingdom
Tel: (44.20) 7576 8000
Fax: (44.20) 7576 8500
E-mail: london@eiu.com
NEW YORK
750 Third Avenue
5th Floor
New York, NY 10017
United States
Tel: (1.212) 554 0600
Fax: (1.212) 586 1181/2
E-mail: americas@eiu.com
HONG KONG
1301 Cityplaza Four
12 Taikoo Wan Road
Taikoo Shing
Hong Kong
Tel: (852) 2585 3888
Fax: (852) 2802 7638
E-mail: asia@eiu.com
GENEVA
Rue de l’Athénée 32
1206 Geneva
Switzerland
Tel: (41) 22 566 2470
Fax: (41) 22 346 93 47
E-mail: geneva@eiu.com