In­vestor ‘pill’ for China’s health­care re­form

| Prompted by China’s ef­forts to re­form health­care and open the sec­tor to more for­eign in­vest­ment, pri­vate-eq­uity firms and med­i­cal in­sti­tu­tions are look­ing to take ad­van­tage of the op­por­tu­ni­ties, re­port LINDA DENG in Seat­tle and WANG HONGYI in Shang­hai.

China Daily (Canada) - - IN DEPTH -

T260 mil­lion Chi­nese suf­fer from can­cer, di­a­betes and other chronic dis­eases. Almost one-third of the pop­u­la­tion, or 438 mil­lion, will be over 60 by 2050, more than dou­ble the cur­rent num­ber of 178 mil­lion, ac­cord­ing to the United Na­tions. 13,440 pub­lic hos­pi­tals pro­vided 90 per­cent of the coun­try’s med­i­cal ser­vices as of Oc­to­ber 2013. There are 1.4 physi­cians per 1,000 peo­ple, com­pared to 2.4 in the United States, ac­cord­ing to the World Health Or­ga­ni­za­tion. Beyond those num­bers, China’s health­care sys­tem also faces cor­rup­tion, of­ten volatile re­la­tions be­tween doc­tors and pa­tients, ris­ing mid­dle and up­per-mid­dle-class pop­u­la­tions that seek and can af­ford more so­phis­ti­cated med­i­cal ser­vices and a huge dis­par­ity be­tween ru­ral and ur­ban health­care.

Though China’s health­care sys­tem has its mer­its, in­clud­ing cheap care and plenty of phar­ma­ceu­ti­cals, the cen­tral gov­ern­ment has made up­grad­ing the sys­tem a pri­or­ity – and an op­por­tu­nity for for­eign in­vestors.

Last year, China boosted its an­nual bud­get for med­i­cal and health­care spend­ing to 260.25 bil­lion yuan ($42.9 bil­lion), a 27 per­cent in­crease from the pre­vi­ous year. The gov­ern­ment said that it would raise med­i­cal sub­si­dies for some non-work­ing res­i­dents, ex­tend a pi­lot in­surance pro­gram for ma­jor dis­eases and ac­cel­er­ate re­forms in pub­lic health­care.

China’s med­i­cal-ser­vices mar­ket is grow­ing 18 per­cent an­nu­ally and is pro­jected to reach $500 bil­lion in 2015, said Deloitte China. And con­sult­ing firm McKin­sey & Co said it ex­pects to­tal health­care spend­ing to hit $1 tril­lion by 2020.

he num­bers are stag­ger­ing:

Merg­ers and ac­qui­si­tions in China’s health­care sec­tor rose to a record $11.3 bil­lion in the first 11 months of this year, up 13 per­cent from $10 bil­lion in the same pe­riod a year ear­lier, ac­cord­ing to Dealogic data. And a num­ber of deals have fol­lowed as a re­sult of the cen­tral gov­ern­ment’s lib­er­al­iza­tion pol­icy.

Ear­lier this month, the pri­vate health­care­ser­vice provider DeltaHealth reached an agree­ment with Columbia Univer­sity’s car­diac surgery and car­di­ol­ogy di­vi­sion and Columbia HeartSource, to de­velop a heart cen­ter in Shang­hai, the first of its kind in the city. It will ex­plore the preven­tion and treat­ment of car­dio­vas­cu­lar dis­eases, while also seek­ing to meet the spe­cific needs of Chi­nese pa­tients.

The 2013 China Car­dio­vas­cu­lar Dis­ease Re­port said that one in ev­ery five Chi­nese adults suf­fers from car­dio­vas­cu­lar dis­ease, while many oth­ers re­main un­di­ag­nosed. It is a lead­ing cause of 3.5 mil­lion deaths a year in China.

In Septem­ber, the Amer­i­can pri­vate-eq­uity firm TPG joined with a unit of the Fo­sun Group, a big Chi­nese in­vest­ment company, in a $420 mil­lion deal to pri­va­tize Chin­dex In­ter­na­tional, a Nas­daq-listed op­er­a­tor of hos­pi­tals and clin­ics in China and Mon­go­lia.

Chin­dex was founded by Americans Roberta Lip­son and Elyse Beth Sil­ver­berg who moved to China in the late 1970s. It runs the United Fam­ily Health­care chain of high­end hos­pi­tals and clin­ics in ci­ties, in­clud­ing Beijing, Shang­hai and Guangzhou.

UPMC, a hos­pi­tal op­er­a­tor based in Pitts­burgh, Penn­syl­va­nia, and Mas­sachusetts Gen­eral Hos­pi­tal in Bos­ton, which is af­fil­i­ated with Har­vard Univer­sity, re­cently said they had signed or were ex­plor­ing deals to man­age or build hos­pi­tals in China. Mov­ing into China

After ex­pan­sion over the past decade into Italy, Ire­land, and the UK, UPMC an­nounced in Jan­uary that it was pre­par­ing to make its first move into China with “a wealth of po­ten­tial projects’’.

“We are look­ing at China as one of our pri­mary tar­gets for ex­pan­sion,” Chuck Bo­gosta, pres­i­dent of UPMC’s In­ter­na­tional and Com­mer­cial Ser­vices Di­vi­sion, wrote on its web­site. “To be a sig­nif­i­cant global health care provider, we know that we need to have a pres­ence in the Asian mar­ket. The big­gest chal­lenge is find­ing the right part­ners.”

UPMC said it had hired Travis Tuto to head its Beijing of­fice. Tu, who spent nine years in China work­ing for other hos­pi­tal com­pa­nies, said, “China’s grow­ing mid­dle-class is starv­ing for good, clean hos­pi­tals with pa­tient­cen­tered care and ad­vanced tech­nol­ogy.’’

On Nov 5, Seat­tle-based Columbia Pa­cific Man­age­ment (CPM) — one of the largest health­care providers in Asia — an­nounced it was en­ter­ing the China hos­pi­tal mar­ket.

CPM has strong ties to China. In 2011, its China se­nior-care af­fil­i­ate, Cas­cade Health­care, be­came the first for­eign-owned company to re­ceive per­mis­sion to build se­nior-care fa­cil­i­ties in China and now as fa­cil­i­ties in Beijing and Shang­hai.

The first Columbia Asia hos­pi­tal opened in Malaysia in 1994 and the net­work has grown to 26 hos­pi­tals in In­dia and South­east Asia. The hos­pi­tals are de­signed to serve Asia’s rapidly grow­ing mid­dle class with mod­ern and ef­fi­cient mul­tispe­cialty hos­pi­tals lo­cated close to where pa­tients live and work.

CPM said it is fo­cus­ing on large ci­ties in China (Shang­hai with 24 mil­lion peo­ple, Wuxi with 7.5 mil­lion and Changzhou with 3.5 mil­lion), with hos­pi­tals and clin­ics de­signed to serve wide-rang­ing med­i­cal needs of the coun­try’s fast-grow­ing mid­dle class.

The company’s new China hos­pi­tal arm, Columbia China, will start con­struc­tion next year on two 250-bed multi-spe­cialty hos­pi­tals, in Wuxi and Changzhou, and is ac­tively pur­su­ing other hos­pi­tal op­por­tu­ni­ties through ac­qui­si­tions and green­field projects. The 250-bed hos­pi­tals are in the per­mit stage, and both are ex­pected to open by early 2018. Each hos­pi­tal will cost $80 mil­lion to $100 mil­lion and each will have 600 to 800 em­ploy­ees. Out­pa­tient clin­ics

To fur­ther bol­ster its pres­ence in China as the hos­pi­tals are built, Columbia Pa­cific said it will also open sev­eral multi-spe­cialty and spe­cialty out­pa­tient clin­ics un­der the Columbia China name.

The first clinic, the Columbia China United Plaza Clinic, will open this month in Shang­hai’s cen­tral Puxi Dis­trict. The 10,000-square­foot multi-spe­cialty clinic will pro­vide in­ter­nal medicine, pe­di­atrics, re­ha­bil­i­ta­tion and tra­di­tional Chi­nese medicine.

“We be­gan in China with se­nior hous­ing projects. Two years ago we started to look at build­ing hos­pi­tals. The op­por­tu­nity in China is tremen­dous for ac­cess to in­ter­na­tional qual­ity health­care ser­vice op­er­a­tors,’’ Nate McLe­more, man­ag­ing di­rec­tor of CPM, said in an in­ter­view with China Daily.

The in­ter­na­tional heart cen­ter by DeltaHealth, Columbia Univer­sity’s car­diac surgery and car­di­ol­ogy di­vi­sion and Columbia HeartSource is ex­pected to open in Shang­hai in late 2015. Columbia Univer­sity Med­i­cal Cen­ter in New York is one of the world’s lead­ing med­i­cal in­sti­tu­tions in car­di­ol­ogy and heart surgery and was ranked as one of the top three hos­pi­tals in car­di­ol­ogy and heart surgery by US News and World Re­port in 2014.

“We want to support China’s de­sire to im­prove pri­vate health­care by play­ing a co­op­er­a­tive role in bring­ing to­gether the best do­mes­tic and in­ter­na­tional re­sources in car­dio­vas­cu­lar care to truly de­liver a world-class, pa­tient-fo­cused heart hos­pi­tal in China,” Daniel Auer­bach, chair­man of DeltaHealth’s board, said in an in­ter­view with China Daily in Shang­hai.

Pro­fes­sion­als from the Columbia Univer­sity heart team will pro­vide con­sul­ta­tion and ad­vice on de­vel­op­ing high-qual­ity clin­i­cal guid­ance and pro­to­cols, as well as physi­cian and med­i­cal staff train­ing and ed­u­ca­tion in in­no­va­tive car­dio­vas­cu­lar pro­ce­dures and pa­tient care.

“The col­lab­o­ra­tion in de­vel­op­ing the heart cen­ter will help ex­plore an ef­fec­tive way of early in­ter­ven­tion and as­sess­ment of med­i­cal out­comes that is unique to China,” Ge Junbo, a pro­fes­sor at the Chi­nese Academy of Sciences, said in an in­ter­view. He is also the chief ad­viser to the med­i­cal ad­vi­sory panel at DeltaHealth.

Late last month, Shang­hai-based ven­ture cap­i­tal and pri­vate-eq­uity firm Trustbridge Part­ners broke ground on a $500 mil­lion gen­eral hos­pi­tal in Shang­hai. Shang­hai Ji­ahui In­ter­na­tional Hos­pi­tal is 100 per­cent pri­vately owned by Trustbridge. When the first phase of the hos­pi­tal is com­pleted in 2017, it will have 246 beds, with phase 2 bring­ing the hos­pi­tal’s ca­pac­ity to 500 beds.

Ger­man hos­pi­tal op­er­a­tor Artemed Group, Chi­nese prop­erty de­vel­op­ers Vanke and Ever­grande are also in­vest­ing in Chi­nese hos­pi­tals.

In Oc­to­ber, Mas­sachusetts Gen­eral Hos­pi­tal said it was in early dis­cus­sions with two part­ners to build a hos­pi­tal with 500 to 1,000 beds in China. The hos­pi­tal said it signed a “frame­work agree­ment’’ with a Chi­nese hos­pi­tal that spe­cial­izes in tra­di­tional medicine and a Chi­nese in­vest­ment firm, al­low­ing the three par­ties to ex­change fi­nan­cial in­for­ma­tion and work on de­vel­op­ing a de­fin­i­tive agree­ment to open a fa­cil­ity in an is­land city close to Hong Kong.

Mass. Gen­eral ex­ec­u­tives said the talks were pre­lim­i­nary and a fi­nal decision had not been made about whether to par­tic­i­pate in the project, but that they hope to do so by next sum­mer, ac­cord­ing to the Bos­ton Globe.

Har­vard Med­i­cal School’s-af­fil­i­ated aca­demic med­i­cal cen­ter would jointly man­age the China hos­pi­tal, with Mass. Gen­eral and Guang­dong Provin­cial Hos­pi­tal of Tra­di­tional Chi­nese Medicine, a lo­cal health­care provider. The hos­pi­tal, which has a work­ing name of MGH Hos­pi­tal China, would be lo­cated in a spe­cial eco­nomic de­vel­op­ment zone on the is­land of Hengqin, part of the city of Zhuhai. The cen­ter would pro­vide clin­i­cal care and support re­search and med­i­cal train­ing pro­grams. Cater­ing to wealthy

China’s grow­ing num­ber of mid­dle-class and wealthy cit­i­zens are an at­trac­tive op­tion for a US hos­pi­tal or med­i­cal or­ga­ni­za­tion seek­ing out­side sources of rev­enue. But try­ing to pop­u­lar­ize Western-style hos­pi­tals that cater to the elite in China would face hur­dles, in­clud­ing a short­age of doc­tors at pri­vate hos­pi­tals.

While health au­thor­i­ties ac­knowl­edge the 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.

The dif­fi­cul­ties in at­tract­ing Chi­nese doc­tors to the pri­vate sec­tor go beyond gov­ern­ment pol­icy. Part of the prob­lem is that doc­tors in most of China need per­mis­sion from the state-owned hos­pi­tals where they prac­tice be­fore they can work in the pri­vate sec­tor, and many pub­lic hos­pi­tals don’t want to let their best doc­tors go.

At a lo­cal level, pub­lic hos­pi­tal lead­ers are of­ten re­luc­tant to even share their best doc­tors. Only in Au­gust did Beijing be­come the first mu­nic­i­pal­ity to let doc­tors work in more than one place with­out per­mis­sion from their boss.

“Some gov­ern­ment-owned hos­pi­tals are ham­per­ing doc­tors some­what from go­ing out­side,” Charles El­can, pres­i­dent of Chi­naco Health­care Corp (CHC), told Reuters in Oc­to­ber 2014. CHC’s 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 $163 mil­lion in the project and is look­ing at other hos­pi­tals for ac­qui­si­tion and de­vel­op­ment.

The Trustbridge-in­vested hos­pi­tal, known as Shang­hai Ji­ahui In­ter­na­tional Hos­pi­tal and due to be com­pleted in 2017, planned to bring Chi­nese doc­tors from North Amer­ica and use US 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. State-run in­surance

In ad­di­tion, pri­vate health-in­surance prod­ucts are almost en­tirely un­avail­able in China, mak­ing it hard for most Chi­nese to pay for ser­vices of­fered by for­eign-owned pri­vate hos­pi­tals. “And China’s state-run in­surance doesn’t cover Chin­dex’s care,’’ CRT Cap­i­tal Group an­a­lyst Julie Chen said in an in­ter­view.

Chin­dex in 2006 launched a pi­lot in­surance pro­gram, but at $5,000 per per­son per year, the an­nual pre­mium is still too steep for most lo­cals.

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 us­ing pub­lic fa­cil­i­ties, ac­cord­ing to a Deutsche Bank re­port in June.

“In­vest­ing in China’s health sec­tor faces many chal­lenges,’’ Yanzhon Huang, a se­nior fel­low for global health at the Coun­cil on For­eign Re­la­tions, said in a New York Times ar­ti­cle on Dec 10. But he added that more pri­vate in­vest­ment would ben­e­fit the en­tire sec­tor, in­clud­ing trou­bled state-funded hos­pi­tals.

“In­creased com­pet­i­tive pres­sures would in­cen­tivize the pub­lic hos­pi­tals to kick off more mean­ing­ful re­form ef­forts,’’ he said. “Pri­vate in­vest­ment can play an im­por­tant, even crit­i­cal, role in China’s health­care re­form. Con­tact the writ­ers at lin­dadeng@chi­nadai­lyusa.com and wanghongyi@chi­nadaily. com.cn

PRO­VIDED TO CHINA DAILY

A pre­lim­i­nary ren­der­ing of Seat­tle-based Columbia Pa­cific’s planned hos­pi­tal in the city of Wuxi, which will have 250 beds and cost $80 mil­lion to $100 mil­lion.

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