In the nearly five years since China opened its healthcare sector to Foreign Direct Investment (FDI), a handful of western senior housing and hospital operators have begun to deliver services with mixed results. As many more specialty healthcare service providers plan for operations in China, the experiences of their predecessors serve as insights for crafting go-to market strategies.
The most important takeaway is that even though China’s regulations allow a US healthcare provider to go it alone, pairing off with a Chinese hospital is still a necessity because of a culture where the public’s trust lies within China’s large public hospitals. Western healthcare providers can either fight the tide, or build strategies that align their services with traditional healthcare access.
During the earliest days of their expansion in China, US healthcare rarely understood how Chinese consumers access healthcare. Many operators have found a need to partner with Chinese hospitals for at least one of the following reasons:
— Access to a captive referral network Many of the services healthcare operators are introducing are unknown to the Chinese consumer. A hospital partner with pre-existing patients greatly relieves the stress on US companies of finding, educating and convincing wary consumers to use a new type of service.
— Potential reimbursement from public insurance Since 2009, efforts to increase the number of people covered by public health insurance have been matched by similar pushes to raise the reimbursements for services. These reimbursements are accessible to savvy western healthcare providers with motivated Chinese partners capable of navigating the intricacies of the public insurance system.
–Bui ld trust with patients Because China’s Ministry of Health privatized some under-performing public hospitals more than 15 years ago, the public tends to believe the best doctors, diagnostics and services are in public hospitals. This hurdle impacts private healthcare providers’ ability to fill beds.
— Pilot projects and reforms China’s healthcare system is in the midst of an overhaul including where pharmaceuticals are sold, how doctors are licensed, and what services are reimbursed. The best way to shape these reforms is through an existing hospital partner with relationships in the local health bureau.China’s demographic trends and growing demand for cardiovascular, oncology, and rehabilitation treatments make it a unique market not only because of its size, but also its relative lack of adequate public- and private-sector solutions.
What these insights reflect is something much more specific: success in China—at least for now—will require services within a pre-existing Chinese hospital. The success of operators such as the Chinese company Concord Medical reinforces a simple but profound truth: to be a successful healthcare service provider in China, find a way to co-opt how patients and physicians interact in China.
Concord’s model has evolved but was built on the realization that even the most well-established Chinese public hospitals had shortcomings relative to cancer diagnostics. But these problems did not cause consumers to pursue options beyond the public hospital. Even with misgivings, consumers still opted for care within a public hospital. Concord’s oncology centers established itself within existing hospitals across the country, which successfully built brand trust among Chinese consumers. Concord is now expanding into three free-standing cancer care centers.
In light of Concord’s experience, US companies entering the healthcare market in China should note that capital and management alone won’t make them successful. Local partners and a physical location within a Chinese hospital is a necessity.
Access to a captive referral network
One of the most basic frustrations of US healthcare providers who open operations in China is the time investment to educate consumers about their services. Senior care providers, in particular, were surprised at how much time and energy was required to educate the Chinese family about senior care services; the real estate discussion seemed easy enough, but the care component was less well understood.
Despite state-of-the art equipment at Chinese senior care facilities, for example, trained rehabilitation specialists are often left without patients.Why? Until very recently, the standard of care in China for joint replacement surgery was to keep the patient immobile for up to 30 days after surgery. This method is counter to western care, which follows the thought that such an approach leads to increased rates of thrombosis, and a decreased range of motion post-surgery.
The first phase of a provider’s expansion into China, should be to locate with a local partner with access to a patient population. This allows the US company to focus on operational matters such as workforce identification, training, and operations, instead of spend significant time and money in pursuit of a referral network.
Potential reimbursement from public insurance
Currently, China has three basic medical insurance systems: the Urban Employee Basic Medical Insurance Scheme, Urban Resident Basic Medical Insurance Scheme (URBMI), and New Rural Cooperative Medical System (NRCMS). NRCMS is under the administration of National Health and Family Planning Commission (NHFPC), while the other two fall under the Ministry of Human Resource and Social Security (MOHRSS). The differences in financing, management, payment and services across the three systems have historically prevented China from applying a universal plan. The new plan to merge the URBMI and NRCMS could be a big step toward a universal system, which would increase healthcare providers’ access to China’s public healthcare insurance system. This development also illustrates the government’s emphasis on addressing the pervasive inequalities between rural and urban systems.
No go-to market strategy for a US specialty healthcare service providers should entirely hinge on access to China’s public healthcare insurance, but, as the government expands coverage and cautiously increases reimbursements, private-sector players have begun to pay attention.
Access to the public sector’s limited pool for reimbursements may seem more of a challenge than it is worth; however, private-sector operators seeking this option often find themselves engaged in v discussions with key policymakers at the local health bureau. Specifically, as a US healthcare provider begins explains the need for its services to officials, the provider often shapes a future policies including payment strategy.
Build trust with patients
While China is a market of 1.3 billion possible customers, US companies need to do more than build it to make them come. Just ask the US pharmaceutical and device manufacturers who were the first to use these types of projections in their China entry strategies.
Even though these hospitals feature long lines, exhaustive waits for appointments and can require an under-the-table payment to the doctor, trust resides within the public hospital system.
This is so counter-intuitive to US providers whose research inevitably led them to hear anecdotal stories about patient on physician violence, near extortion to get access to remedial care, and countrywide inadequate access. The reality is that the most qualified physicians have historically resided within the public hospital. Coupled with the poor reputation of private facilities, the bias for public hospitals is pervasive.
This bias will likely evolve, especially among the country’s growing middle class. But for now, US providers should embrace the the behavior. While a handful of private healthcare providers are building platforms accessible to China’s middle class, most are indigenous to China, and few of the foreign providers have been able to build the type of trust their domestic competitors have established.
Pilot projects and reforms
China’s healthcare system is in the midst of a number of pilot projects and reforms. Some, such as the attempts to rework how and where pharmaceuticals are sold, will affect multinational pharmaceutical and medical device manufacturers, but for the most part will ignore foreign service providers. Others, such as allowing doctors to practice at multiple sites, are more immediately relevant to US healthcare providers. Accessing these programs and reforms without a domestic partner is not impossible, but it is unlikely. Conversely, working with a Chinese counterpart to identify beneficial pilot projects is a critical advantage.
China’s healthcare policymakers view private investment and privately run healthcare providers as a means to offset the cost to central and local governments.It allows their healthcare budget to focus on the areas most in need—the urban and rural poor—and allow the private sector to pick up the slack. This creates a lot of regulatory room to accommodate FDI, but can be difficult to get the attention of the local officials on more specific accommodations.
Accessing and influencing local officials becomes more probable with a local partner, in particular a Chinese hospital, who knows the motives and challenges unique to specific officials in question, and how best to align objectives. This increases the likelihood that changes to reimbursement policies, workforce regulations for nurses and doctors, and selection of services could be beneficial to US providers.
China’s healthcare sector is one of the last parts of the country’s economy to open to FDI. This explains much of the excitement and energy since 2011.
About the author: Benjamin Shobert is the founder and managing director of Rubicon Strategy Group, where Jing Huang is a senior consultant.