The (Changing) Healthcare Opportunity in China

Posted by Damjan DeNoble

First off, I’m back and writing after a long hiatus.  I apologize for that – I just needed some time to relax after an intense period of time spent studying for the LSAT.  I still owe one big article on China and North Carolina, and its coming.

In the interim, I want to highlight two blog entries of note in the past two weeks.  Jack Perkowski at Managing the Dragon recently wrote a post, The Healthcare Opportunity in China.  He offers some great common sense insights for why the healthcare industry is guaranteed to explode and concludes with

China’s hospitals will begin to see major changes as capital and new technologies flow into the sector. Chinese-run hospitals are actively seeking Western technology and management practices, and private equity firms are gearing up to bring in fresh capital. China’s aging population and surging disposable incomes all but guarantee that the country’s health management industry will thrive in the years to come.

I do not dispute any of the claims regarding the intentions of Chinese hospitals, China’s aging population, or the growth in China’s disposable income.  And, I think that Jack has correctly pointed out that businesses which make healthcare more accessible and approachable for patients will thrive.

But, I do want to offer up this caveat which I did not see directly addressed in Jack’s article, because I don’t want any potential Sino-Healthcare entrepreneurs to make this mistake – building hospitals that cater only to insured expatriates and wealthy Chinese is fast becoming a faulty business strategy, even in the long term.

(Also, it’s not an original idea. By a long shot.)

The healthcare business landscape in China is currently in a state of rapid change that, I believe, will quickly make it very hard for this kind of  ‘cream of the crop’ business model to succeed.  The reason for this change is simple – Chinese healthcare players are getting much better, very fast.

Consider that;

Chinese public health administrators are getting better at managing complex health systems.  Eventually this will open up opportunities for public hospitals to privatize.

and;

China’s large university hospitals are getting better at becoming businesses.  They will start to resemble university hospitals in the United States both in their service offerings and levels of care.  Either development will marginalize expatriate focused hospitals that depend on wealthy Chinese and insured expatriates because those patients will be getting more for less at Peking University Hospital.

So what opportunities does that leave?

It leaves businesses that are less directly involved with doling out healthcare, and more focused on improving health infrastructure and delivery, and the education of both patients and doctors.

(Again, the companies that Jack highlighted exemplify these qualities very well, as does a company that AHCB profiled earlier in the year, Meiloo [see article "Meiloo, Chinas Web 2.o Proto HMO]).

But, there is also a limit to the changes that the Chinese healthcare system will be able to sustain in the coming years.  For example, Chinese hospitals might readily be able to integrate new X-Ray machines, but it is still a stretch for them to contemplate installing an integrative Health IT system.  It is up to the entrepreneur to discover this line.

Just food for thought.