China's healthcare reforms: the promise & the peril - 01-29-13


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China's healthcare reforms: the promise & the peril - 01-29-13

  1. 1. + China‟s Healthcare Reforms: the Promise and the Peril January 29, 2013
  2. 2. + The Peril … Would it surprise you to know that in many ways, China‟s healthcare was actually better under Mao than once the country began to open to the West?
  3. 3. + 3 Better During Mao? Christina Ho, Fellow and Project Director of the China Health Law Initiative at Georgetown and Yanzhong Huang of the Council on Foreign Relations have written extensively of late on how China’s modernization has actually dramatically harmed the access to healthcare and successful outcomes to medical interventions of nearly every sort. Mao’s “Barefoot Doctor Brigades” were not sophisticated, but they created better outcomes for the average Chinese than what they have today. What this says about how healthcare specifically has – and has not – evolved in China is relevant to China’s senior care market.
  4. 4. + What Happened?  China‟s economic reforms required dismantling large parts of the state‟s involvement in the economy.  State Owned Enterprises (SOEs) were shut down, privatized, or modernized.  These good and necessary steps had a bad and unintentional effect: the “broken rice bowl” was not replaced by similar investments from the private sector.  China‟s central government was so focused on modernization and its many down-stream implications that it overlooked healthcare.
  5. 5. + What Happened? (cont.)  Government spending on healthcare decreased from 1.1% of GDP in 1980 to 0.8% in 2002.  WHO estimates that 50% of China‟s rural poor find themselves in “entrenched poverty” due to healthcare costs.  In 2000, the WHO ranked China 188 of 1919 countries globally regarding “fairness of healthcare finance.”  56% of rural Chinese do not bother to follow up on doctor recommendations because of expense.  2012 Pew Global Attitudes Project found that between 2008 and 2012 anxieties over China‟s healthcare system had more than doubled.
  6. 6. + Healthcare Divides China  In ways not unlike more developed countries, if much more severely.  China has a definite urban/rural, rich/poor/middle class problem relative to healthcare access and outcomes.  By 1999, insurance coverage in rural areas had dropped to 7%.  Mao‟s “barefoot doctors” became fee-based, non- government covered, entrepreneurs.
  7. 7. + A Perfect Storm  Water Pollution  70% of China‟s rivers are too polluted to provide safe drinking water.  Air Quality  PM2.5 poses immediate cardiovascular problems.  Smoking  Between 300-350m smokers.  Western Diets  Hypertension, cerebrovascular disease rates, diabetes, etc. are all on the rise.  Demographics  No country will get as old or as rich as fast as China will.
  8. 8. + Speaking of Demographics
  9. 9. + What Is Going On?  By 2050, 1/3 of China‟s population will be 60+.  Ratio of elderly in need of support today is 16:100, by 2050 that will be 64:100.  Largely the result of the “one-child” policy and the 4:2:1 problem it created.  Beijing already has over 1.7m 65+; Shanghai has 2.3m.  Fewer than 50 dementia care facilities exist in the entire country. Incidence rates are projected to rise by over 300% by 2040.  By 2040, China will have more dementia patients than in the whole of the developed world.
  10. 10. + And The Promise … Yes, the problems in China‟s healthcare system are troubling. But, solving these problems will not only meet a compelling human need, it will also provide a unique opportunity.
  11. 11. +  2009 investment by China‟s central government of RMB 1.13 trillion into healthcare.  12th 5 Year Plan (5YP) has RMB 4.4 trillion planned specifically for healthcare.  Government plans to add:  150,000 primary care physicians in next 5 years.The Opportunity  2,000 new county hospitals.  29,000 new township hospitals.  5,000 existing hospitals upgraded.  95% of all Chinese covered by expanded national insurance.  Expanded national drug formulary, access to new diagnostics and medical devices for treatment of chronic diseases.
  12. 12. + A Sense of Scale China Government Healthcare Spending 2,500.00 40 35 2,000.00 30 25 1,500.00 20 1,000.00 15 10 500.00 5 0.00 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 Billion RMB YOY Growth (%)
  13. 13. + Where China‟s Government Is Investing Where Chinas 2009 Healthcare Reform Went New Rural Co-Op and Urban Residents 12% Insurance 7% Insurance Subsidies for Enterprises in Difficulty 45% Indigent Patients Medical Aid 24% Public Health Awareness Investment Primary Care & Public Hospitals 9% Upgrade & Construction Drug Subsidies Other 2% 1%
  14. 14. + The Opportunity  What is going on within China‟s healthcare industry is likely a once in a generation opportunity.  Some estimates suggest the amount China is investing into the country‟s healthcare system is the most amount in the shortest period of time any country has ever spent on its healthcare system in the history of the world.  The sheer amount of money and the number of means by which it is impacting the country‟s healthcare system can easily cloud which parts are ready for foreign investment and expertise.  Some sectors are still not ready, even though the government would like to see improved infrastructure and know-how deployed there.  Before a company can determine if the market segment where they want to operate is ready, they have to consider whether they are ready to go to China and whether the capital they would like to deploy in China can be best spent there or elsewhere.
  15. 15. + What Are the Most Compelling Opportunities?  Capacity Building  Primary Care  Enabling Technologies (telemedicine, payment processing, HIT)  Training  Specialized Medicine (oncology, cardiovascular, pedia trics, rehabilitation)  Public-to-Private Hospital Transaction  Senior Care
  16. 16. + Senior Care  The US 60+ age range has been fairly consistent during the period CCRCs developed (‟60-‟00 ranged from 7-16% of total population).  In China, between „10-‟40 the same age demographic will almost triple (11-31%).  The US of the 60s-70s accumulated significant material advantages (household financial wealth, insurance, pension plans, etc.) as the CCRC community evolved in the 80s. This has been leveraged to drive CCRC developments through current-day.  In contrast, China is very early into accumulating its household wealth (and has yet to go through a structural crisis which will test the solvency of what has been built up thus far).  In contrast, China does not have a sustainable healthcare, insurance or pension plans in place for the middle Is China going to grow too class. old too fast for the CCRC model to evolve as it did  Yes, China is getting rich. But it is getting rich out of sync with in the US and EU? the amount of time it took the American model to evolve the necessary cultural and contextual conditions for the CCRC model to be successful.
  17. 17. Day-Care CCRC +Rehabilitation Hospital In-Home Care Training Programs High Acuity / Hospice Western Senior Care Models 17
  18. 18. + Some Factors to Keep in Mind  How the Chinese consumer …. How China Pays for Healthcare  Rationalizes healthcare 100% expenditures. 90% 80% 38.2 35.5 44.1 40.4 49.3 53.6 52.2 70% 59.0 60.0 57.7 55.9 60% 50% 34.9 35.9 40% 34.9 33.6 29.9 32.6 30% 27.2 29.3 25.6 24.1 26.6 20% 27.2 28.6 10% 22.3 24.7 15.5 15.9 15.7 17.0 17.0 17.9 18.1 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Government Social Insurance Out of Pocket
  19. 19. + Some Factors to Keep in Mind McKinsey: What Drives Affluent Chinese into Private Healthcare 25%  How they view “private” healthcare (≠ VIP). 20% 15%  How they view 10% diagnostics, devices and 5% drugs. 0%  How they view services.
  20. 20. + Pursuing the Promise How do you determine if this is the right opportunity for your business to pursue? What makes going to China the right place for one business over another?
  21. 21. + For Company‟s New To China  China should be a strategic, not purely opportunistic, pursuit.  The decision to go to China should reflect a holistic appraisal of internal capabilities, financial resources, and risk appetite versus other domestic or foreign investment opportunities.  The process of choosing should allow key management team members and other stakeholders to ask questions, raise concerns, and feel their input has been sought and incorporated into the final decision.  If a decision to go forward in China is made, your management team should have several different market access strategies presented with a comprehensive analysis of each, along with an idea on how to properly market your services to the Chinese consumer.
  22. 22. + Contact Information Benjamin Shobert Founder, Managing Director Rubicon Strategy Group, LLC Two Union Square 601 Union Street, Suite 4200 Seattle, WA 98101 Phone: 206-652-3572 Fax: 206-652-3205 Mobile: 317-777-2926 Email: URL: or