China Healthcare Policy Study, 2011              Prepared for        Frost & Sullivan (Beijing)               April, 2011
Table of ContentTable of Content                                                                                  1Summary...
SummaryDefinition: the Five-Year Plan (FYP) is a series of economic development initiatives, which renewsevery five years....
1. China Aging, Healthcare and Wellbeing Market Overview1.1 China Marco Economy and Healthcare Market Environment1.1.1 Chi...
estimated that the GDP per capita of China would reach 7,258 U.S. dollars.1.1.3 China Total Annual Healthcare Expenditure ...
healthcare expenditure in 2007 is US$108, which is much lower than those developed countrieslisted in the graph. There is ...
Currently China is the country with the biggest population in the world, with estimated 1.341billion people in 2010, accor...
Percentage of 65+ years old population in China 2006-2020E                                                                ...
Increasing Percentage of Healthcare Expenditure Counts for GDPAlthough the total healthcare expenditure counts only around...
2. Last Five Year Plan Review for Aging, Healthcare and Wellbeing2.1 Major Policies, Regulations, Laws and Their Affects2....
Basic Level Healthcare ServicesIn China, people preferred to visit those renowned hospitals (often Tier 3-A), as they beli...
Traditionally in China, after the drug is made by manufacturers and before it is sold to patients,there are some distribut...
The government encourages the development of private hospitals and clinics. However, theprocess is very slow.Public hospit...
Summary of 11th FYP in Aging, Healthcare and WellbeingIn the 11th FYP, the criticized problem as ‘expensive medical bills ...
2.3 The Performance of Major Foreign Enterprise in These Areas2.3.1 Foreign Enterprise have been Preparing for Entering Pr...
Partly Due to the relatively cheap labor and price in China, foreign enterprises are trying tolocate some functions of the...
3. The 12th FYP for Aging, Healthcare and Wellbeing3.1 Latest Policies, Regulations, Laws for Aging, Healthcare and Wellbe...
 To continuously increase the governments’ investment in public health and ensure           the public health safety.3.3 ...
4. New Business Opportunities for Foreign Enterprise in Aging, Healthcareand Wellbeing for the Next 5 Years4.1 Pharmaceuti...
It is not uncommon for people, especially with chronic diseases, chose to not visit hospitals fortreatment due to their fi...
patients. This imbalance leads to a relatively big market in these hospitals in cities. And it is alsothe reason why those...
ReferenceThe sources of the secondary data in this report are mainly the followingorganizations (sorted alphabetically):1....
UPDATEChina Age Distribution  The people of working age increased in the past decade in China. According to the ChinaCensu...
Senior Centers and Services in China in 11th FYP  On 29 January, 2008, China National Committee on Aging, National Develop...
China Digitizing Information in Healthcare in 12th FYP (1)   In the 12th FYP, the China government has identified the heal...
There may be market opportunities for hand hold device which has different probes formonitoring temperature, blood pressur...
centers running mainly located in Level1 cities like Beijing, Shanghai and Guangzhou.Foreign healthcare services, such as ...
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China healthcare policy_study

  1. 1. China Healthcare Policy Study, 2011 Prepared for Frost & Sullivan (Beijing) April, 2011
  2. 2. Table of ContentTable of Content 1Summary 21. China Aging, Healthcare and Wellbeing Market Overview 3 1.1 China Marco Economy and Healthcare Market Environment 3 1.1.1 China GDP Analysis (2006-2015E) 3 1.1.2 China per Capita GDP Analysis (2006-2015E) 3 1.1.3 China Total Annual Healthcare Expenditure (2006-2015E) 4 th st 1.1.4 China Per Capita Healthcare Expenditure Ranks 9 While U.S. Stands 1 Among Weighty Countries 4 1.1.5 China Total Healthcare Expenditure Ranks 8th while U.S. stands 1st among weighty countries 5 1.2 The Raising Population & Extension of Life Expectancy 5 1.2.1 The Population in China is Rising 5 1.2.2 The Life Expectancy is Extending in China 6 1.2.3 The Aged Population in China is increasing at a Noticeable Speed 6 1.3 The Drivers for Healthcare Market 7 1.3.1 Major Drivers for the Healthcare Market Growth 72. Last Five Year Plan Review for Aging, Healthcare and Wellbeing 9 2.1 Major Policies, Regulations, Laws and Their Affects 9 2.1.1 Pathway of Chinese Healthcare System 9 2.1.2 New Healthcare Reform 2009-2011 9 2.2 Major Achievement of the 11th FYP 12 2.3 The Performance of Major Foreign Enterprise in These Areas 14 2.3.1 Foreign Enterprise have been Preparing for Entering Primary Care Market in China 14 2.3.2 Foreign Enterprises have Located Part of the R&D in China 143. The 12th FYP for Aging, Healthcare and Wellbeing 16 3.1 Latest Policies, Regulations, Laws for Aging, Healthcare and Wellbeing 16 th th 3.2 The 12 FYP Succeed the Core of 11 FYP in Aging, Healthcare and Wellbeing 16 3.3 Forecast of the Potential Results by Those Policies, Regulations and Laws 174. New Business Opportunities for Foreign Enterprise in Aging, Healthcare and Wellbeing for theNext 5 Years 18 4.1 Pharmaceutical Perspective 18 4.1.1 High-end market 18 4.1.2 Low-end market 18 4.2 Medical Device Perspective 19 4.3 Market Focus for Foreign Enterprises 19Reference 21 1@2011 Frost & Sullivan
  3. 3. SummaryDefinition: the Five-Year Plan (FYP) is a series of economic development initiatives, which renewsevery five years. The FYP is shaped by the Communist Party of China (CPC) through the CentralCommittee and National Congresses.This report aims to review the achievements in 11th FYP (2006-2010) and understand thepotential opportunities and challenges especially for foreign enterprises, brought by 12th FYP(2011-2015) in Aging, Healthcare and Wellbeing in China. The 11th and 12th FYP together last 10years, there are the guidelines for the China development in this 10 years. And they would havesignificant impact on the Aging, Healthcare and Wellbeing in China. Understanding the FYP couldhelp our client to understand the market for decision making. 2@2011 Frost & Sullivan
  4. 4. 1. China Aging, Healthcare and Wellbeing Market Overview1.1 China Marco Economy and Healthcare Market Environment1.1.1 China GDP Analysis (2006-2015E)According to the latest data from the International Monetary Fund (IMF), during the last fiveyears in China, the GDP is estimated to reach 5.75 trillion US dollars in 2010 compared with 2.71trillion in 2006. In 2010, it was reported that China overtook Japan to be the No.2 country in GDPamong the world.According to the latest forecast by the International Monetary Fund (IMF), in 2015, it is estimatedthat the GDP of China would reach 9.98 trillion U.S. dollars.1.1.2 China per Capita GDP Analysis (2006-2015E)The China GDP per capital experienced a high speed growth in the last five years, from $2,064 in2006 to estimated $4283 in 2010. According to the latest forecast by the IMF, in 2015, it is 3@2011 Frost & Sullivan
  5. 5. estimated that the GDP per capita of China would reach 7,258 U.S. dollars.1.1.3 China Total Annual Healthcare Expenditure (2006-2015E)During the years of 2006-2010, The Total Annual Healthcare Expenditure in China experienced ahigh speed increase, at a CAGR of 18.72%.During the 12th Five Year Plan (2011-2015), the government would strength its investment inhealthcare services in the coming years, it is expected that the total annual healthcareexpenditure would continue to grow at least at the same rate of the past five years. Based on thisexpectation, in 2015, the total annual healthcare expenditure in China is estimated to reach$705.74 billion.1.1.4 China Per Capita Healthcare Expenditure Ranks 9th While U.S. Stands 1stAmong Weighty Countries 2007 Weighty Country Per Capita Healthcare Expenditure Ranking (US$) 7,285 4,627 4,409 4,209 3,867 3,136 2,751 2,712 108 40According to the latest statistic data from WHO yearbook 2010, the per capita healthcareexpenditure in United States is US$7,285, first among weighty countries. China per capita 4@2011 Frost & Sullivan
  6. 6. healthcare expenditure in 2007 is US$108, which is much lower than those developed countrieslisted in the graph. There is still a potential for increasing the healthcare expenditure per capita inChina.1.1.5 China Total Healthcare Expenditure Ranks 8th while U.S. stands 1st amongweighty countries 2007 Weighty Country Total Healthcare Expenditure Ranking 2,260 (US$ Billion) 351 347 295 235 182 147 143 110 45Total Healthcare Expenditure is estimated by the formula: = Per Capita Healthcare Expenditure *Estimated Population based on the official data.For the total healthcare expenditure in 2007, U.S. still ranked first with US$2,194 billion, which islarger than the sum of healthcare expenditure of all the other countries in the graph. The largepopulation base in China contributes to the rising rank of total healthcare expenditure which wasUS$143 billion. With such a large population in China, the total healthcare expenditure have agreat potential to increase in the future.1.2 The Raising Population & Extension of Life Expectancy1.2.1 The Population in China is Rising 5@2011 Frost & Sullivan
  7. 7. Currently China is the country with the biggest population in the world, with estimated 1.341billion people in 2010, according to the IMF database.Although the population is expected to increase, the speed of increasing is getting lower due tothe low natural birth rate in China. As a result of the China family planning program named ‘OneChild Policy’ which aims to control the population, the natural increase rate of China populationexperienced a decreasing in the previous decades, from 11.87 ‰ in 1980 and down to 5.05‰ in2009.1.2.2 The Life Expectancy is Extending in ChinaWith the development of economy and healthcare services in China, the life expectancy has beenrising steadily in the past three decades. According to the United Nation forecast, the lifeexpectancy in China could still rise but at a relatively slower speed than the previous decades inthe coming 40 years; and will almost hit 80 in 2050.With lower birth rate and extended life expectancy in China, it is widely believed that China isstepping into an aged society.1.2.3 The Aged Population in China is increasing at a Noticeable SpeedAccording to the international standard, a country with either 10%+ of population over 60 or 7%+of population over 65 would be considered as an aging country. According to the National Bureauof Statistics of China, China stepped into an aging country with 7% of population over 65 yearsold in 2000, and this percentage has been continuously rising. 6@2011 Frost & Sullivan
  8. 8. Percentage of 65+ years old population in China 2006-2020E 11.66% 12% 11.24% 10.78% 11% 10.30% 9.85% 9.45% 10% 9.11% 8.84% 8.60% 9% 8.23% 8.41% 7.94% 8.07% 7.70% 7.82% 8% 7% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020The forecast made by the Organization for Economic Co-operation Development (OECD) suggeststhat the aging trend of China population will speed up in the next decades. In 2020, it isestimated that 11.61% of China total population could be people with over 65 years old.Normally, an aging society could lead to an increase in needs for medical services which couldboost the healthcare industry. When people get old, they are normally fragile to diseases, and oldpeople consume more drugs than younger. According to our secondary research, in Japan whichis an aged society, around 80% of the total healthcare expenditure was spent on people over 65.1.3 The Drivers for Healthcare Market1.3.1 Major Drivers for the Healthcare Market GrowthIncreasing Healthcare ExpenditureThe increasing healthcare expenditure suggests an increasing market scale for healthcare. Thetotal annual healthcare expenditure in China almost doubled from 2007 to 2010, and is stillincreasing with a double-digit growth. And in recent years, the government at all levels investsmore than ever on healthcare services. 7@2011 Frost & Sullivan
  9. 9. Increasing Percentage of Healthcare Expenditure Counts for GDPAlthough the total healthcare expenditure counts only around 5% of the total GDP in China, thispercentage continuous to grow in the past years. Compared with western developed countries,this 5% is relatively low; with the development of economy, there is still a great potential forincreasing the healthcare expenditure’s percentage in GDP.Growing and aging populationThe growing population enlarges the total patient pool for healthcare market in China. And Chinais also facing an aging society, unfortunately, diseases especially chronic diseases affect olderadults disproportionately, and as a result of aging population, China will be increasingly pressuredto handle a growing sick population.Increasing Disposable IncomeWith the development of national economy, according to the Statistic Year Book 2010, thedisposable income for citizens has been continuously increasing for the past decades. Withincreasing disposable income, people care more about their health condition which could leadsto increasing spending on medical services. 8@2011 Frost & Sullivan
  10. 10. 2. Last Five Year Plan Review for Aging, Healthcare and Wellbeing2.1 Major Policies, Regulations, Laws and Their Affects2.1.1 Pathway of Chinese Healthcare SystemFrom 1980s to 2009, China government has tried several attempts for healthcare reform, fromplanned economy to market economy, and new healthcare service models and so on. However, in2005, Chinese MoH had to admit that the healthcare reform in the past failed to achieve whatwas expected. And under this condition, in 2009, the government started a new healthcarereform attempt.2.1.2 New Healthcare Reform 2009-2011In 2009, the Chinese State Council formally announced a new healthcare reform plan named‘Implementation Plan for Deepening Pharmaceutical and Health System Reform 2009-2011. Thegovernment planned to invest US$ 123 billion (RMB 850 billion) from 2009 to 2011. From thegovernment perspective, it mainly aims to improve the affordability and accessibility ofhealthcare service for patients, to solve the widely criticized problems: ‘expensive medical billsand difficult access to quality medical services’.The New Healthcare Reform would mainly focus on the following issues: 9@2011 Frost & Sullivan
  11. 11. Basic Level Healthcare ServicesIn China, people preferred to visit those renowned hospitals (often Tier 3-A), as they believe theycould get the best and reliable treatment. Therefore, it is uncommon to find that those renownedhospitals often are overloaded, while other hospitals may have few patients. And it is one of themain reasons for difficulty to get access to medical services; patients have to wait days, weeksbefore get treatment as they rush to the same hospitals.The New Healthcare Reform aims to direct the patients from those renowned hospitals toprimary care. One of the solutions is to enhance the quality of primary cares, develop theprimary healthcare service network, to build more community health center and health station,primary care hospitals.Basic Healthcare Insurance SystemThere are mainly three types of basic medical insurance in China named, New Rural CooperativeMedical Scheme (NRCMS), Basic Medical Insurance for Urban Employees (BMIUE) and BasicMedical Insurance for Urban Residents (BMIUR).Traditionally in China, the major basic healthcare insurance is the BMIUE, which is jointly paid bythe employees and employers. Despite those employees, there is relatively few basic medicalinsurance for the people living in rural area and unemployed, children, aged people. For thosepeople, without reimbursement, the healthcare fees are relatively high. Therefore, thegovernment later provided two new basic healthcare insurance to cover those people: theNRCMS and BMIUR.The New Healthcare Reform aims to extend the coverage of NRCMS (targets at people living inrural areas) and BMIUR (targets at children, aged people, and unemployed in urban areas) toincrease the affordability of the targeted population.Also by setting higher reimbursement rate in primary care than in Tier 2, Tier 3 hospitals, theinsurance system helps encourage patients getting treatment from primary cares.Essential Drug System 10@2011 Frost & Sullivan
  12. 12. Traditionally in China, after the drug is made by manufacturers and before it is sold to patients,there are some distributors and hospitals between them. In order to gain margin from sellingdrugs, they have to raise the price for drugs. And this is one of the reasons causing the expensivefees for medical services in China.The Essential Drug System (EDS) aims to lower the price by reducing the middleman, and settingceiling price for drugs in the Essential Drug Lists which update every 3 years. According to the EDS,the provincial government is responsible for holding public bidding, purchasing, and deliveringthe drugs to hospitals directly. This could lower the drug price as it reduces the middleman.In the EDS, the government tried to extend the ‘zero mark up’ for drug sales in basic levelhospitals. The ‘zero mark up’ means that the basic level hospitals would sell certain medicinewith no margins to patients, and the lost margin would be reimbursed by the government. Thedrugs in the ‘zero mark up’ list vary in different regions. According to our research, thegovernment has tried some pilots in certain cities’ community hospitals. Take Beijing for instance;in 2010 there are more than 500 drugs which has been implemented with ‘zero mark up’ inBeijing community hospitals.Equitable Public Health Service & Public Hospital ReformIn the New Healthcare Reform, it plans to reduce the gap of public healthcare services in urbanand rural areas, and implement the public hospital reform.  For equitability, it aims to provide equal access of public health services in rural and urban areas.  For hospital reform, it aims to separate the supervision and operation of hospitals.In the 11th FYP, the New Healthcare Reform has the major impact on the China healthcare market,partly because that the major hospitals are government managed. The government polices havedirect impact on hospitals. The following section would introduce the China hospitals systembriefly.In China, the healthcare services are mainly based on government managed public hospitals.Currently in China, 90% of total hospitals are public hospitals which are under the MoH,provincial health bureau, or municipal health bureau, the rest are private hospitals 11@2011 Frost & Sullivan
  13. 13. The government encourages the development of private hospitals and clinics. However, theprocess is very slow.Public hospitals are further divided into 3 different tiers by China Ministry of Health (MoH) withtier 1 being the lowest tier and tier 3 as the top tier in terms of facility, level of service providedand type of hospital administration. Military and teaching hospitals are usually tier 3 hospitals,and corporate hospitals are usually tier 2 hospitals.Considering the current healthcare market situation and the polices in China, there are mainlythose following achievement as we observed in the 11th FYP in healthcare.2.2 Major Achievement of the 11th FYPIncreased Basic Medical Insurance SystemThe coverage of basic medical insurance has been extended to cover the majority of the civiliansin China. According to the MoH, in the end of 2010, the population covered by the New RuralCooperative Medical Scheme (NRCMS) had reached 835 million with 95% coverage, which meansthat NRCMS has become the medical insurance program which covers the biggest population inthe world. According to the Ministry of Human Resources and Social Security of the PeoplesRepublic of China, it is estimated that at the end of 2011, the urban medical insurance (bothBasic Medical Insurance for Urban Employees (BMIUE) and Basic Medical Insurance for UrbanResidents (BMIUR)) will cover 90% of the target population, and the number of people coveredwill be 440 million.The reimbursement rate has been raised to lower the financial burden for patients. Thegovernments of all levels have been continuously increasing its investment in basic medicalhealthcare insurance. Although the reimbursement rate varies in different regions, thereimbursement rate for getting treatment in primary cares is often as high as 60%-80%.Construction of Primary Healthcare ServiceDuring the last FYP, the Central Party invested 55.84 billion RMB specific for supporting theproject of construction of nearly 50,000 healthcare organizations. A healthcare networks with5,500 community health center and 230,000 community healthcare stations have been set upinitially. More than 1100 Tier 3 hospitals in urban areas built partnership with 2139 countyhospitals to support and cooperate with each other, to help training and improving the services inbasic hospitals.Building of Essential Drug SystemFormally started from 2009, The EDS is an ongoing project which aims to provide guidelines forprescribing, safe and affordable medicines. During the 11th FYP, there are 307 types of drug listedin the EDL, and the price of all these drugs in the list has been administrated by the government.The EDL helps lower the price of drugs inside the list. According to Mao Zhang, the partysecretary of MoH, there was an average of 30% decrease of medicine price in regions with EDL. 12@2011 Frost & Sullivan
  14. 14. Summary of 11th FYP in Aging, Healthcare and WellbeingIn the 11th FYP, the criticized problem as ‘expensive medical bills and difficult access to qualitymedical services’ for citizens has been mitigated in a certain extent.Pharmaceutical MarketThe China pharmaceutical market has experienced a rapid growth in the 11th FYP. According toour research, the total China Pharmaceutical market size was RMB 358.68 billion in 2009 whichdoubled that of RMB 177.21 in 2006.Currently in China, the competition in China pharmaceutical market is relatively fierce, as manymultinational pharmaceutical giants and numerous local companies in this market. There areboth original drugs and generic drugs in the market, and normally the price for original drugs ismuch higher than generic drugs’. Original drugs are mainly belongs to the Multi-nationalpharmaceutical companies, while domestic companies mainly focus on the generic drugs. It’sreported that 97% of the drugs from domestic companies are generic drugs. Compared withforeign pharmaceutical companies’ billions of dollars investment in R&D, few local companiescould afford such expenditures, the R&D ability for China pharmaceutical companies is relativelypoor.Medical Device MarketAs the 3rd Largest medical device market in the world, China market size was RMB 162 billion in2009, growing at a steady double –digital annual growth rate. However, the China medical devicemarket counts only around 5% of the world medical device market. There is still great potentialfor the medical device market in the future.The high-end medical device market is mainly dominated by foreign enterprises in China. Themajority of the domestic companies still remain in low-technology section. The major advantagefor domestic medical device is the relatively cheaper price, compared with foreign companies’products. However, in recent years, domestic companies like Mindray (2006, as the first Chinamedical device company IPO in New York,), Yuye, have enjoyed a rapid growth in this market,they have suggests strong ability in R&D.The healthcare market for primary care has experienced a high speed growth. The constructionof community healthcare center, primary cares in rural and western regions helps build ahealthcare network for easy accessibility for patients. And following by the construction ofprimary cares, there is an increasing need for both medical device, and drugs in those primarycares. Due to the polices which aims to direct the patients from Tier 3-A hospitals to primarycares, the patients has increased noticeably for primary cares.Foreign companies have already pay attention to the primary care market in the 11th FYP. In thefollowing session, we will introduce their performance in these areas. 13@2011 Frost & Sullivan
  15. 15. 2.3 The Performance of Major Foreign Enterprise in These Areas2.3.1 Foreign Enterprise have been Preparing for Entering Primary Care Market inChinaDuring the 11th FYP, due to development of primary cares, foreign companies pay more attentionon the basic level healthcare services in order to extend their market shares. They have triedeither to localize its products for primary cares, or work with government to increase itsawareness, or to build sales channel in level 3, level 4 cities and even rural places. Take thefollowing companies for instance:1. In May, 2008 Bayer signed a cooperation with the MoH, officially launched a 3 years project named ‘China community health promotion’. It aims to raise the awareness and reliability of community health services, improve community health workers’ skills, and promote standardization of the construction of community health services, through promoting, training and technical development.2. In 2008, GE signed a contract with Shinva Medical Instrument CO., LTD. found a joint venture mainly aims to provide medical image products targeting at rural and community hospitals.3. In 2009, Carestream chose to cooperate with the MoH and Ningxia Hui Autonomous Regional Government for ‘Pilot Program for Rural Medical Informatization’ in which Carestream will provide digital remote imaging solutions for basic level hospitals in Ningxia region to help the pilot projects. 2.3.2 Foreign Enterprises have Located Part of the R&D in ChinaAlthough the main body of the R&D for foreign enterprises are located in American and European,during the 11th FYP, foreign enterprises have started to put parts of the R&D in China. Accordingto the data from China Association of Enterprises with Foreign Investment R&D-boardPharmaceutical Association Committee (RDPAC), during the 11th FYP, its 37 members investedover 20 billion RMB totally in China, with almost 1/3 in research.1. In November 2006, Swiss Novartis announced a 100 million US dollars plan to set up a BioMedical research center in Shanghai, which would be the biggest pharmaceutical research center at that time.2. In 2009, Novartis further announced a 1 billion US dollars plan for further investment in China.3. In October 2008, Eli Lilly and Company set up its global research center Beijing branch. a) In later November, Lilly signed a contract with Hutchison China MediTech for research on new targeted anti-cancer medicine.4. In October 2008, Sanofi-Aventis launched its research center in Beijing, which was the fourth largest research center for Sanofi globally.5. In April 2009, Johnson & Johnson announced that it would build a new research center as the headquarters of research center in Asia region. 14@2011 Frost & Sullivan
  16. 16. Partly Due to the relatively cheap labor and price in China, foreign enterprises are trying tolocate some functions of the R&D in China which could help them lower the costs for R&Dglobally. 15@2011 Frost & Sullivan
  17. 17. 3. The 12th FYP for Aging, Healthcare and Wellbeing3.1 Latest Policies, Regulations, Laws for Aging, Healthcare and WellbeingThe 12th FYP generally follows the steps of the 11th FYP in aging, healthcare and wellbeing, tocontinue the unfinished job in the 11th FYP. According to Mao Zhang, the party secretary of MoH,the ultimate target of MoH in 12th FYP would be summarized in one sentence: ‘To build a reliablemedical healthcare system which cover citizen from both urban and rural areas’ in the comingfive years. And this is exactly what the 11th FYP tried to achieve.In the 12th FYP, the government would still take further step implementing the New HealthcareReform (2009-2011), and there are mainly four goals for the coming five years:1. Improving the quality of medical service. a) This theme mainly covers strengthening regional healthcare services distribution, public healthcare service system construction, and primary cares construction especially in rural, middle and western regions, taking further steps in public hospital revolution, encouraging private investments in healthcare services.2. Perfecting the medical insurance system to lower the finance burden for patients. a) Improving the coverage and reimbursement rate of medical insurance, and closer the gap between urban and rural medical insurance.3. Preventing major diseases, and control the risk factors for health4. Strength the government’s administration on public health to ensure civilians’ health and safety.There are relatively few new directions in the latest policies, regulation, laws for aging, healthcareand wellbeing in the 12th FYP. The New Healthcare Reform will still be one of the major focusesfor the government in the coming five years.3.2 The 12th FYP Succeed the Core of 11th FYP in Aging, Healthcare and WellbeingFor Healthcare and Wellbeing, the 12th FYP will continue the New Healthcare Reform whichstarted from the 11th FYP, and it will still be one of the focuses for the government of all levels inthe next five years. To taking further step in healthcare reform which is a continuous and ongoing project.  To continuously improve the quality of healthcare services  To build and perfect a medical insurance system which covers citizens from both urban and rural regions.  To continuously extend the coverage of basic medical insurance  To continuously raise the reimbursement rate for patients  To continuously invest heavily on the construction of basic level hospital services, and this includes community healthcare center, county/town hospitals, and village healthcare station. 16@2011 Frost & Sullivan
  18. 18.  To continuously increase the governments’ investment in public health and ensure the public health safety.3.3 Forecast of the Potential Results by Those Policies, Regulations and LawsSocial PerspectiveAn Improved Basic Level Hospital NetworkGovernment would invest heavily for the constuction of primary cares in communities, westernand rural areas, to build healthcare networks. With the development of healthcare networks, itwould be easier for citizens to get access to healthcare services.A Better Medical Insurance SystemAccording to the 12th FYP, the mediacl insurance coverage will be further extended, planed tocover all citizen in 2020. Government would invest more in medical insurance for citizens to raisethe reimbursement rate for patients.A Sound Essential Drug ListThe Essential Drug List would be further improved to better serve its orginal purpose in the 12thFYP. The ‘zero mark up’ would be extended to more regions to lower the medicine price. Thepublic bidding, purchasing for drugs by government could be further standardlized.Market PerspectiveFrom the market perspective, in the 12th FYP, the latest polices, regulations and laws withongoing healthcare reform could continuously boost the healthcare market with rapid growth.According to our secondary research, while the global pharmaceutical market growth of 5-7percent in 2011, China is estimated to have a growth of 25-27 percent in the coming years.The increasing government investment in ‘improving the supply and demand side will benefit thepharmaceutical market significantly by increasing the drug consumption’. Of the $123 billionprovided by the New Healthcare Reform, it has been reported that more than $10 billionallocated solely for medical device purchases by hospitals and clinics in China. It is estimated thatthe China medical device market could also have a growth in the coming years at a CAGR ofaround 20%.Healthcare market will remain one of the hot spots for investment in coming years. Accordingto our research, there are some local pharmaceutical and medical device companies either tryingor planning to initiate public offerings to get financing for further expansion in this market. Manyforeign healthcare companies would strengthen their investment in China for market expansionin the 12th FYP. 17@2011 Frost & Sullivan
  19. 19. 4. New Business Opportunities for Foreign Enterprise in Aging, Healthcareand Wellbeing for the Next 5 Years4.1 Pharmaceutical Perspective4.1.1 High-end market •The increasing incident rate of cancers. High-end •Increasing disposable income for civilians Pharmaceutical Market Drivers •Pharmaceutical companies invest heavily in targeted agents It is estimated that the high-end pharmaceutical market, especially anti-cancer drugs would experience an increment in the coming years. 1. In recent years, it is observed that the incident rate of caners has risen. With the increasing patient pool for cancers, there will be an increasing need for anti-cancer drugs. a) According to our research, there are around 400,000 newly diagnosed lung cancer patients every year, and this number will increase to 1 million in 2025, and China will become the country with the largest lung cancer patients’ population in the world. b) Inside anti-cancer drugs, targeted agents for cancers have been a hot spot for those pharmaceutical giants in recent years. Sales for Glivec from Novartis, Tarceva from Roche, and Iressa from AstraZeneca all experienced a high speed growth in China. 2. With the increment of civilians’ disposable income, more and more people can afford the high price of high-end pharmaceutical products.4.1.2 Low-end market1. The construction of basic level healthcare services networks in primary cares could helpimprove the accessibility of healthcare services.2. The development of the basic medical insurance system will mainly focus on the followingperspectives: A) The extension of the coverage of basic medical insurance. B) The increasing of reimbursement rate for patients. 18@2011 Frost & Sullivan
  20. 20. It is not uncommon for people, especially with chronic diseases, chose to not visit hospitals fortreatment due to their financial difficulty in rural and western areas. With the development thesetwo perspectives, it is reasonable to predict that this could raise the affordability for patients, andthere are more willing to visit hospitals to get treatment.Therefore, it is estimated that there will be an increasing need for low-end medicines in primarycares, especially for medicine for chronic diseases, such as hypertension, diabetes.4.2 Medical Device PerspectiveDuring the last five years, in order to optimize the regional healthcare resource distribution, theMoH announced several police mainly aims to strengthen the management of medical devicepurchasing for hospitals.1. The centralized procurement is organized by government from national, provincial and municipal levels, while the provincial government acts the major organizer to implement the procurement. And all non-profit healthcare organizations hold by government, state-owned enterprise should participate in this centralized procurement.2. According to these policies, hospitals who want to purchase large medical devices which price is over 5 million RMB (such as PET-CT, γ Knife, MM50, PTS, CT, MRI, DSA, SPECT) has to been approved by regulators before purchasing.As a consequence of these policies, those medical manufacturers offer a relatively new approachfor selling large medical devices which are normally expensive to buy. According to Frost &Sullivan previous research, there are many manufacturers chose to invest the medical device inthe hospitals which means the hospitals would get the device for free, and the hospitals wouldeither need to purchase the suppliers from the specific manufacturers in order to use the device,or share the benefits by using these devices. a) Take the Gamma Knife for instance, the manufacturers could build a Gamma Knife center in a certain region, and sign contracts with hospitals inside this region which allow those hospitals to use the Gamma Knife for treatment. And the incomes for treatment would be share between the hospitals and the manufacturers. b) In recent years, there is an increasing bargain power for hospitals in this cooperating approach, as more and more companies imitate this business approach which leads to competition between manufacturers. It may be a future trend for large medical device manufacturers to cooperate with hospitals in this approach.Foreign companies for large medical device may consider this investing approach forcooperating with the hospitals.4.3 Market Focus for Foreign EnterprisesCurrently in China, due to the imbalance distribution of healthcare resource, the minority Tier 3hospitals in cities are normally well equipped with lots of patients, while the majority hospitals incommunities, rural and western regions are relatively poorly equipped with relatively less 19@2011 Frost & Sullivan
  21. 21. patients. This imbalance leads to a relatively big market in these hospitals in cities. And it is alsothe reason why those foreign pharmaceutical companies and large medical device manufacturersmainly focus on the Tier 3 hospitals in cities currently.The China New Healthcare Reform is trying to transform the current imbalance, however, ‘Romewasn’t built in a day’, it takes time for the government to implement those polices, the reformplan won’t fundamentally eliminate this imbalance overnight or reshape the market landscape.Although, the potential market for the communities, rural and western hospitals is great, forforeign enterprise, it is suggested that the tier 3 hospitals in cities are still the market focus inthe coming 5 years. 20@2011 Frost & Sullivan
  22. 22. ReferenceThe sources of the secondary data in this report are mainly the followingorganizations (sorted alphabetically):1. Chinese State Council2. Frost & Sullivan Database3. Frost & Sullivan Secondary Research4. International Monetary Fund Outlook Database5. Ministry of Health of China6. National Bureau of Statistics of China7. Organization for Economic Co-operation and Development8. United Nation Database9. U.S. Census Bureau10. World Health Organization Database 21@2011 Frost & Sullivan
  23. 23. UPDATEChina Age Distribution The people of working age increased in the past decade in China. According to the ChinaCensus 2010, in 2010, the total population in China is 1.34 billion, with almost 0.92 billion peopleare between 15-60 years old, compared with 0.85 billion in 2000. However, the percentage ofpopulation aged 0-14 decreased from 22.90% to 16.60%, which means that in the future therewill not be enough labor to fill the gap when the people currently in working age get older. Thepercentage of people at working age would decrease in the future. The percentage of population facing retirement in the coming future (aged 55-64) is rising,according to the forecast; the percentage of this population could reach 12% in 2020, comparedwith 10% in 2010, and almost hit 15% in 2025. While China is still a developing country, its agingdegree enters into the ranks of developed countries. The acceleration of aging leaves big pressureon both the economy and the society. Under this situation, the total demand for aging peopleservices is expected to rise to a higher level.China Pension for Retired People According to the China laws, normally the retire age for male is 60, for female employee is 50,female cadre is 55. The actual retire age varies in different regions and companies; and wedefined the population facing retirement as aged 55-64. According to our research, China has a relatively low pension level. Since January, 2011,enterprises increased their pension by RMB 140 per capita to reach RMB 1340 per capita.Although the pension for retried people in developed provinces and cities is relatively high, thenational average pension is no more than RMB1400. For some reasons, pensions for employeesof the government and public institutions are 2-3 times more than those of employees ofenterprises. Normally in China, the pension for retired people is related with the current average salary inspecific region where the retired person lived, the formula is relatively complicated. In 2011,Shanghai introduced the indexation of monthly average contribution wage in accordance withthe guidance of completing the basic pension payments of employees of enterprises in towns.Then, the pension level is connected to the contribution wage of the insured employees, whichfurther embodies the principle-“paying more and getting more”-of the endowment insurance. 22@2011 Frost & Sullivan
  24. 24. Senior Centers and Services in China in 11th FYP On 29 January, 2008, China National Committee on Aging, National Development and ReformCommission, together with 8 other departments, published the ‘Opinions on ComprehensivelyAdvancing the Home-based Care’. According to Opinions, all communities in China should buildvarious and extensively covering home-based service network during the 11th FYP. On January 12,2009, Beijing Civil Affairs Bureau together with other departments issued Opinions onAccelerating the Development of Senior Centers. It was the first one to specify the home-basedcare service. As was stated, multi-channel and various investment mechanisms would be set upwith the support of policies to advance the socialized and industrialized development ofhome-based care service. In cities like Beijing and Shanghai, there is one aged person out of five persons. And the currentsituation is that the occupancy rate of senior centers is low while many aged people can’t find aplace to live out their life. According to our secondary research that 40 percent of the beds inlarge cities like Beijing and Shanghai are in urban area while the other 60 percent in suburbs. As aresult, demand exceeds supply in urban areas while there are 40 percent beds are vacant insuburbs. In urban areas, there are public welfare houses, gerocomiums, and private gerocomiumswith tens to hundreds beds. But the housing conditions and the quality of life are quite bad. Sincethe public gerocomiums receive subsidy from the governments, their charge is relatively lowwhich leads to overcrowded. In contrast, the upscale gerocomiums’s occupancy rate is relativelylow. The demand for gerocomiums, especially those with good quality and reasonable price, isrelatively strong in urban areas.China Gender Imbalance According to the China Census 2010, the gender imbalance in China has been mitigated incertain extent. The number of male: female in 2010 is 105.20: 100, which experienced a bitdecrease in the past decade, compared with 106.30:100 in 2000. The gender imbalance in Chinaare mainly resulted by many reasons, such as the conventional views that boys are better thangirls, the undeveloped economy in certain regions, the ongoing family planning program, andothers. According to the research by the China census 2010, the gender imbalance varies in differentregions, in certain regions normally with undeveloped economy, the problem get more serious.There is also an obvious difference between rural and urban areas, normally in rural area; thegender imbalance is much more serious. Due to the gender imbalance, there are mainly the following consequences:1. it will squeeze the marriage gender, and lead to difficulties in matching, as there are more boysthan girls, boys may find it difficult to find a girl to marry.2. The imbalance would leads to barriers for producing the next generation due to difficulty ingetting married. And finally this would leads to decrease in the total population.3. This imbalance would have impacts on the society, it may could leads to increase in sexualcrime.4. The excess male labors could increase the competition in employment. 23@2011 Frost & Sullivan
  25. 25. China Digitizing Information in Healthcare in 12th FYP (1) In the 12th FYP, the China government has identified the healthcare informationization as oneof the key objectives for development. It aims to construct the medical information system based on the electronic medical records, and regional health information services platform based on citizen’s health documents. It also encourages the infrastructure and information construction for county hospitals, and development of information construction in primary cares including rural medical services.Hospital Information SystemIn recent years, hospitals in China are taking step in setting up Hospital Information System (HIS).According to our previous research, more than 90% of hospitals in Beijing has their own HIS,primary targeted at financial, administrative, and management applications and are usuallyhighly customized.However, only around 20-30% hospitals stepped further for Clinical Information Systems (CIS). CISprovides clinical solutions in the various departments of a hospital. These solutions are veryspecific to the departments and are customized to meet their unique needs. However, many ofthe clinical solutions are part of an integrated hospital-wide solution.Regional Information SystemRegional Health information Network has become one of the focuses of hospital informationconstruction in recent years. RHIN is relatively a new idea compared with HIS, which aims atbuilding a platform to integrate the HIS between different hospitals in the same region.It aims to share and exchange information between hospitals (such as community hospitals andlevel 3 hospitals), to help solve the problem of difficulty in getting medical treatments andimprove efficiency. There are currently many pilots regions with ongoing integration of RHIN,such as Shanghai Changning district, Minghang district.Smart CardThe MoH has already listed the promoting of IC card into the plan of healthcareinformationization. In the plan, the MoH encourages the usage of IC card and Radio FrequencyIdentification (RFID) technology in areas of health care, public health, medicine, blood and so on.MoH would work with the banks and Ministry of Human Resource and Social Security to conductresearch on the general mode and standard of using medical smart cards. Those cards couldcontain the information of personal ID, social security, medical insurance, healthcare andfinancial services.Hand Hold DevicesIn China, there are some ideas of integrated portable medical device, which mainly relies on themajor breakthrough in smart phone to help achieve portal medical devices. And this still remainin the idea level without available products. 24@2011 Frost & Sullivan
  26. 26. There may be market opportunities for hand hold device which has different probes formonitoring temperature, blood pressure, and blood glucose.E-healthE-Health is not only a technology or service, but also a living philosophy and a new way to live ahealth life. E-Health comprehensively applies information and communication technology tomedical and health care, especially to precaution, diagnosis, treatment, follow-up, recovery andhealth promotion. It is an inter-discipline subject of IT, medical science, public hygiene,management and sociology. And it aims at integrating and utilizing the medical and healthresources to improve the public health.So far there have been pilot cities, such as Foshan City, Guangdong Province. The first phase ofregional health information platform in Foshan City will be completed in two years. When it iscompleted, citizens will get a health care card and the One-Card policy will be realized, whichhelps to build the database of citizens’ health records. Furthermore, Information Systems ofFoshan Citizen E-Health Service, Foshan Digitalized Hospital, and Foshan Public Hygiene will belaunched. So is the Community Health Information System. And the infrastructure of the healthinformation network will be completed, too.Possible Business Opportunities in the 12th FYPFor aging servicesThe health care industry in China is at the “sleeping” phase. Take senior centers as an example.Till the end of 2009, there are 38,060 various welfare institutions for the elderly and 2,662,000beds in the country. When it is divided by the aged population, there are only 23.6 beds availableper 1000 aged people. Contrarily, 50 to 70 beds are available in developed countries. As for theforeign investment, Japanese nursing industry is entering into the Chinese market. They target atthe rich, set up senior centers and nursing centers (nursing homes), train nursing staff and outputJapan-like nursing services.There may be business opportunity for the foreign enterprises in providing elderly services. Mostof Chinese-run houses for the elderly just meet the elder’s needs of living places and are unableto meet the elder’s higher level of demand. So a complete health care system should cover thesethree systems- life care service, medical service and long-term nursing service-to meet the agedpeople’s (who are in different physical conditions) needs of all aspects.Medical Services PerspectiveHospitalsAccording to the MoH, more than 80% of the hospitals are dominated by the governmental,non-profit public hospitals. But, the government actually encourages private healthcare services.There may be potential opportunities for foreign enterprise in China medical services, althoughthe foreign capital has been limited to set up a joint venture with no more than 70% of thecapital for entering this market. Currently there are over 30 joint-venture clinics and medical 25@2011 Frost & Sullivan
  27. 27. centers running mainly located in Level1 cities like Beijing, Shanghai and Guangzhou.Foreign healthcare services, such as United Family Hospitals, mainly target at foreigner, peoplewith high incomes, as they provide customized services with advanced devices. For foreignenterprise, one of the major problems is to recruit staff, competing with the public hospitals forprofessionals.Physical CheckupCurrently in China, physical checkup is dominated by physical department of major publichospitals. However, with the rising disposable incomes and concern of health, the privatecheckup centers has experienced a booming the 11th FYP, and would expect to maintain a highspeed growth in the 12th FYP.Although the China private physical checkup market is dominated by domestic companies,foreign physical checkup centers have their own segmented market. Foreign physical checkupcenter, like MJ health from Taiwan (which claimed as one of three biggest physical checkupcompanies) has two branches in China located in Beijing and Shanghai, mainly target at high-endmarket, offering customized and high quality healthcare checkup for its members. 26@2011 Frost & Sullivan

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