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Is China the land of opportunity for U.S. health care?

Gabriel Perna | January 27, 2020

Key Takeaway:
*In October, UPMC broke ground on a new hospital its developing in Chengdu, China in collaboration with the Wanda Group, a multinational conglomerate based in Beijing.

*Payers, providers and life sciences companies are looking to grab a piece of China’s multi-trillion dollar health care pie, with spending in the country expected to triple in 15 years.

*The country has a need for quality private health care and a growing, aging population that can’t be served by its public hospitals.

*Cultural challenges are the biggest obstacles for American health care organizations that are setting up operations in China.

In October 2019, while the American and Chinese governments were as far apart on a trade agreement as the two countries are physically, the University of Pittsburgh Medical Center (UPMC) broke ground on a new hospital its building in Chengdu, China in collaboration with the Wanda Group, a multinational conglomerate based in Beijing.

Since that day, the U.S. and Chinese governments have agreed upon an initial trade truce — although it’s unclear how effective it might be without further actions. What’s more evident is that this impasse between the two countries hasn’t stopped the American health care industry from a different kind of exporting: looking eastward for expansion opportunities. Payers, providers and life sciences companies are looking to grab a piece of China’s multi-trillion dollar health care pie, with spending in the country expected to triple in 15 years.

While UPMC has international efforts in Kazakhstan, Ireland and Italy as well, its Chinese endeavor may be its most ambitious yet. UPMC will help Wanda open five hospitals in the country across major cities. The hospital in Chengdu is the first to open in 2022.

“China understands the need to make investments into health care to improve the quality of care. The fact the government is getting behind it is important. The fact private corporations were motivated and had the financial wherewithal is important. And the country’s growing middle class is demanding it,” says Chuck Bogosta, president of UPMC international. “Of all the places in the world, we couldn’t imagine not being in China, quite frankly, because there is such a large population and a growing middle class.”

David Chou, a health IT veteran who is currently the CIO of Luye Medical Group, a Singapore-based health care provider that is working with the Cleveland Clinic to develop a “Cleveland Clinic Connected” hospital in Shanghai, agrees that because of China’s population, which will include more than 400 million senior citizens in this decade, the demand is there.

“There’s a big need in China’s health care market because of the huge population, the amount of hospitals is not enough to serve the country, so there’s a desire to have expertise from the U.S. set up operations there,” says Chou. “They also have a lot of chronic diseases, so there is a need in that regard too.”

He also sees it as an opportunity for health care organizations here to increase revenue overseas, with American reimbursements declining. “Everyone is cutting costs, making small margins, so going international is an opportunity to increase revenue,” Chou says.

Payers and life sciences companies

China, the second largest health care market in the world and the fastest growing one of the top five, hasn’t just appealed to providers interested in international expansion. American life sciences companies, perhaps less surprisingly, have seen more growth from the market in recent years too.

Recently, Robert Bradway, CEO of Amgen, the biotech firm based in Thousand Oaks, California, predicted that one-quarter of the company’s growth in the 2020s would come from Asia. “China and Japan are the second and third largest markets in our industry,” he told Reuters. “In the case of China, it is a rapidly growing market.”

 Chou adds that China is also fertile ground for pharma and clinical trials. “If companies can figure out how to crack into that ecosystem, because of the patients and amount of data you can generate there – it’s better than just North America,” Chou says. 

American health insurance companies are looking towards opportunities in China as well. Jason Sadler, President of International Markets at the Bloomfield, Connecticut-based Cigna said to the South China Morning Post that he expects China to overtake South Korea as its biggest market. In an investor presentation, Cigna said it has seen 33 percent revenue growth in China from 2015-2018 and that it has achieved 4.2 percent market penetration. It has plans to expand into further reaches of the country in 2020 and 2021.

What’s helping these American companies is the rise of the private health care market in China, with the public hospitals unable to serve the country’s needs. As such, the country has seen a dramatic increase in private insurance, according to a report from Ernst & Young

“Of all the places in the world, we couldn’t imagine not being in China, quite frankly, because there is such a large population and a growing middle class."

Chuck Bogosta, President of UPMC International

“There are a set of experiences American health care entities have created that are associated with innovation and excellence … as China is seeking outcomes and models of care that could be really valuable to the Chinese government as well as to create a health care infrastructure to meet the demands of so many people,” says Gary Gottlieb, former CEO of Partners in Health, following a role as CEO at Partners HealthCare, and now a Professor of Psychiatry at Harvard Medical School

Challenges

When it comes to providers, Bogosta says UPMC is uniquely positioned to succeed in China because so few American health care organizations have boots on the ground in the country. Many, he says, are just trying to get consulting dollars and bring patients to U.S. to offset revenue losses.

“UPMC’s primary focus is on the ground. We’re always focused on bringing in alternate sources of revenue but in a much more substantial way because we’re actually on the ground,” he says.

The reason so few organizations are on the ground, Bogosta says, is because it’s incredibly hard to get infrastructure built and operations going in China. There is the time difference. Bogosta regularly has calls at the early hours to cater to the people in China. What’s even more challenging, he says, are the cultural differences in the way care is delivered.

“For the most part, outside the Western world, most care is provided on an inpatient basis. In the U.S., we evolve more and more into an outpatient basis, which is less costly and more efficient and patient friendly. We’ve had to balance what’s done in a Western hospital vs. what’s done in a Chinese hospital and try to come up with the best of both worlds,” says Bogosta. “Something simple like we have to have a traditional Chinese pharmacy, you wouldn’t have that in a Western hospital. Their construction standards are different.”

Bogosta says UPMC has relied heavily on Wanda for some of these different standards, including navigating the approval process for certain cities. Chou agrees that cultural differences are the biggest challenges for any American health care organization that’s setting up shop in China. He says the skill sets and way medicine is practiced there is very different than in America. Chou says nurses, for instance, have different skillsets and expectations in China than those in the Western world. Gottlieb agrees with this sentiment.

“All of health care, because it is a human service, is driven by understanding culture, needs, skill base, public health risk factors, epidemiology — and while we all have the same genome, there’s a subset of other factors that are local, such as fiscal conditions, social determinates, and other structures,” Gottleib says.

External challenges such as the U.S.-China trade war are “not encouraging,” Bogosta says, but adds that UPMC has been treated fairly by the Chinese government. In general, he says the Chinese government recognizes the need for quality health care services and has exempted the tariffs for at least one medical equipment company that focuses on cancer treatments.

Difficulties aside, Chou sees this trend continuing into the 2020s — as the next phase of outbound medical tourism, which in China is growing in its own right.

“Health care is global, medical tourism is a big thing. Wealthy individuals travel around the world to seek the best care, so CEOs are asking what if were able to set up a world class hospital in a different region? Can we create a comparable operation to what we have done in the U.S and serve these people so they don’t have to travel?”

Next week we’ll have an interview with ProMedica CEO Randy Oostra, whose organization has developed several clinical relationships in China and has plans to do more.

Health Evolution Editor-in-Chief Tom Sullivan contributed to this article

About the Author

Gabriel Perna, Senior Manager, Digital Content

Gabriel Perna is the Senior Manager of Digital Content at Health Evolution. He brings 10+ years of experience in covering the intersection of health care and business. Previously, he was at Chief Executive, Physicians Practice and Healthcare Informatics. You can reach him via email or on Twitter at @GabrielSPerna