1. +
China‟s Healthcare Reforms: the
Promise and the Peril
January 29, 2013
www.AsiaHealthcareBlog.com
www.RubiconStrategyGroup.com

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
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. +
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. +
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. +
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. +
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. +
Speaking of Demographics

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. +
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. +  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. +
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. +
Where China‟s Government Is
Investing
Where China's 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. +
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. +
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. +
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. Day-Care CCRC
+
Rehabilitation Hospital In-Home Care
Training Programs High Acuity / Hospice
Western Senior Care Models
17

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. +
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. +
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. +
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. +
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: bshobert@rubiconstrategygroup.com
URL: www.CrossTheRubiconBlog.com or www.AsiaHealthcareBlog.com