MEDICAL MARKET Next Big Thing: Chinese Health Care

China’s central government plans a complete overhaul of the giant nation’s corrupt health care system — with the help of German role models.
Chief physician Yang Guang in front of the the Mingci Cardiovascular Disease Hospital in Wuxi, China.

 

Chief physician Yang Guang slowly opened metal-reinforced doors to a hospital room bathed in cold neon light. Inside, a white magnetic resonance imaging device took up most of the room, waiting for new patients who soon will enter its 70-centimeter wide opening.

“That isn’t just any piece of scanning machinery,” explained Dr. Yang. “It’s a latest-generation MRI from Siemens. Next door we also have a latest-generation computer tomography scanner.”

Dr. Yang is balding and distinguished, but he is like a kid in a candy store over the new equipment at the Wuxi Mingci Cardiovascular Disease Hospital.

The 15-story facility in Wuxi, a city of 6 million in eastern China, will be the nation’s most modern hospital for cardiovascular and diabetes diseases. It has a capacity for 450 beds and is designed to handle up to 900 patients daily. When the hospital opens early this year, doctors will perform complicated procedures in a heart center, six operating rooms and four catheter areas.

China has made a central issue of raising the living standard for nearly 1.4 billion Chinese. One key is overhauling the nation’s notoriously corrupt health care system.

As the hospital ran tests and installed new equipment recently, Dr. Yang constantly emphasized “German craftsmanship” and “cutting-edge technology” in his descriptions. After all, the clinic is modeled on the Heart and Diabetes Center in Bad Oeynhausen, in North Rhine-Westphalia.

In one room where minimally invasive surgery will be performed, Wilhelm Hecker checked the equipment with a critical eye. As former head of the German hospital, Mr. Hecker helped launch the medical partnership with China.

“We are being paid a consulting fee for working with them,” he said.

In addition, Mr. Hecker said, the German cardiovascular and diabetes hospital is receiving licensing fees, but he wouldn’t say how much —only a “small profit margin.”

Mr. Hecker has been retired since March, but the project still keeps him busy, even in its final stages. “This building is in part more modern than the one in Bad Oeynhausen,” he said.

Money for the Chinese hospital was provided by one of China’s richest businessmen, Cao Mingfang, founder of Jiangyin Mould & Plastic Technology Co. The 71-year old invested the equivalent of €14 million, or $15.3 million, in the new heart and diabetes clinic.

The businessman got his start more than three decades ago, when former top leader Deng Xiaoping reshaped the Chinese economy with far-reaching market reforms, allowing private companies for the first time.

Mr. Cao made his first money with candles for Christmas trees. Then he discovered the great potential of the automotive industry, and positioned his Jiangyin company as a supplier. German carmakers like Volkswagen, BMW, and Daimler are among his most important clients today.

Now he believes the health care industry is the next great growth market in China. “The need for good hospitals and doctors is tremendous,” Mr. Cao said.

Health care reform is one of the core subjects in the government’s new five-year plan and private business will be strongly involved.

China’s state leadership under President Xi Jinping has made a central issue of raising the living standard for nearly 1.4 billion Chinese. One key is overhauling the nation’s notoriously corrupt health care system.

 

Doctirs at the Mingci Cardiovascular Disease Hospital in the Chinese city of Wuxi.

 

Such government-ordered reforms could offer new impetus for growth by German companies, including engineering giant Siemens, which is heavily involved in medical diagnostics and other health care equipment.

Siemens’ chief executive Joe Kaeser presumes high-quality health care technology will be very much in demand for some time to come in China, as do corporate consultants at McKinsey. In a study, the firm forecast annual 14 percent growth until 2020.

Beijing has already succeeded in introducing an insurance system for a half-billion of its citizens. But so far, many people are included and only a small portion of costs for complicated treatments are covered.

Hospitals also chronically suffer from poor income and many doctors earn little money. In turn, corruption and bribery by pharmaceutical companies to doctors and hospitals is rampant.

The Chinese central government wants to reform the system in several places at the same time. Government price controls on medicine were abolished and Beijing is pressuring foreign pharmaceutical giants to offer more favorable drug prices, to bring them into competition with Chinese generic producers. That would help lower costs for patients and keep more money in China from the rapidly growing drug market.

McKinsey consultants forecast sales in China’s health-care industry will increase from $350 billion in the past year to $1 trillion by 2020. The Chinese government even expects sales of $1.3 trillion by the end of the decade.

High-standard medical care costs a lot of money in China, and the new Wuxi Mingci Cardiovascular Disease Hospital will target wealthy patients.

Economy professor Hu Xingdou of the Beijing Institute of Technology explained the huge differences in levels of Chinese health care.

“On one hand, there are highly-specialized clinics with outstanding service,” he said. “On the other hand, there are basic infirmaries, particularly in the countryside, that only can treat their patients to a limited degree.”

China now has about 25,000 hospitals, half of which are public-owned, and some 3 million medical professionals, including doctors, nurses and other caregivers.

As China seeks to increase the number of hospitals and quality of care, the government is stuck in a dilemma: Tougher measures in health care will only increase the financial pressure on doctors and hospitals.

As a pilot project, China’s National Health and Family Planning Commission stopped 311 hospitals from selling drugs that hospital doctors had previously prescribed to patients.

In the past, this practice had often resulted in doctors prescribing overpriced medicine, and in that way the hospitals improved their income.

The authorities also boosted subsidies for the hospitals in the trial project, but not nearly enough. In the end, there were gaping financial holes in the hospitals’ balance books.

In the long run, doctors will probably have to be better paid and hospitals be able to generate higher incomes, said corporate consultant Edward Tse.

“The health-care sector is a gigantic growth market,” said Mr. Tse, who once headed the Boston Consulting Group’s business in China and now is an independent advisor with Gao Feng consultants.

It is both a great opportunity and risk, he said — with more potential patients living in China than in Europe and the United States combined.

 

Stephan Scheuer is a China correspondent for Handelsblatt. To contact the author: [email protected]