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An Overview of the China
Healthcare Market
Presented by Michael Zakkour
Contact:
Michael Zakkour, principal Technomic Asia
[email protected]
China Healthcare – a sector in
transition
China has a challenge on their hands … how to care for
the health of over 1.3 billion people.
 Healthcare used to be guaranteed under the old State-owned
enterprise system but that social safety net has gone away as the
economy has privatized
 Four factors will drive the growth of China healthcare:
–
GDP Growth: As GDP increases, health spending as a percent of GDP
will also increase, at a higher rate (>13%) than GDP (~8%), driven by
middle class consumers willing to spend more on healthcare.
–
Urbanization: The urban population in China will increase by about 150
million over the next ten years, and these people will have greater
access to quality care, driving up underlying demand.
–
Lifestyle Shift: Middle class and urban consumers tend to consume
more calories of meat and fat, driving up incidence of “modern” chronic
diseases such as hypertension, diabetes, and heart disease.
–
Demographic Shift: The population over 50 will increase by about 100
million over the next ten years, and these people will have greater need
for healthcare.
2
Age-shift in China
There will be 181 million people aged 65+ in China by
2020, more than the entire population of Russia, 25% of
the world's total elderly
140
120
Population in millions
The high savings rate
in China – average
35% of total income
– is attributed, in
part, to people’s
concern over being
able to afford
healthcare for their
parents and
themselves
1978
100
2008
80
60
40
20
0
0-4
10-14
20-24
30-34
40-44
50-54
60-64
70-74
80+
Age
Source: China Statistics Yearbook; Euromonitor, Technomic Asia analysis
3
China Healthcare vs the U.S.
China has seen explosive growth in their healthcare sectors.
However, there is still additional room for growth compared
levels in the US.
$ (billions)
Healthcare Overview – China & the US
China
US
Healthcare
annual growth
+20%
6.9%
Public/private
sector control
90%
/10%
10% /90%
Beds per 1,000
population
~2.30
~3.60
Basic health
insurance
penetration
~30%
~84.7%
Historical Healthcare Expenditures: China & the U.S.
Source: WHO World Health Statistics 2009, China and India Ministries of Health; Technomic Asia analysis
4
China Healthcare Share of Wallet
Healthcare expenditure in China is estimated to double in the
next two decades in terms of its percentage of a consumer’s
total spending. Government reform and tremendous domestic
demand will drive increased consumer spending from 2009.
Evolution of the Chinese Consumption Portfolio
Today
Transportation and
communication
Recreation and
education
Discretionary
Personal items
Household Items
Semi-Necessity
Necessity
Housing and utilities
Healthcare
Apparel
Food items
Source: China Statistical Yearbook; McKinsey; Technomic Asia analysis
5
China Healthcare: Rural/Urban
China healthcare is characterized by inefficient allocation and
use of healthcare resources between rural and urban areas –
80% of government health expenditures go to urban areas, even
though only 45% of the population lives in urban areas.
Allocation of Urban/Rural Healthcare Resources (2006)
Unit:
USD
– Large urban hospitals are overused, resulting
in unnecessarily high number of patients per
doctor and costs per patient.
– Instead of quality patient care, excessive
market-orientation creates incentives for
over-prescription and overutilization of
services.
Gov’t. Spending
Per Person
Physicians
Per 10,000 People
Hospital Beds
Per 10,000 People
Source: Ministry of Health, McKinsey and Company, Technomic Analysis
– <10% of hospital income comes from the
government, with the rest coming from fees;
>44% from drug sales alone.
6
Chinese Medical Institutions
There nearly 289,000 medical institutions in China in 2008, of which
19,700 were hospitals. Clinics perform only basic outpatient services,
while community health centers do limited diagnosis & testing.
China Hospital Ownership (2008)
Chinese Medical Institutions (2008)
5%
<10%
25%
■Grade III
■Grade II
■Grade I
■Ungraded
29%
2%
16%
7%
50%
66%
>90%
Hospitals
19,701
Source: China Ministry of Health; Technomic Asia analysis
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Hospital Utilization
China’s core issue in providing healthcare services is that the top
hospitals – Class III – are the fewest in number but care for a
disproportionate volume of patients.
Utilization of Graded Hospitals (2008)
Grade III
The Chinese government
will be investing heavily in
Class II hospitals to
improve the level of
service and make them
more attractive places to
seek treatment
Grade II
Grade I
9,934
Source: Ministry of Health, Technomic Analysis
1.471 billion
79 million
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Challenges for Foreign Companies
in China Healthcare
While the high growth rate in China healthcare – over 20%
annually – is attractive, foreign companies need to pay close
attention to several key features of China’s healthcare markets





Quality and pricing tiers – while the Class III hospitals will spend on
imported equipment, the real growth opportunities are in Class II hospitals
where quality and pricing expectations are a bit lower.
Complex purchasing procedures – State-owned hospitals typically work
through a bidding process to purchase medical equipment and
pharmaceuticals and suppliers need to work with distributors who have access
to this process.
Fragmented distribution – no distributor in China healthcare has
nationwide access and suppliers must work with many distributors to get
broad yet effective coverage. There may also be
Many competitors – there are many Chinese suppliers (over 3,000
pharmaceutical companies and over 10,000 medical device manufacturers)
flooding the market, most of them sub-scale but with strong footholds in very
local markets.
Complex and “flexible” regulatory environment – medical equipment
and pharmaceuticals need to go through a complicated and often-opaque
regulatory process that takes significant time and guanxi (relationships) to
navigate
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Foreign Investment Trends in
China Healthcare
Foreign companies are doing several things to give them their
best chance of success in penetrating the China healthcare
market…




Know your customer – gather deep market intelligence on who
your target market is … what they want, how much are they
willing to pay, how they purchase.
Refine your target market – and find the distributors most
able to get you to those segments. Don’t contract with a
distributor without knowing just where they are strong and where
they are weak.
Know your competitors – you will always have Chinese
competition … they will often have “good enough” products, good
pricing and will typically have very good relationships among the
buyers.
Think “acquisition” – more and more, foreign companies are
looking to acquire companies already in the market, gaining
access as well as speed to market. This is particularly successful
when trying to penetrate the Class II hospital market.
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