The Asia Pacific region poses a variety of interesting challenges for someone in Sue’s position.  The territory encompasses both developed and emerging countries, with widely ranging approaches to problems that vary in specifics, yet unite around a simple goal:  how to most cost effectively deliver healthcare to the people in these respective countries.

As Sue shared with me this week, Taiwan and South Korea remain the most advanced in her region (one that it should be noted does not include Japan for the purposes of how Merck has defined the area).  Of these two, South Korea is what she called the “most advanced” and Taiwan’s is the “most sensible.”  The latter because, in her estimation, it is the easiest to enter into a dialogue with and, of equal importance, their review process does not yet incorporate a mandatory economic review for drug reimbursement like South Korea’s does.

The national policies of both China and India pose, as Sue shared, very different challenges for a company like Merck.  India’s approach to pharmaceuticals is built around providing access to generic medicines.  China’s approach owes much to the Anhui pricing model and its provincial tender process for EDL and non-EDL drugs.  As Sue sees it, companies are having more success in China than India, a reality that is likely driving better improvements in access to life-saving drugs in China than India.

This having been said, China is not without its difficulties.  Sue commented that pharmas operating in China have to deal with, as she put it “so many levels of decision making”.  The fragmented nature of how healthcare decisions are made in China (or, it could be said, many policy-directed decisions made in the country beyond only healthcare) makes the role of having good people on the ground especially important.  One way to understand this challenge is to reflect on how health is financed in China, or as Sue put it, “who manages the budget?”

There are many government ministries and institutions involved in providing healthcare and health insurance that creates a highly fragmented and decentralized system.  Pricing decisions occur at the national level, provincial level and then hospital level, and different ministries have responsibilities for the budget and others for managing the drug lists.  Sue commented that this sort of fragmentation is something you see not just in identifying and managing the decision makers in China, but also in dealing with the disparate distribution channels of how a drug gets to the patient.

Among the trends that Sue is watching which will be a topic of conversation at the May NextLevel Pharma event is the role Health Technology Assessment or HCA plays in shaping the policies of governments in Southeast Asia.  This approach, which could ultimately mandate that a country’s reimbursement system must include economic evaluations to justify a drug being covered, is being explored by countries like Malaysia, Thailand and Vietnam and is likely to be a major trend companies like Merck will be watching over the course of the next several years.

Sue’s biography follows:

Sue has more than 18 years experience working in the field of health economics, and many years in a pricing and market access role. Sue began her working life as a community pharmacist but in 1993 decided to further her studies at the University of Sydney specialising in the area of health economics and working in academia. In 1998, she moved to Brussels, Belgium, because she was awarded a fellowship by the EORTC (European Organisation for Research and Treatment in Cancer) in the health economics of cancer. After a very rewarding experience, Sue moved back to Australia to begin her career in the pharmaceutical industry as a health economist with Janssen-Cilag. Following a few years of doing battle with the PBAC (Pharmaceutical Benefits Advisory Committee), Sue was finally attracted to go back to Belgium to work for Janssen Pharmaceutica in a Global Health Economics and Pricing role. Working with pre-launch and launched products over the next 5 years, Sue developed Global Value Dossiers and was in involved in managing a number of outcome studies. In 2009, Asia was calling, and Sue moved with Merck Serono to Singapore as their Regional Pricing and Market Access Director.

While putting together this post, I spoke with a wide range of industry experts, each of which agreed with Daniel’s comment.  Most also agreed that the project of most interest is the Shanghai-based Cascade/Emeritus facility.  As Daniel shared, “this is a project that is manageable in size … while not large in scale, it provides the opportunity to get the model right.”  Joe Christian, formerly a partner at DLA Piper in their Hong Kong office who specializes in senior housing now as a Fellow at the Harvard Kennedy School of Government, noted that the Emeritus project is also important because it is the first example of a foreign operator getting licensed to provide healthcare in China for seniors.  It was suggested by several people knowledgeable about Emeritus’ plans that private equity investors on Wall Street are paying particular attention to the Emeritus transaction as evidence of whether the Chinese eldercare market is ready for further investment.

Beyond the Emeritus project, those I spoke with pointed towards four other operators whose build-outs and business models they are watching closely:  General’s Garden, Sun City, Singapore-based ECON, and Cherish Yearn (although the latter for reasons that may not all be positive).  Other operators like China Senior Care, CRSA, Right at Home, Home Instead are certainly also being closely monitored.  Given the reality that several like Right at Home and Home Instead offer different models of senior care (in-home versus residential or facility-based), some of this is likely the result of industry watchers eager to see the developer-centric model prove to be viable in China as it has in developed countries.  With this in mind, Bromme Cole, Managing Partner with Hampton Hoerter shared that he believes 2012 will need to address “the appearance of a geriatric care operator whose business model is fee for service exclusively. At present, the business today in China is fueled by a real estate model and this reflects the lack of understanding how the operator business works.”

To Daniel’s earlier point, cumulatively, these projects will test both the big-picture issues (is the market ready, do operators know how to sell into the Chinese market, what will the Chinese pay) as well as smaller, but no less important issues (should food services be run in-house or outsourced, what services are most valued).  However, no issue loomed larger in my conversations than the role of finding, training and retaining quality staff.  Jason Cronk, Senior Director of Operations at CRSA China Management, acknowledged that “it is going to take time for that pipeline [of qualified talent] to build.”  Their way of dealing with this issue is likely going to include what Jason characterized as “building classrooms as part of the retirement community’s campus.”  Count me in the camp of people who think that the first to prove scalability of their services and those that will be the most financially lucrative senior care businesses in China are going to be those that have personnel development either as a key part of their in-house business model, or who choose to make training and certification their actual for-profit business.

Michael Qu, a Shanghai-based lawyer with Co-effort Law Firm, publishes the China Senior Housing & Care Newsletter.  Beyond concerns over how all of the new operators (both domestic and foreign) rushing to build facilities and hire personnel for their new businesses, Michael believes the industry also needs to be careful that it does not overheat in 2012 in general.  As Michael put it, there needs to be “self-discipline for the whole market.”  He went on to share that it is a concern that, “too many service providers and senior housing developers will emerge but without sufficient capabilities, [they could] bring growing pain[s] for the industry.”  Almost everyone I spoke with admitted that senior care has little market recognition in China and that the little it did have was not necessarily positive.

The Chinese senior care market has other important “known unknowns” that 2012 is likely to shed additional light on.  These include four that most industry insiders agree are the most important:  government regulations on senior care operators, government incentives to real estate developers to build senior care facilities, government incentives in the form of additional insurance payments or other compensation mechanisms to pay for eldercare services, and how China’s fast changing property market – specifically concerns over a property bubble – will impact Chinese developers appetites for senior care developments over other build-outs which have traditionally been more lucrative.

For certain operators, in particular those whose model is focused on the very high-end of the market, the role of the government is not as critical to define (it would be helpful on the real estate side of the equation, but not necessary on the operational questions they face).  In many ways, for the high-end operators the additional involvement of the Chinese government could prove to be an un-necessary burden in many of the same ways the Hong Kong Housing Council found its local government’s involvement to be (see more about the HKHC’s model here).  However, the role of the government is absolutely critical for in-home care to reach the bulk of the population in need of senior care and for those mid-market senior care residential operators who believe they can built models that are accessible to China’s new middle class.

Michael Darragh, General Manager of Beijing-based General’s Garden, shared that “a strong message [from the China Social Welfare Centre] was that in-home care is the preferred aged care model, not only from the service recipient perspective (client), but also from the financial perspective of the public purse.”  Michael’s additional comments reinforced those made by Blake Martin, VP of Right at Home, that the linkage between government hospitals, families who must make decisions about the sort of eldercare they can afford and are willing to spend money on, and the recipients of the care themselves remains a connection that must get stronger in 2012.

One question that I was particularly interested in exploring was how the Chinese real estate market’s bubble, particularly acute in the Tier 1 cities where most of the residential developments are slated to occur, might impact the industry.  Joe Christian, who is a leading expert on the real estate portion of the eldercare market in China brought up the point that should a bubble pop, what might present as opportunities would be to find distressed developments or, as Emeritus has done, underutilized properties like hotels, and reconfigure them as senior care facilities.

Michael Qu believes that a deflating property market might have a “positive impact.”  His reasons were shared by others who believe that in the aftermath of a property bubble, as Daniel Leaf put it “developers  & investors may look to diversify their portfolios … a residential/hotel developer who has done well in the past may start to look at alternatives like seniors housing.”  Jason Cronk had similar thoughts.  He mentioned that feedback they have received suggests that while people are certainly watching and talking about this issue, but that “even if prices fall, we are still in a position to move forward.”  Problems in the period after a property bubble cannot be entirely overlooked:  as Michael put it to me, “nobody wants to buy in during a downturn.”

Much of the confidence I heard while talking with this group of industry insiders and others reflects the huge market opportunity in China and the compelling need it reflects.  However, it is important to keep front of mind that China’s senior care market is not an inevitable market opportunity.  Yes, it is a compelling market opportunity, but only focusing on the magnitude of the need and the potential it suggests is to fall into one of the classic China traps that other industries newly focused on the domestic Chinese market have fallen into.  Those who prove successful are going to be ruthless in their execution and patient in their time horizon.  Consequently, the pilot projects of 2012 are critical to laying a foundation for both their own business as well as those who are a few steps behind.  The pioneers will prove whether a scalable model can be built and implemented by foreign operators, what the trajectory is for the role of the Chinese government as payer, and how operators can find, train and retain skilled senior care-givers.

As the Chinese government works through its positions on these important questions, there are opportunities in China’s hospitals that forward-thinking American institutions can tap into today.  The most lucrative one may be the opportunity to offer US-based training to Chinese hospitals desperately in need of the expertise American institutions have to offer.  While this may seem a long way from the opportunity to manage a Chinese hospital, an idea that has been making the rounds within American hospital systems, it is an important first step towards building the relationship and know-how that will allow a US hospital to ultimately move very efficiently into broader opportunities within China’s hospital system.

I recently had the opportunity to speak with Tim Perry, the head of the China team at Miller & Martin, a US-based law firm where he has, among other things, headed up the legal team which worked on the first Sino-American equity joint venture in China (CHC Chinaco).  His firm is actively involved in helping American hospitals reach out to their Chinese counterparts as the US hospitals structure training programs for Chinese doctors.  Tim was kind enough to share his thoughts on how the ideal training program is structured and what to look for in finding the right Chinese partner.

Ben:  Can you expand on who the typical counterpart in China is for these training programs, and what the typical US-hospital based training is designed to cover?

Tim: Typically you would be dealing with someone in China who has a strong department in cardiology, oncology, women’s and children’s health, or orthopedics. Those would be the four most common specialties in China that reach out for training.  These are the areas where the Chinese medical groups feel they are most behind in terms of being able to intervene with western medical techniques.  The Chinese believe that Chines medicine has great strengths in terms of prevention and long term care, but that western medicine is stronger at times where you need to have surgery to intervene, or where there is something broken that needs to be fixed.

Secondly, these are also the areas they have the greatest demand for with an aging population.  As you pointed out in your recent Asia Times column, diagnosis of cancer often coincides with a fatality from cancer.  With cardiology they have things to deal with as simple as a stent, but you have to work out the economics and the procedure.  With women and children’s health issues, that is always of great interest in a country where families have a single child.  They don’t want anything to go wrong, so this becomes a very important area to be certain everything goes as best as it can.

The training program is primarily designed to place a Chinese physician in the actual setting where diseases that a physician faces in China are being addressed in the US.  It is not a passive teaching experience, but it is to be tied in with a major medical facility and usually a university or medical school so that the people they are engaging with are physicians facing the same problems Chinese are facing day after day.  This also ensure that the procedures they witness are those they want to perform, and the equipment they see being used is equipment they want to acquire.  This is not hands-on experience, but as close as it can be.  They also get to see how a hospital works in the United States versus in China:  what do nurses do, how is it laid out, what makes sense, what happens before and after surgery, who is responsible for these actions?  All of these processes are shown.  We also get to show them new things that are fully developed.

Ben:  What do the American hospitals take away from this exchange?

Tim:  It is going to vary by the institution, but at a minimum they make money on the training, so there is a financial reward.  The people who are involved in the training love working with people who want to learn, and who want to get better at what they do.  There really is no difficulty getting the surgeons to want to share what they do with other surgeons.  There is enthusiasm on their part by being involved with the biggest healthcare market in the world.

The way I see this developing over time is that you start wit training, build your institution’s name recognition and prestige in China, and you move on to consulting and managing – not just training – but you take on a new role where you are offering services to existing hospitals, consulting with regard to the cardiac care as an example, or helping to manage the cardiac unit for them, and you then develop a business of consulting and management.  Or, if you really are a for-profit healthcare facility, you can then work toward a joint venture of a specialty hospital, which is what one of our clients are actively involved in now.  Training is, in a way, the beginning of a path that can be a very significant business path, or it might also lead to joint research opportunities.  If you are doing research on any kind of equipment or drug, there are large numbers of potential test participants in China for whatever it is you are looking at.

Ben:  How did this training opportunity evolve?

Tim:  As we began looking at a lot of locations in China for JV hospitals in every circumstance one of the things that was most important to the Chinese partner was training in Western medicine in one of these four specialties.  We kept hearing this is something they want, and it became apparent we could speed up the delivery of that service without having to wait for the construction of a new facility, or the more complex negotiation of a JV.  The service of providing training could be done quickly so long as we were hooked up with a major university or medical institution in the United States.  Most medical schools have some sort of relationship in China underway now or at least thinking about it.  It was really a natural outgrowth of what are you really looking for and it was the easiest thing to deliver quickly.

Ben:  Describe for me the typical rationale of an American hospital manager / executive / entrepreneur who is exploring China.  What are their typical motives?  What are their biggest misconceptions?  Where do they need the most help?

Tim:  The most important thing is to ask what the Chinese partner really wants to learn ahead of time.  It is very easy especially for academics to put together a week of training that is wonderful training for something the Chinese physicians aren’t really interested in learning.  That doesn’t make them feel they had a great experience or increase the value of your institution in China.  You need field research in China to make sure you know what they are most interested in.  There is a lot of modern equipment in China that is not fully utilized.  That is an area where there can be a lot of learning just by seeing “that is what it is for” or “you can do that?” … those eye-opening moments.  The flip side is that we can learn a lot from what the Chinese physicians do as well.  They describe all sorts of experiences not common in the US medical system from which they have rough and ready knowledge we do not have.  Also, this is critical – a translator that understands medical lingo and that has some understanding of what they are in the middle of – you have to break through the language barrier.  It isn’t enough to have someone good at conversational Chinese; you need someone who will be able to explain to six Chinese physicians in an operating room gallery what is going on.

It is easy to over-estimate the complexity of putting together something that works.  Everyone you talk to says how hard it is to get things done.  If you are working with someone who has done it once before, it is not that hard to do it a second time.  Real care needs to be paid to the particular localities you are dealing with.  Each city in China is different, they each have their own local leadership at the health bureau and if they want the training to happen, it will happen, if not, no matter how clever you are it will not happen.  The best way is to work with alumni or people who know you well and see what connections they have with the local health bureau to help smooth the path because it is the health bureau that makes the decision, not the heads of the hospital.  Someone has to pay the money, and it is going to be the bureau of health and typically you will be paid in RMB in China, but depending on how well set the group you are working with, they ought to be in a position to receive RMB and manage the currency issues for the university or medical school.

Ben:  What goes into “picking your partner”?

Tim:  Start with somebody you know.  Start with an alumnus of an established American medical school who has stayed in touch, was well regarded and trusted at school, and has been somewhat successful in some area of medicine in China. It is very different than going to an investment banker; I would not do this.  I would go to a doctor, one you know because of the training they received in the United States and ask them what is going on.  Almost every city – fifth, fourth, second tier – all of them are trying to establish some trophy facility in some aspect of medicine that will be a world-class facility to meet the 5-Year plan goals.

So, they have the money, they already have hospitals that are not world-class and they need to have somebody to come in and work with them to make the facilities world-class.  For that they go to the big names. If you approach them through a respected colleague there is a chance or real communication between the head of the hospital and the head of the Bureau of Health and an intermediary who may or may not be part of the transaction, but is a trusted gatekeeper by both sides.  Then, of course, you have to get together.  You have to go to the facilities – you can tell so much by walking through the hospitals.  Then you know what the magnitude of the undertaking is.  You have to try a lot of times to find the right one – it is not an easy selection and some times you can get cross-purposes with other government policies.  The 5-Year Plan has all sorts of major policies, some of which could run counter to the Chinese hospital being able to work with a US-party; they may favor a Taiwanese party or European party.

Ben:  What is the role of the 12^th 5-year plan from point of view of hospital executives looking at building a China strategy?

Tim:  You have to be able to offer is the possibility of a world-class, first-rank program of some character.  It is very hard to say you are going to do a world-class hospital in all areas, so you are automatically forced into a specialty.  You need to listen very carefully to what the municipality wants to pursue; you don’t want to be the third city pushing a world-class orthopedic hospital.  Let the Chinese partner tell you what they want to pursue – where they are closest to being world-class and where they can get to quickest.  Each local head of the Bureau of Health is going to be judged based on the success of the venture, not just the success of the announcement, or how quickly you build your facility.  You have to show results, so I guess I would say to the US parties, don’t go with a set agenda except you are world-class and have a reputation for being world-class, listen carefully to where your Chinese partners think they can best advance, and if that coincides with where you can show real quality, then you have the makings of a transaction.  If not, you are pushing as square peg into a round hole.

Ben:  What is the role of privatization of Chinese hospitals, or of allowing doctors in state-owned hospitals to work one day a week in a non-state owned hospital?

Tim:  Now, we get to the subject of red envelopes.  Physicians need to be managed; surgeries need to be readied for them when they arrive.  The reputation of the surgeon is critical but, if you are going to manage the business, you need to be in charge of the compensation of the people who are being managed.  The DRG system is using the Anhui model and slowly ratcheting down on the indirect compensation of physicians.  But there is still a great deal of indirect compensation to physicians through red envelopes so their compensation is not in direct control of those operating the facility.  That is an enormous dilemma that has not yet been solved.

The Chinese government wants to solve it because the social safety net needs to be strong enough to people spend money instead of saving it, yet the only way to get the best surgeon (at least this is the thought) is to pay money straight to the physician and that is a problem.  If you are going to be operating a facility all you can do is increase the real compensation and eliminate the practice.   These red envelopes are provided by the family and the patients – it is not some heinous thing – many Americans have their own physician.  In China they will pay the very best heart surgeon to work on them; it will have nothing to do with Chinese reimbursement, it never passes through the compensation system of the hospital, it all runs ex-hospital.  That is certainly going to be one of the challenges in running an operation. If you are going to operate a facility, you need to have a full facility and so if the best physicians are all at one location so that location gets the reputation as the place to go if you have X, then it becomes extremely difficult for a general or specialty hospital to function in an efficient fashion, whether for profit or just as a matter of efficiency.

 For more information on Miller & Martin’s China training program, please contact Tim Perry.

Asian markets are increasingly the focus of pharmaceutical companies who are looking for new market opportunities beyond the traditional “rich-world” countries who are facing economic stagnation.Traditionally, more “mature” and higher income Asian markets such as Japan, Korea, Taiwan, Singapore and Hong Kong have been seen as the priority of pharma marketers, but now fast-developing, high-population countries such as China, India,Indonesia, Vietnam and Thailand, are increasingly the priority. Altogether, these developed and developing Asian countries cover around half of the world’s population and are increasingly dominating pharmaceutical sales growth.

While Europe and North America are largely struggling to lift themselves out of a deep recession, constrained by high levels of public-sector debt, many developing countries are displaying impressive growth rates. Recently there have been several key developments in gaining market access to these countries, such as thedevelopments of innovative pricing strategies and market affordability based schemes which can give the pharma industry more alternatives to bring to the table when looking to launch products in these markets. A number of key pricing and reimbursement trends and reforms in the region are creating a complex and challenging yet very attractive environment.

Medical device and vaccine experts will be joining pharmaceutical colleagues and academics to give the complete and most updated picture of market access in theseexciting markets today and in the near future.

China is a good case study for other developing Asian markets and therefore, China will be a large focus of the second day of this event. China is currently going through a period of extensive healthcare reform with $124 billion planned to be invested by the end of 2011 and hundreds of billions of dollars budgeted further to 2020. The main aim is universal healthcare coverage by 2020, as well as the establishment of an extensive network of major hospitals and village clinics and the prioritization of primary care and preventative healthcare systems to encourage a healthier population.Pharmaceutical reimbursement is also a major focus and with the upcoming changes in pharmaceutical pricing controls, value-assessment and reimbursement priorities for the Chinese market about to be announced, the industry is holding their collective breath in anticipation of how the changes will affect them directly today, and in the longer-term.

This event will bring together experts responsible for key Asian markets globally and locally to discuss how the current changing environments will impact on market access in these markets and as a result affect global strategies. This event will be particularly focused on those who consider these markets a priority worthy of further understanding. Participants will also learn how to ensure their products are demonstrating value in correct terms, to the right people in each market.

Why Attend?

• Gain an extensive understanding of the reimbursement process and levels of decision-making in key Asian markets.
• Evaluate how pricing and reimbursement will be affected under healthcare reform initiatives.
• Discover which therapeutic areas offer the most opportunities now and in the future.
• Prioritize your strategies based on developments regarding healthcare financing reform for these countries.
• Follow HTA development and acceptance trends with the APAC markets.
• Learn how market leaders design and implement market affordability based approaches for Asian markets.
• Discuss the suitability of innovative reimbursement models: Which markets are ready for this?
• Read the stakeholder map and understand their priorities.
• Listen to case study examples of products recently launched with key learning points for the industry.
• Discover how much the Asian middle classes will affect the demand and affordability for pharmaceuticals.
• Urbanization in Emerging Asian Markets: What initiatives are being taken to improve healthcare in rural areas?

China’s Urban Population Outnumbers Rural Population for the First time ever – CNN. It’s true and the trends will only continue.

Pharma faces China Healthcare Challenge – Asia Times by our very own Benjamin A Shobert. China’s 12th 5 year plan is more aware of rising numbers of uninsured and soaring healthcare costs, but that awareness may not translate into effective reforms.

Medical Firms see high sales potential in China – Japan Times Online. “Even as the number of hospital beds fell 3.8 percent in Japan between 2005 and 2010, that figure grew 42.8 percent in China, data from the two countries show.”

Blogs bring new era in medicine - China Daily. New era and new privacy challenges await as Chinese doctors take to microblogging.

Using mental hospitals to quiet dissent – USA Today. Go to the mental hospital and endure proddings for 5 months or get thrown in with a violent and institutionalized prison population – your choice.

Cesarean Nation: The cautionary tale of how China came to have the world’s highest C-section rate. – Slate. We’ve written about these plenty of times before. Just remember, Cesarean sections are a problem in the US, as well. OBGYN resident physicians at Brigham and Women’s hospital, an affiliate of Harvard, graduate having done two-thirds of their deliveries by c-section.

Chinese Maternity Tourists Swamp Hong Kong hospitals – Monsterandcritics.com. Taiwan opens up to medical tourism for China, just in time to accomodate the Year of the Dragon baby boom.

Thank you http2007 for making your photos available to Flickr’s Creative Commons.

While in-home care is in many ways complementary to formal retirement community living and care-giving, in-home care may also ultimately be a more flexible and cost-effective mechanism for addressing the overwhelming number of Chinese people who need care, many of whom may never have access to the financial critical mass necessary to move into caregiving facilities.  Equally of interest, the infrastructure necessary to successfully conceptualize, train and implement in-home eldercare may very well lay the groundwork for the same sort of home healthcare business model which is still evolving in the United States, but has application to the general populace, to gather steam in China.

One of the world’s leading in-home eldercare providers is Omaha, Nebraska based Right at Home.  Blake Martin, their Vice President of International Operations, very generously set aside an hour to speak with me last week about his company’s experience in China.  The services Right at Home provides include:  safety supervision, companionship, bathing and hygiene care, meal preparation and housekeeping from a few hours a day to 24 hours a day. Right at Home has international franchises in the United Kingdom, Brazil, and now China as well; but, as Blake acknowledged, China has presented them with some unique challenges that are being addressed as they continue expanding in the country.  At the simplest of levels, part of what Right at Home faces is what almost any business in pursuit of the Chinese market for any product quickly comes to terms with:  the size of the country makes your marketing team’s mouth water, but getting focused and picking the right strategy is a real operational challenge.  As Blake put it, “The shear numbers, the lack of available facility based care or any sort of residential care simply isn’t there, and the need is on a much greater scale than what we have seen in other developed nations.”

For all the differences, it helps Blake to see that there are actually many similarities between what motivates a North American family or independent senior to choose in-home care and what motivates a Chinese family when they make similar choices.  According to Blake, just like in the United States, “people want to stay in an environment they are familiar with.  They are going to face not only significant emotional strain, but also physiological stress from a move like this.  For them, the convenience and familiarity of being at home is a strong motivator.”

Blake was quick to point out that in-home care is in many ways complementary both to facility-based solutions, but also to families who may not have the financial bandwidth to either pay for relocating their parents to a stand-alone community, or for full-time in-home care.  As Blake put it, “many Chinese are living with or close to someone who is providing care.  The services that a home care agency like ours provides are simply supplements to what the family or their loved ones are capable of providing.  We are a respite.  The family is the primary care giver, we simply provide a break and relief.”

This remains one of, if not the most important, factors in determining which solution proves more adaptable in the Chinese market:  dedicated communities versus in-home care.  Both may well prove to be successful, but in terms of the ability to broaden beyond the high-wealth niche existing planned community developers are targeting with their initial expansions, into the middle and even lower-middle class Chinese families who need help but cannot afford a retirement home, in-home care like what Right at Home is offering may prove to be the more economical solution.  If so, in-home care could well find itself on a growth curve independent of, and asymmetrical to, the growth of residential eldercare communities.

Blake acknowledges that in order for the in-home care model to succeed, there are just as many cultural, familial and governmental issues that will need to be addressed and overcome.  He remains positive that the Chinese government will continue pushing forward positive regulatory changes that will benefit the industry at large.  Blake shared with me that they are watching the China National Committee on Aging as they “talk about how to best make the family part of the solution for eldercare.  This tells me there are some really smart folks at all levels of government who are not sure the hospital-centric, facility-centric model is going to be the best solution in China.”  Beyond this, Blake hopes to see the Chinese government implement what Right at Home calls “care transitions programs.”  According to Blake, this would be a model where state hospitals have “formalized departments to advise families on options to get their elderly family members into either in-home or residential services.”

Why is this so important?  Because, as Blake shared with me (and something I have heard from any number of Chinese eldercare operators), formalized eldercare either is largely unknown by Chinese, or if it is something they are aware of, many times it has a bad reputation.  As Blake put it to me, “the institutional structure and habits [of China’s hospitals] get in the way of this [education] being done.”  Successful in-home and residential care facilities will find a way to integrate themselves into Chinese hospitals, in much the same way US-based home healthcare providers locate on-site staff in American hospitals to grab referrals as patients are discharged from the hospital.  In the US it is a collaborative process that functions as both a cost containment tactic, while also educating housebound patients of their options for receiving healthcare at home.

This idea of education was woven tightly throughout our conversation:  educating the workers on how to best care for elderly people, as well as educating Chinese families on what is possible in terms of care.  I shared with him the example of my wife’s 90-year old grandmother who had a stroke several years ago but has since, through physical and speech therapy, had an amazing recovery.  In China, as Blake put it, they may not be aware that “grandma can get better.”  Sometimes, as Blake said, that is as simple as letting the family know what their options are, but sometimes it is as expansive and impactful as making a family aware that with a little bit of physical therapy their loved one can return to a quality of life they assumed was gone.

As industries ranging from consumer goods to industrial products have shown, the Chinese market is large enough to accommodate multiple solutions with different models, each catering to unique demographics and consumer preferences.  Eldercare will be no different.  Blake knows this and reiterated that their model is designed to be flexible enough to work purely in an in-home environment, but also as a supplement to facility-based healthcare.  Regardless of where the care takes place, Right at Home’s success will be determined not only by factors outside of its control (the role of the Chinese government), but by those that are firmly within its own grasp (quality, marketing, perceived value), a realization that every successful operator in China undoubtedly shares.

For more on Right at Home’s China operations, including photos, videos and presentations of their China opening, go to http://china.rightathome.net

A couple of key themes came out from Monday’s session:  first, the impact of the Anhui Model not just on pharmaceuticals, but on medical devices as well.  The former has been well documented, with two rounds of price cuts in 2011 mandated by the National Development Reform Commission (NDRC).  The first round hit 162 drugs that suffered, on average according to James Huang from Kleiner Perkins Caufield & Byers, a 21% price cut and the second round focusing on antibiotics and endocrine drugs, resulting in on average a 14% price reduction.  As Huang put it on Monday, this is going to ultimately be a model that is deployed nation wide in China and will impact not just pharma, but medical devices and diagnostics as well.

The second key theme was a rightful acknowledgement of the good job by the Chinese government in getting as much done in the healthcare space in as little time.  Yes, the panelists all noted that healthcare access and quality is uneven across the country, but the last round of insurance reform increased the coverage to 95% of the Chinese populace, a major improvement and one that, as Huang noted, took them just three years to accomplish.  As he asked, “can you imagine something like that getting done in three years in the United States?”  Admittedly, this expanded coverage is part of what is lubricating the aggressive price reductions evidenced by the Anhui Model; but if you are in China’s place, what really are your other options?  The China trade has always been big volumes for low margins, and healthcare was never going to be exempt from this for long.

In this same positive vein, a third key theme was the role of the Chinese government as a potential partner and even investor in your healthcare business.  Vickey Chen, a Partner and Fund Manager at the China Healthcare Partnership from Martin Currie China stated that over the past three years, because of healthcare reform growing as a national priority, the country has grown its investment from its originally planned total of 850 billion RMB to over 1.13 trillion RMB.  This emphasis on healthcare spending and the priority of biotech, life sciences and pharms is not going away either.  According to Chen, in the country’s most recent 5 Year Plan, five of the nine strategic sectors are related to healthcare.

For companies who are seeking out potential government-sponsored investment partners in China, the view was largely that this was something that would likely occur over time if you offered something innovative.  As John Oyler, the Founder and CEO of Beigene said, “it is naïve to think that money [from the Chinese government] comes foolishly or easily.  Money comes only at this point with reason or with relationship.”  David Sun, the Deputy Director and CTO of China Medical City (CMC) made the point of showing that China’s governmental sponsorship should also be obvious from investments like those in CMC, a 30 square kilometer government planned city specialized in the biotech and pharma areas.

The fourth and final key theme from Monday’s OneMedPlace China Forum was the changing role of the Chinese capital market for companies looking to raise capital.  Huang with Kleiner Perkins noted that “on the public side, valuations are under pressure.  Chinese [healthcare] companies with good cash flow might get de-listed in the US and re-listed in China [in 2012].”  According to him, P/E ratios for these companies when they de-list in China range from 2-3; in China, upon re-listing they are between 15-20.  As he said, this is a significant arbitrage opportunity.  Yanning Yi, the Managing Director of Life Science & Healthcare Investment Banking from Canaccord Genuity, Asia said that on average, “in China the IPO P/E for these companies is 50, which is actually down from 70.”  His point:  it’s a tough time to buy a Chinese company if you think M&A is the right tactic for opening China to your business.

Overall, the tenor of Monday’s panels was one balanced between notes of concern (the role of China’s government in elevating the Anhui model, the efficacy of the country’s public insurance) and promise (the increasing availability of services through expanded coverage, the top-line growth generated by multinationals and emerging enterprises in China).  I highly recommend getting plugged in with OneMedPlace’s next China Forum if you are looking to sell into, raise capital from, or identify partners within the Chinese healthcare market.

UPDATE:  My column on the event and some of the key trends to watch with more detail over at Asia Times here.

Participating in the various panels will be James Huang from Kleiner Perkins Caufield & Byers China, Tony Zhang – Vice President of Global External R&D for Eli Lilly, Jun Ma – President and CEO of Vasomedical, Dr. James Tong – CFO from Tianyin Pharmaceuticals, Thomas Loarie – Executive Chairman of Mercator MedSystems, David Chen – Managing Partner of BFC Group, Dr. James J. Zhu – Partner at Jun He Law Offices, and Rose Zhou – Tax Managing Partner at Grant Thorton, Shanghai.  Regardless of whether you are new to the question of how to structure an opportunity in China or an old China-hand, this is an impressive group with broad experience that will benefit anyone in attendance.

While discussing our respective experiences working in China, Brett shared with me some of what drove his company OneMedPlace to create the China Forum.  According to Brett, they recognized that for what he calls their “emerging growth market companies” who needed to be in China either to access the growing China market for customers or sources of capital, the challenges to structuring good deals were enormous and largely unknown.  The feedback to Brett was that “[China] is a very complicated market and that if you need to be over there you need a strategic partner.”  Keep in mind that for most of these emerging growth market companies, they are smaller in size and can be (or, some might say, have to be) flexible in terms of how they structure a deal in China.

This was one of the more interesting points of my conversation with Brett:  while the companies Brett sees understand the risks and complexities to such partnerships, they also view this as a necessary and ultimately manageable risk.  As he says, these companies “assume you need to have a partner and that you are going to have to transfer some technology; what we want to do is make sure they structure the deal in a way to get something like a royalty, equity or other form of long term payment for what they are offering.”  This was, to put it mildly, refreshing given that I have spent a good part of 2011 covering stories about high-technology companies (those in the clean-tech space in particular) who are objecting vociferously to China’s Indigenous Innovation policies.

If you are not familiar with these practices, they require companies who want to be listed in the government procurement catalogs to have a foreign partner and agree to technology transfer in many cases (actually, in most cases if you happen to be what Beijing calls a strategic emerging industry or SEI).  For critics of how China plays the international trade game, Indigenous Innovation is symptomatic of a country that is not willing to play fair; for those less critical, they point towards industries where the US is lagging China (clean-tech, batteries) and note these tend to be the businesses that complain the loudest while others (bio-tech, pharma) complain less even though they face many of the same challenges.  The difference may be, as Brett and I touched on last week, in part because healthcare businesses looking to get into China feel they have enough of a competitive advantage they can ultimately structure a deal in their favor without giving away the proverbial farm.

AsiaHealthcareBlog will be covering the upcoming OneMedPlace’s China Forum II in San Francisco and will have a series of posts on the panels.  For those of you who are investors, entrepreneurs and subject-matter experts on the healthcare market in China, make a point of setting aside the time to attend the China Forum II.  We look forward to seeing you there!

The article points to a couple of quantitative observations to support its assertion: first, “five people admitted for heart attacks from December 4 to 6, compared with one or two a week typically” and second, a quote from Ding Rongjing the Peking University People’s Hospital head of cardiology who said that “On days of extreme pollution, heart and stroke cases … can increase as much as 40 percent.”  At last count the hospital had 1,448 beds.  I would be curious what readers here make of the good doctor’s observation that they saw a five-fold increase in heart attack complaints during the period in question.  The deviation from norm is obviously material, but is the actual number in relation to the size of the hospital that unusual?

Regardless, the science behind the pollution in Beijing and its connection to cardiac health is fairly certain.  As the article writes, “Microscopic air particles 30 times smaller than the width of a human hair penetrate deep in the lungs, where they can pass into the bloodstream … the contaminants increase the risk of artery-blocking clots that can starve the heart, brain and other organs of oxygen.”  Hmm.  I don’t know about you, but seeing Beijing’s pollution problem as both a potential respiratory and cardiac problem is disconcerting.

Anecdotally, this coincides with my own experience while in Beijing.  I have some underlying cardiac challenges and noted during my last trip in particular – when the pollution was pretty bad – that I felt not only my respiratory function was diminished (I am a runner and would not think about running outside in Beijing given the pollution problems, although I know some ex-pats who try), but also that my blood pressure was appreciably higher.  The latter I noted in particular when I got to Wenzhou where the pollution was so bad during my November trip that I literally could not see twenty feet out of my hotel window.  It is troubling to read the Bloomberg article and recognize that simply being in Beijing on business is a risk factor that I now need to be thinking about when I plan my travel.

Also worth nothing are two pieces of research the Bloomberg article highlights.  The first is a 2009 study by Peking University School of Health which found that “Each 10-microgram increase above WHO guidelines for PM2.5 boosts emergency room visits for cardiovascular ailments by as much as 7 percent.”  The second is a 12-year study of 12,584 residents of Shenyang that found, “After adjusting for smoking and other known risk factors … levels of PM10 and the air pollutant nitrogen oxide ‘were significantly associated’ with death from cardiovascular and cerebrovascular diseases.”

I would be curious to hear from readers of the blog as to how they view these risks.  Do they make you think twice about going to Beijing?  Would you consider an ex-pat assignment in Beijing off the table because of these problems?  How would you manage the risk if you found the perfect opportunity in Beijing?  Does it matter if you are making this decision only for yourself versus for your family, and any children you might have?  Any best practices for how you handle living and working in Beijing?

Beijing Healthcare Forum is proud to present:
A Screening of Restoring the Light (see trailer)
A documentary by Carol Liu

Date: Saturday, Dec. 17
Location: The Hutong , Beixinqiao Subway Station exit C and it is on Jiudaowanxixiang (九道弯西巷).  See here for a map.
Time: The event will start at 2:30pm with the one-hour documentary, followed by comments by Prof. Rozelle and a Q&A session. The event will end around 4:30pm

Beijing Healthcare Forum invites you to a screening of Restoring the Light, a documentary about the spirit of hope and resilience of rural Chinese families with daunting health problems. As each family negotiates their dreams with reality, a brave journey of the human spirit unfolds, one that honors the power of individual will and seeks to inspire compassion for greater social change. Following the screening, economist and Stanford University professor Scott Rozelle  will give a presentation on the long-term economic implications of China’s rural health and education challenges. Filmmaker Carol Liu will also be in attendance for a Q&A.

The film tells the story of a dedicated rural eye doctor who sells his home to establish an independent practice and runs a mobile clinic for the underserved. A young woman, despite a debilitating bone infection, pursues her dream to attend university and become an artist. Her grandmother, who has lived in a cave dwelling for over sixty years, toils in the field even though she has lost her vision to cataracts. A young boy aspires to become a truck driver and maintains optimism in spite of his blindness.

Restoring the Light’s partner organizations include: The Rural Education Action Project of Stanford University, headed by Prof. Scott Rozelle, the UNESCO-recognized Golden Key Center of Educational Research for the Visually Impaired (focusing on rural education initiatives for school-aged children) and Huaqiao Foundation. Restoring the Light has been hosted by the United Nations Association Film Festival, the Stanford Medical School and was nominated for the Halekulani Golden Orchid Jury Award for Best Feature Documentary at the 2011 Hawaii International Film Festival.