Chapter 6 – Games, health and robotic related services for the elderly

[Note: below is Chapter 6 from Great Wall of Numbers]

In October 2011 I had a bad bout with food and ended up having to stay in a hospital for a few weeks in provincial China.  In contrast to the modern facilities at Huadong hospital in Shanghai (which I have also visited), all three public hospitals in Bengbu, Anhui were at the time, less than sanitary and for residents of the West, a seemingly step-backwards-in-time.  During my stay, I befriended one of the surgeons who had studied in Switzerland.  Dr. Wang or “Charley” as he affectionately called himself, gave me a tour of the in-patient facilities I was staying and said, “Tim, look around, we can barely cope with medicating and treating these patients – how could we possibly take over the world as some media outlets suggest?”

He raises a visceral point.  Despite the abundant growth over the past three decades, one of the industries that has had its share of growing pains is the health care sector (see Chapter 19 for more).  While the debate over government versus private ownership and maintenance of the industry continues on in China, there are a number of opportunities that US medical companies can capitalize on. For example, while the pharmaceutical industry is basically tied up with patent and legal proceeding and negotiations on both sides of the Pacific, US-based medical equipment and medical device manufacturers now have a liberalized export channel compared to just a few years ago.

Overlooked yet increasingly important

On a national level, life expectancy in China has grown from 65 in 1976 to 73 in 2010.  While its increase may have plateaued, reaching farther back in time illustrates how prolonged life expectancy is a positive spillover effect due to economic growth.1 For instance, according to Xinhua, the average life expectancy in Guangdong (the wealthiest province) has risen from 31 in 1949 to 75 in 2008.234

Assuming the retirement age is not increased, by 2050, it is estimated that 31% of China’s population will be near the age of retirement.5 In contrast, today about 14.8% of China’s population is over the age of 60.67

Yet with these demographic changes come different opportunities as well.  According to Zhao Baohua of the Gerontological Society of China, he notes that in terms of entertainment and “toys” for the elderly, “[a]bout 99 percent of Chinese toy factories just produce items for children, but in more-developed economies about 40 percent of toys are designed for older people. It may take China 30 years to catch up with some countries in this area.”8

Here is an area where Western-based toy, games and entertainment companies can export goods and services to a market ripe with potential.  For instance, Amazon.com has several pages of “toys for the elderly” and “toys and games for senior citizens.”  And as described below, there are a number of other made-for-the-elderly products that are currently available in the West but not in China.

This also raises the question, what activities do elderly populations in other countries have access to?  One potential answer to that could be the apartment complex where I currently live in Changning, Shanghai which has a small playground that is typically used by both toddlers and the elderly alike.  According to a Reuters report, “there were over 15,000 pieces of elderly workout equipment parks across Japan.”9 This same report noted that “an elderly playground starts at 8 million yen ($87,220), including the installation of equipment and instructors’ fees.”  Thus there is a potential business opportunity for US firms that develop playgrounds to export their products and services to China.

What about demobilizing conditions?  In the Netherlands, a village was recently built that “doubles as a nursing home,” serving clients suffering from dementia and Alzheimer’s.10 Similarly in Switzerland, a $26 million village has been built catering to the elderly afflicted with Alzheimer’s as well.11 In 2007, six million Chinese suffered from Alzheimer’s and that number is expected to grow markedly as the population ages.  In fact, one third of all Alzheimer’s sufferers live in China.  Shanghai alone has 120,000 residents with Alzheimer’s or dementia.12 While the debate and conversation over how to help treat these patients is still on-going, many Chinese families have now found solace through new treatment centers opening across the country.13 And with new centers comes potential markets.

What can foreigner medical experts do on the mainland?

In November 2012 I spoke with J.J. Liu who is originally from Beijing.  After completing graduate school he moved to California and worked in the bio-med industry for about 20 years before returning and now is the marketing manager for QIAGEN’s operations in China.  QIAGEN is a German biotech firm that builds and designs technologies to diagnose and measure biological specimens (e.g., when you give a blood test, they make the machine that analyses it).  Liu mentioned that as China ages the potential to provide services for the elderly increases as well.  For example, he noted that because of the economic boom in the 1990s and early 2000s many of the elderly now have more assets and funds to spend on improving their health, including the possibility of residing in assisted living facilities – or as he observed, “villas and hotel-style living that are arguably more culturally acceptable.”

Historically, Liu explains, “in the past the average resident did not have the resources to receive medical treatment – while the medical knowledge and facilities were lacking – families simply did not have the assets and resources to finance medical treatments.”  As a consequence, many families simply self-medicated through the purchase and consumption of relatively cheap drugs and TCM (Traditional Chinese Medicine or 中医) at local pharmacies.  While this self-medication phenomenon still takes place, Liu and others expect that these consumers will be able to utilize modernized Class 3 hospital facilities (the top flight), many of which are now stocked with the latest medical equipment.

What other opportunities can foreign companies become involved in?

In Chapter 3 I noted that Chinese consumers largely perceive foreign brands as premium quality. Liu noted that pharmaceutical brands are no different, as “Chinese patients are partial to imported products.”  Yet one of the limiting factors has been relatively high prices.  And some medicines like insulin for diabetes have few generic substitutes.  This price inelasticity means that the 92.3 million diabetes sufferers alone (China is now the “capital of diabetes”) have created an additional $3.2 billion drug market.14

Liu also expects that the current health care reforms being implemented by various levels of government via the 12th Five-year Plan will have “wide-ranging effects, most notably in terms of pharmaceutical costs.  Previously multinational companies [MNCs] were given a preferential pricing policy that allowed them to charge 100-200% markups on medicines whose patents were already running out in the West.  In the next several years this markup will be reduced to a mere 10-20% while simultaneously generic brands are introduced.”

Prior to these reforms, Chinese policies required that in order for MNCs to have access to the market they would need to produce and manufacture the pharmaceuticals on the mainland.  In doing this, policy makers expected a knowledge transfer would take place – as in the auto industry, which I briefly discuss later in Chapter 10 – as MNCs would need to train local staff and administrators.

Subsequently, while very little original research and development has taken place on the mainland over the past decade, going forward many MNC pharmaceuticals have opened up regional headquarters in China to take advantage of both the increased resources being placed into the health care industry as well as recruiting from a well-trained local talent pool.

What does this mean for you and your company?

In six years since it was established, QIAGEN’s Asia Pacific sales have grown from zero to accounting for almost 20% of global sales.  Simultaneously its Shanghai headquarters has grown from 1 employee to 400.  How has it done this?  Its double digit growth rates comes from selling medical systems – like those described above – through distributor channels to hospitals and clinical research facilities (QIAGEN as a whole generated $1.17 billion in 2011).  And because of the various reforms being enacted in all cities, counties and provinces, there are substantial areas of growth for medical providers, both domestic and foreign.  One other area where Liu sees specific potential opportunities for foreign experts is to help set up and train staff at a wide-array of facilities, including retirement villas.  Thus if you and your company already provide health care services you may be able to find new opportunities and revenue streams in China as well.

Lack of products presents opportunities

While services such as LifeCall’s medical alarm (creators of the catchphrase: “Help, I have fallen and I can’t get up”) have been offered to US residents for more than 15 years, there are few equivalents in China at this time.  Even though it is debatable whether or not such a service would prove to be popular in China, one possible product that has gone under the radar and could appeal to elderly Chinese consumers are e-Pants, designed by engineers at Virginia Tech.15 Embedded in the pants are several electronic gyroscopes and accelerometers that communicate to nearby computers via Bluetooth and can detect whether or not a wearer has fallen down.  Similarly a team of researchers at the University of Adelaide are using RFIDs and software to detect sensory movement and help monitor the activities of the elderly so that these aged consumers can continue to live both independently and safely at home (e.g., alert emergency providers if an accident occurs).16 Maybe you or your company can integrate LifeCall’s functionality with e-Pants.  Or perhaps your firm can take a page from Fujitsu who in February 2013 unveiled a “smart” cane called the Stylistic S01.17 Embedded in the handle of the cane is a GPS with LED lights that can help point the user in the correct direction.  In addition, built-in sensors can monitor temperature, heart rate and even humidity.  Their target market is the elderly as well.

Because of Japan’s rapidly aging population (it has the highest average age in the world) its engineers are also at the forefront of innovating and producing both machines and robotic solutions to provide support for the elderly.18 For example, the AGNES suit allows its wearers to feel what it is like to have limitations in physical motility.  The Hybrid assistive limb (HAL) is a new robotic exoskeleton developed by Tsukuba University in a bid to help improve the physical capabilities of its users.19 In the UK there is Hector, a mobile “assistive” robot that can follow its owners and take commands via a touchscreen.20 In the US, there are a number of social and domestic cleaning robotic projects such as the PR2 from Willow Garage and the Roomba from iRobot.21 And since China is rapidly aging as well, this presents an opportunity not just for foreign robotics companies but also IT firms to export their solutions to China (see Chapter 13 as well).22

Digital demographic differences

While personal computer ownership in China continues to increase over the past two decades, as the average urban salary is about $3,430 a year, the typical urbanite usually does not have the funds to pay for one at home.23 That serves as a reason why, internet bars or net cafes (wangba) are substantially much more popular than their Western equivalent.  Xinhua estimates that as of 2009 there are more than 138,000 “cybercafés” in China.24 And 70% of the customers are between the ages of 18 and 30.

So where does this leave the aged and elderly?

As I mention later in Chapter 13, both the iOS and Android app marketplace’s in the US have a number of simple games that some older audiences have gravitated towards.  And as smartphone proliferation continues in China, this presents Western developers and programmers with an opportunity to port and translate their games to a similar demographic across the Pacific.

For example, in 2012 approximately 189 smartphones were sold in China and at the end of November 2012 there were now 1.104 billion phone users on the mainland – 233.4 million were 3G users (3G adoption will increase by 100 million in 2013).2526 This past summer China overtook the US to become the largest smartphone market.27 Flurry now estimates that as of February 2013 there were 246 million smart devices in China compared with 230 million in the US.28 It is thus unsurprising that China is also the fastest growing market for iOS and Android devices.29 Yet in terms of demographics, the vast majority (~90%) of smartphones on the mainland are owned by users who are less than 55 years old.

As I mention later in Chapter 13, in the US, 50% of Solitaire and FreeCell players are senior citizens and 44% of US seniors have played solo games online.3031 Yet a 2012 Flurry Analytics report found that only a mere 3% of US users aged 55 or older, play games on their phones.32 However, in terms of total tablet and smartphone ownership, according to Flurry, in the US this same elderly demographic group (55+) represents 17% of the total tablet and smartphone ownership.

While open market research is relatively scarce on the Chinese side, CNNIC (which is part of the Ministry of Information Industry) estimates that the internet penetration rate for those over 50 is the lowest, at 7% in 2010.33 A 2010 IDC report found only 7.1% of those aged 55 or older play computer games in China.34 One estimate from iiMedia was that 10.1% of Android users in 2011 were aged 45 and older.35 iResearch estimates that 3.8% of iPhone users in 2011 were 45 and older.36 Similarly, a February 2012 report also from iResearch found that approximately 6% of Chinese mobile internet users were 45 and older.37 And Askci estimates that only 1.5% of 50+ year olds in China had a smartphone by the end of 2011.38 So in short, smartphone and computer penetration is relatively subdued within older demographic brackets.

Why is there such a disparity between the US and China?  Why does it matter?

I posed this question to a number of Chinese students and colleagues and they noted that the vast majority of the elderly in China were born and raised on farms and are unfamiliar with the latest technology (e.g., only 51.3% of the population is currently urbanized).39 Another issue could be illiteracy rates.  For example, an older New York Times report noted that many of the less developed more rural regions of China have much higher illiteracy rates.  In 2001, parts of Tibet had up to 42% illiteracy rates.40 Yet trends could be changing as We Are Social estimates that there are at least five million shoppers and increasing over the age of 50 in China.41

Apps that cater to the elderly

One argument against investing resources towards this demographic group is that you do not, with such relatively low market penetration why invest the resources for a risky return on capital?  However one unseen opportunity is the ‘long tail’ – that the simplified game you make could find an audience with other demographic groups such as primary school students at the other end of the population pyramid.

For example, Brain Age is a best-selling Japanese puzzle game for the Nintendo DS (a handheld gaming console) that is popular and successful in part due to its simplicity and ease of use for a wide-range of ages.  Perhaps Western developers could look to the simplified user experience design (UXD) in Brain Age as they port their games over to Chinese markets.

In my own anecdotal experience I think an overlooked, yet important phenomenon regarding elderly Chinese is that they are incredibly social and often even physically active.  On any given night you will see large groups of seniors dancing in plazas, practicing qigong and playing mahjong along the roads.  As my students noted above and the CNNIC data illustrated, if a developer could make accessing apps and the internet itself relatively easier elderly customers may find smartphones less imposing and confusing (e.g., tap on a big simple picture of the person you want to talk to).42

And in addition to using easy-to-see objects, be sure to modify the games to include Chinese traditions, symbols and cultural tie-ins – or in other words ‘Western video games with Chinese characteristics.’  For example: the color red, number 8, and the Chinese knot (Zhōngguó jié) are all considered lucky.  In the early 2000s a knock-off of Red Bull completely redesigned their can to fit the Chinese penchant for red and gold.43 Perhaps creatively integrating these symbols into your game would prove crowd-pleasing.

Also, even though gambling is currently banned on the mainland, this has not prevented small-scale gambling activities from taking place (e.g., in 2007 Macau overtook Las Vegas in gambling revenue).444546 From my observations, a large part of gambling is done in person on pieces of cardboard in the streets or in little game houses (e.g., tea houses and mahjong parlors).  This is not an endorsement of these illicit activities.  Rather this consumer behavior presents an opportunity for app developers to focus on both simplicity and the social aspect of any app that is created.  And since gambling is popular across many demographic groups, perhaps designing a “social” fortune-style game or a non-monetary betting app would find success across the mainland.

Thus while there is viable market potential for game and entertainment developers to create applications for both sides of the Pacific, careful due diligence of age and technology distribution and proliferation is recommended.

Service with a smile

Another possible area for business opportunities is senior care services.  In a December 2012 email exchange with Qian Jianchu, a professor at Shanghai Institute of Foreign Trade,47 he mentioned to me that “elderly nursing will be the most prosperous industry in China in the next 10-50 years.  The market is currently at a relatively low penetration level at present due to the lack of management experiences and promotion.  Therefore foreign firms with experience may find many opportunities in this segment.”  Why is this the case?  Because as noted above, assuming the retirement age is not increased, by 2050 it is estimated that 31% of China’s population will be of retirement age; and within 40 years China “will have nearly 500 million elderly people.”48 Yet despite this increasingly larger demographic bracket, “only 8% of elderly Chinese consumers feel that marketers adequately target them with advertising and products.”49

There are exceptions such as the US-based hedge fund Fortress Investment Group who is investing in and working with China Senior Care to provide “elderly care and retirement facilities.”50

And while assisted living and senior living centers have become increasingly popular in Western countries, aside from several token centers in China, they are virtually non-existent.  That is to say, only 1.6% of people over 60 on the mainland (compared with 8% in developed countries) are accommodated in some way by care facilities.51 Or rather, all but a few of the affluent do not currently receive services from an assisted living center.  Yet according to a report from China’s National Committee on Ageing, about 12 million Chinese over the age of 60 would consider retirement villages an option.52  This potential is one of the reasons why J.J. Liu recommended the market segment for potential entry by experienced foreign firms.   In fact, Fortress is investing $1 billion over the next several years to build and operate centers in larger cities like Shanghai and Beijing.  And the sky may be the limit, as the most expensive 7-star nursing home in Hainan province targeted and tailored at seniors recently opened in Haikou, charging between $1,283 to $2,444 per month.53

In contrast, a 2008 study noted that approximately 1.4 million Americans currently live in several thousand assisted living centers and nursing homes.54 Thus the potential opportunities in China to not only train the staff but also to sell and equip the centers with vital materials provide Western firms and entrepreneurs with new revenue streams in the immediate future.

Some critics may argue that firms like Fortress Capital are getting ahead of themselves, that there may be very little genuine demand – regardless of costs – for assisted living.  For example, Shanghai International Medical Zone (SIMZ) had a tough time starting up several years ago.  It was initially planned to be a luxury retirement village targeting wealthier retirees.  However as part of its marketing push its owners “boasted an investment partnership with Augustinum Group, a leading provider of retirement homes in Germany.”55 Yet work on SIMZ actually stalled for a few years and Augustinum said it never made investments on the mainland.  SIMZ has since been completed and subsequently foreign firms such as Eli Lily (a large US-based pharmaceutical company) and Parkway (a Singapore-based health care provider) have begun operating in the zone.56 Thus even though there is potential due to an expanding market driven by a rise in living standards, investors should still be cautious.  Another argument notes that one of the three Confucian ideals that children are taught is filial piety (xiào): take care of their parents when they grow older.57 Yet because of cultural dynamics, home healthcare may eventually become an accepted alternative as Liu noted above.  Just as generational changes in the West led to outsourcing care of our aged parents, so too may the post-1980s generations (bā​líng​hòu) do in China.

I also spoke with Adam Clemans who echoed similar rationales and prospects.  Clemans is an American pharmacist who works at an international hospital in Shanghai.  According to him, “while somewhat tangential with the filial piety idea, many Chinese children do not necessarily want to (or cannot afford to) spend enormous amounts of money on their parents, but rather they want to get them things that seem like they might be expensive.  The simple fact that something is imported or made by a foreign company makes it seem valuable and special.  For example, relatively mundane “low-tech” items like slip-proof rugs or handle bars for getting on and off the toilet could be attainable hits.  In addition, I think there might be a third market (upper-middle class) for elderly care as well.  Not necessarily super-luxury, but with more Western characteristics (like clean floors & privacy).  Right now it seems like there seems to only be two options, cheap or extremely expensive.”

With a middle class currently numbering 300 million – and estimated to grow to 600 million by 2020 – these alternative care options could become increasingly possible for consumer and suppliers alike.58 Yet again it should be pointed out that middle class is defined as those with at least $3,000 a year in disposable income (e.g., earn between $10,000 and 60,000 pre-tax).5960 So while they have more funds for supporting their elderly relatives, they may not have enough to buy a product like a walk-in bathtub quite yet.  In addition, your company may be able to cater to clients from the Greater China region such as elderly Hong Kong pensioners.  According to the Guangdong provincial government, 69,000 elderly Hong Kong pensioners now live in retirement homes throughout the Pearl River Delta – the bulk of which (more than 10,000) reside in Guangzhou.61 One of the main reasons is that the quality of care is purportedly the same as it is in Hong Kong yet the labor costs are significantly lower thus enabling retirees to live more flexible in terms of finances.

Takeaway: The rapid demographic changes within China present health care providers, robotic manufacturers and game developers with opportunities.  What products and services can you and your company invent and export to China?  These solutions can range from the seemingly obvious, personal movers like the Rascal to something less evident such as old-age proofing doors and cabinets or even simple smartphone games.


Endnotes:

  1. Life expectancy in China Rising Slowly, Despite Economic Surge from The New York Times []
  2. Life expectancy increases by 44 years from 1949 in China’s economic powerhouse Guangdong from People’s Daily []
  3. Residents of Shanghai has the highest life expectancy at birth on the mainland, at 82.41 years.  See City keeps top life expectancy on mainland from Shanghai Daily []
  4. Guangdong has led GDP provincial output on the mainland since 1989.  In 2012 its GDP output was 5.7 trillion RMB ($920 billion) which is half the size of India’s.  See Guangdong GDP up 10.2 percent in 2012 from NewsGD, Jiangsu unchained: Top in per capita GDP, Guangdong in its sights from Want China Times and Guangdong leaders fear they will lose economic pole position to Jiangsu from South China Morning Post []
  5. Empower elderly to be active participants from People’s Daily []
  6. See Age will weary the Chinese miracle from BusinessSpecator and Elderly population to surpass 200 mln in 2013 from Xinhua []
  7. China’s Achilles heal from The Economist []
  8. Age of disillusion haunts senior citizens from China Daily []
  9. Japan’s elderly playgrounds show fun is for everyone from Reuters []
  10. Alzheimer’s Disease: Dutch Village Doubles as Nursing Home from ABC News []
  11. Switzerland’s ‘Dementiaville’ designed to mirror the past from The Independent []
  12. See China in Alzheimer’s double bind from BBC and China, in a Shift, Takes On Its Alzheimer’s Problem from The New York Times []
  13. China, in a Shift, Takes On Its Alzheimer’s Problem from The New York Times []
  14. This upfront cost is on top of the $26 billion in annual healthcare and lost productivity.  See China Diabetes Triples Creating $3.2 Billion Drug Market from Bloomberg and China’s diabetes epidemic exacerbated by one-child policy from News Track India []
  15. E-Textile Pants Identify Fall-Prone Elderly from PhysOrg []
  16. Computer science helping the aged stay home from The University of Adelaide []
  17. Fujitsu prototype GPS cane hands-on: the future of monitoring and protecting the elderly from Engadget []
  18. For an in-depth discussion on assistive robots, see Population Ageing and Socially Assistive Robots for Elderly Persons: The Importance of Sociodemographic Factors for User Acceptance from the International Journal of Population Research []
  19. Robot Suit Hal from Cyberdyne []
  20. Hector: Robotic Assistance for the Elderly from Forbes []
  21. Another robot that could potentially assist both the elderly as well as manufacturers is Baxter.  See Small Factories Give Baxter the Robot a Cautious Once-Over from MIT Technology Review []
  22. With their increased popularity in North America, selling walk-in bathtubs may also be another market opportunity although transportation inland may be difficult. []
  23. Low rate of ownership to lift PC buying from Shanghai Daily []
  24. China saw 138,000 Internet cafes as of 2009 from Xinhua []
  25. China Mobile alone sold 60 million TD-SCDMA (a domestically developed radio technology) devices in 2012.  See Check Out 3 Years of Stunning 3G Growth in China from Tech in Asia, China’s Smartphone Sales Grow 189 million Units in 2012 from MIC Gadget and China Mobile Sold 60 Million TD-SCDMA Devices Last Year from China Tech News []
  26. See China Had Over 1.1 Billion Mobile Phone Users By November 2012 from China Tech News and China Has Over a Billion Mobile Phone Users, 192 Million 3G users from Tech In Asia []
  27. China smartphone market to overtake U.S. in 2012 from Reuters []
  28. China Knocks Off U.S. to Become World’s Top Smart Device Market from Flurry []
  29. Flurry: China Is Fastest Growing Market For iOS & Android devices, Chile comes in 2nd from TechCrunch []
  30. Vintage PC Video Games Still Thrive in World of App from Nielsen []
  31. The Data Digest: Digital Seniors from Forrester []
  32. Flurry Game Accerlation Program from Digital Analytics Association Symposium in June 2012 []
  33. China Internet Insights — Incitez, p.11 from China Internet Watch []
  34. See Table 3, p. 9 China Gaming Market End-User Survey, 2010 from IDC []
  35. See 2011年中国Android智能手机用户年龄分布 from iiMedia and 2011 年中国Android 智能手机用户年龄分布 from China Mobile []
  36. 中国iPhone用户用户年龄段偏成熟 from ChinaPP []
  37. China Mobile Internet User Age Distribution from China Internet Watch []
  38. 2010-2011年12月中國智能手機與非智能手機網民的年齡分布比較 from Askci []
  39. See China urbanization rate exceeds 50 percent from Xinhua, China’s Urban Population Exceeds Countryside for First Time from Bloomberg and Crossing the 50 Percent Population Rubicon: Can China Urbanize to Prosperity? by Kam Wing Chan []
  40. China’s Long — but Uneven — March to Literacy from The New York Times []
  41. Social, Digital, Mobile China (Jan 2013) from We Are Social []
  42. Part of the problem in terms of relatively low penetration rates has to do with the User Experience (UX) that is still being refined.  Phones like SafeTalk (“as seen on TV”) are designed specifically for seniors and others who may have vision difficulties. []
  43. Red Bull still waiting for approval to enter China from Just Drinks []
  44. Despite initial reports that suggested a new pilot program was starting at a casino in Sanya, Hainan province (called Jesters), gambling on the mainland is currently banned.  Macau is the only nearby domicile where this is allowed.  Mainland residents must still apply for an entry visa in order to travel to Macau and are typically only allowed to visit it a few times a year.  There are exceptions, for example, if you live nearby in certain cities of Guangdong or if you have relatives living in the SAR.  See Sanya Says It Never Licensed Any Form of Gambling Activities from Caijing, Chinese authorities close cashless casino bar in island resort from Reuters, Macau Casinos Decline on Visa, Credit Limit Concerns from Bloomberg, Macau’s Casino Revenue Reaches Record After Holiday Week from Bloomberg and China Tightens Reins on Macau from Bloomberg []
  45. Revenue hit $38 billion in 2012 and is expected to reach $44 billion in 2013.  See Rolexes Pawned in Macau Signal Further Gains for Casinos from Bloomberg, Macau gaming revenues hit $33.5 billion in 2011, no slowing seen from Las Vegas Review-Journal, Broken Tooth and New Macau from Foreign Policy and Door is about to slam shut on high-rolling holidays to Macau from The Times []
  46. Despite visa issues, MGM and other resorts continue to invest in building casinos on Macau.  See MGM to build new 15.5bn yuan casino in Macau from Shanghaiist []
  47. Qian Jianchu is also the editor-in-chief at China Commerce and Trade Press []
  48. See Empower elderly to be active participants from People’s Daily and Rise in China’s Aging Poses Challenge to Beijing from The New York Times []
  49. Targeting Grandpa: China’s Seniors Hunger for Ads from The Wall Street Journal []
  50. Big money bets on China growing old, and rich from Reuters []
  51. China faces ‘timebomb’ of ageing population from The Guardian []
  52. Growing old in China: The business of going grey from BBC []
  53. 7-star nursing home opens in Haikou from China Daily []
  54. See Nursing Facilities, Staffing, Residents, and Facility Deficiencies, 2001 Through 2007 from PAS Center and Nursing Homes from the AARP Public Policy Institute []
  55. Growing old in China: The business of going grey from BBC []
  56. See About Shanghai International Medical Center, Shanghai from Parkway Pantai and Covance China and Eli Lilly Pharmaceutical Signed an Agreement on Strategic Cooperation from SIMZ []
  57. For a detailed, illustrative case study on filial piety in modern China see: In China, Betting It All on a Child in College from The New York Times []
  58. 600 million middle-class Chinese by 2020: think tank from Xinhua []
  59. China’s middle-class boom from CNNMoney []
  60. While it may be momentary exception to the trend, the stereotype of “Chinese generational savers” may be coming to an end.  According to a recent CNN report younger Chinese consumers born in the 1970s and 1980s have a savings rate near zero.  Shaun Rein author of “The End of Cheap China” similarly observes that today’s “20-something generation” are veritable spendthrifts with “an effective savings rate of zero.”  See China youth have savings rate near zero from CNN and Getting Chinese to stop saving and start spending is a hard sell from The Washington Post []
  61. In terms of specific numbers, in Guangzhou, “[t]he Shouxing Building is the city’s largest private rest home and home to about 50 pensioners from Hong Kong.”  See Hong Kong elderly go north for retirement from China Daily []
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Chapter 19 – Health care

[Note: below is Chapter 19 from Great Wall of Numbers]

Another concern that foreign medical professionals probably do not have to worry about currently is trust; or rather they may be able to find an opportunity to rebuild the trust in the medical profession.  The reason this is important is that according to the former Ministry of Health, in 2010 there were “more than 17,000 “incidents” aimed at hospitals and their staff.”1 These sometimes violent encounters have markedly increased, up from 10,000 such “incidents” five years ago.

For example, in March 2012 a young intern at a hospital in Harbin was stabbed to death by a patient, a patient who also stabbed three other doctors during the same encounter.2 In September 2012 at a hospital in Shenzhen a doctor and nurse were both stabbed by a patient who also stabbed two others.3 In November 2012 two such incidents occurred.  The first, in Hefei, Anhui, a man with a knife entered the 2nd Affiliated Hospital at a medical university and stabbed five medical workers, killing the head nurse.4 According to a preliminary investigation he had received medical treatment from the same hospital.  And in Tianjin, near Beijing, a doctor was axed to death by a psychiatric patient.5 In fact, in 2011 up to “10 medical staff were murdered by patients.”6

Why is this occurring?  A significant portion of the frustration involves what The Lancet (a British medical journal) has called “Bribegate” – medical staff have been found to have received bribes and kickbacks for prescribing drugs to patients, even if the patients did not need the prescription (more on that below).7 For example, a recent survey found that “54% Chinese doctors acknowledge they have taken drug kickbacks from medicine dealers or manufacturers.”8

While they are not required to take the Hippocratic Oath, Chinese doctors have similar ethical standards that essentially promote the same ideals.9 Yet there are at least two problems that have created an atmosphere of mistrust: relatively low salaries (set by local governments) and peer-pressure.  According to an anonymous doctor at a hospital in Anhui, “I think the low salaries of doctors in China, which I can say don’t match the effort they make, are the major cause of this phenomenon; the kickback a doctor accepts is usually greater than his salary.  What’s more, it’s difficult for a doctor to refuse the kickback when all the other doctors accept it. It will alienate him or her from the others.”10

This dissonance between having “low salaries” and “work performed” is not just an isolated observation.  In August 2012, the Chinese Medical Doctors Association released a report that found 91.9% of the 3,704 doctors surveyed “said the job involves many sacrifices for low financial return.”11 In fact, according to a recent survey of 363 doctors, 61% reported they were unhappy with their profession due to a number of factors including compensation.12

What are the typical salaries like?  Depending on the city and size of the hospital doctors can earn as little as 5,000 yuan ($800) a month.  At larger hospitals in Tier 1 and Tier 2 cities this amount can be 10,000 yuan or more, yet still only a fraction compared to their Western counterparts.  For comparison, according to a 2011 report from the Bureau of Labor Statistics, the mean annual wage for physicians was $184,650 in the US.13 Simultaneously, doctors and nurses in China typically must see 60 to 100 patients during their 10-14 hour shifts.  As a consequence the average face time doctors have with patients can be as little as 5 minutes.  In contrast, the typical face time with a doctor in the US is 13-18 minutes.14 And as both the survey and Anhui doctor noted above, practitioners think that salaries do not correlate with the effort and performance.

This has led to another problem involving retention and future matriculation.  According to the Chinese Medical Doctor Association, “the proportion of doctors who hoped that their own children would enter the medical profession has decreased, from 11% in 2002 to 7% in 2011.”15 And based on an August 2012 report from Health Times in China, 96% of doctors said they were unsatisfied with their jobs and that “70 percent said they would not allow their children to enter the medical profession.”16

On the ground cases

I spoke with four Chinese doctors about this issue.  Maggie Li is an anesthesiologist who works for a large pharmaceutical company in Shanghai.  In her view, “the recent attack on medical staff in Anhui is a snapshot of the problems in the national health care system.  I empathize with these five medical professionals.  For them, I can see little hope in their seemingly futile effort to continue to be a doctor in China.  Based on my observations, doctors are not fully utilized in China because most doctors currently only treat physical, superficial diseases but cannot treat sick hearts – their psychological feelings.  However, we as medical professionals still need to have the courage to face this harsh reality and continue on because we are the foundation and real hope of the large majority of Chinese who have few options currently available to them.”

Psychological and mental health issues are an important predicament on the mainland in part because they are still a largely taboo topic.17 This despite the fact that The Lancet estimates that up to 17.5% of the adult population in China has some kind of mental ailment.18 In fact, because of cultural issues that have largely overlooked or even frowned upon this increasingly important sub industry, there are relatively few active professionals on the mainland.  In 2007 there were only 17,000 certified psychiatrists, “one-tenth the number in developed countries, in proportion to the population.”19 According to Tian Chenghua, a professor at Peking University, for every 100,000 people in China there are only “about 1.26 qualified psychiatrists, far lower than the global average of four.”20 Yet according to a recent Caixin report, the second-most commonly diagnosed disease on the mainland is depression, affecting 260 million Chinese people.21 Specifically, more than 287,000 people commit suicide each year in China, some of which stems from a shortage of mental health professionals.2223 In contrast to Western countries, more women commit suicide than men in China (by a factor of three to one) and it is also the leading cause of deaths by young women.24 In fact in 2009 each day an estimated 500 women committed suicide (the most recent year for detailed records).25

And while the suicide rate has itself purportedly halved over the past two decades (from 30 in 100,000 to 15), suicides in China still account for “more than 30 percent of the world’s total suicide cases.”26 While this rate is expected to drop due to suicide prevention awareness, the same Caixin report noted that “[m]ore than 88% of patients with mental disorders had never received professional help between 2001 and 2005.”  And that, “only 45% of the nation’s depression victims who saw mental health professionals had been treated in the previous six months.”  In contrast, the 2009 estimate for the suicide rate in the US was 12.4 in 100,000 (the highest in 15 years).27 Furthermore, a 2007 study found that annual productivity loses due to lost work days from depression amounted to “51.37 billion yuan [$6.39 billion], including 5.62 billion yuan in medical costs.”28 This then presents an opportunity for psychological and psychiatric professionals and NGOs such as the China-American Psychoanalytic Alliance from other countries to help a significant segment to heal what Li referred to as “sick hearts.”29

In November 2012 I spoke with Jenny Xu, a doctor at a public hospital in Zhongshan, Guangdong.  According to Xu, “I think most medical staff, regardless of where they may work on the mainland feel very overwhelmed.  We are required to work relatively long shifts in an increasingly stressful and even dangerous environment.  I personally have begun the immigration process to move to Canada where I plan to work as a nutritionist.  In the free time that I have, I am preparing for TOEFL and learning about North American culture because I do not feel the compensation and lifestyle as a medical professional in China is worth the amount of effort and work that most medical professionals are currently required to do.  The incentive structure is warped and some doctors that have received bribes in the past have created permanent problems for the medical community because many patients now do not listen to us.  And as a consequence some patients even take their frustrations out on everyone.”

Xu may one day become part of the ‘brain drain’ (the emigration of skilled professionals) I briefly mentioned in Chapter 10.  In 2007, China became the leading contributor of emigrants globally.  Nearly 100,000 mainlanders received immigration or permanent status to the US, Canada and Australia in 2009.  Two year later, 87,000 Chinese immigrated to the US itself; the US now attracts more than half of all Chinese immigrants a year.30 Of the 1.21 million Chinese students and researchers (liúxuéshēng) who studied overseas between 1978 and 2007, only about 25% returned to the mainland after graduation.3132 In fact, 508,000 Chinese (typically wealthy and educated) emigrated abroad to OECD (developed) countries in 2010 alone, a 45% increase over 2000.33 And according to a 2011 report, “27% of Chinese entrepreneurs worth more than 100 million RMB ($15.9 million) have already emigrated, while another 47% say they are considering doing so.”34 More pointedly, two-thirds of all investment visas (EB-5) issued by the US in 2011 were to Chinese nationals and of the 7,641 investor visas granted in 2012, 80% were taken up by Chinese.353637 For comparison, since it implemented a new immigration program in 2004, there have been a total of 5,000 foreigners that have received a green card in China.38

This brain drain is not just endemic to China, as other developing countries such as India also have had comparable numbers emigrate abroad.39 In fact, it is estimated that Indian doctors now account for 5% of the medical workforce in developed countries.40 And an estimated 60,000 Indian physicians work in the US, the UK, Canada and Australia.  In the case of China, policy makers are beginning to try and stem the exodus with bonuses of up to 100,000 RMB ($15,896) to Chinese physicians who take part in visiting physician programs which will train and educate healthcare workers in rural areas that are lacking in medical professionals (e.g. to prevent the ‘overwhelmed’ feeling of Xu and her peers).41 In the meantime, perhaps you and your firm could provide immigration services to those looking to move abroad.

Compensation related to productivity is another issue that came up in a conversation I had in November 2012 with Lin Zhang.  Zhang is an iconographer (doctor who studies X-rays and CT scans) at a hospital in Shanghai.  She noted that “government bodies have instituted a new policy, a two-tier wage system of ‘ordinary’ and ‘famous’ specialists, yet the gap between these doctors is arbitrarily set.  Perhaps in future reforms, doctors can be paid according to other performance reviews and thus there may be a near-infinite amount of price points that they can be paid at, just like in the US.  And unfortunately ‘ordinary’ doctors currently do not have many opportunities to promote themselves in the work environment.  Thus, while the ‘ordinary’ doctors do most of the daily work, their compensation is relatively poor compared with the large quota requirements.  And because of the way this system is set up, they are often victims of violent incidents in hospitals.  In fact, one of the reasons why some patients have turned violent over the past few years is because of the little face time that these ‘ordinary’ doctors are allocated per patient.  Coupled with the low salary this has created a profession that is internally frustrated and externally looked down upon by customers and public opinion.”  I discuss the new ‘ordinary’ versus ‘famous’ specialists below.

Reforms and alternatives

Currently the break down for hospital revenue is in three portions: 40% of hospital revenues are typically generated by selling medicine, 40-50% comes from services like diagnostic tests and treatments and the remaining 10% comes from governments.  Because of their relatively low salaries (as noted above), in most hospitals, doctors are directly compensated by the “profits of the sales of medicine.”42 This sets in place the cycle noted above where some doctors will overprescribe medications knowing that they can in return, receive additional compensation.  To remove this incentive, as part of the reforms that began during the 11th Five year plan by which medicines and prescriptions as a whole will be reduced in price (e.g., ‘mark-ups’ as noted in Chapter 6), governmental bodies have recently introduced a “medical service” fee.

Because medicines will no longer be generating as much revenue, to bridge this revenue gap, this new “medical service” fee enables patients to pay a rate of 42 yuan ($6.72) to consult with an “ordinary” doctor and 100 yuan ($16) to consult with a “famous specialist.”43  Thus, creating some incentive for medical practitioners to focus away from overprescribing and towards providing services; as there is now an objective bridge linking performance and productivity to mandatory hours.44 Yet as noted by both Li and Zhang and the numerous surveys above, this is just one small step in the reform process.  Similarly, despite a concerted effort to remove pharmaceutical mark-ups (see below) these reforms have met resistance from hospitals.  For example, “[a]lthough more than 300 county-level hospitals have implemented the price reform since Chen announced it at the beginning of the year, only a dozen city-level hospitals – including two in Beijing and 10 in Shenzhen – have stopped charging the mark-ups.”45

Another area under reform is the “pay first” method (in contrast to the “pay after” service system in much of the West) which has sometimes left poorer patients in a bind.  For example, in August 2011, a doctor in Wuhan, Hubei province removed the stitches on a patient’s fingers immediately after surgery because the patient did not have enough money to pay the medical fees.46 Due to public criticism, a new “pay after” payment system is currently undergoing new trials across 20 provinces that will attempt to alleviate future problems.47

A Byzantine process and long-term opportunities

In December 2012 I took a CRH (mentioned in Chapter 10) and spoke with Yolanda Bo who works for a large pharmaceutical distributor that sells Chinese-made pharmaceuticals (usually reproductions of Western drugs like penicillin) to dealers in Nanjing, Jiangsu province.  She has been working in the industry for over five years and according to her, “the way the drug system works is rather complex.  On the supply side are factories, several hundred factories spread throughout the country.  They will produce a certain drug like an antibiotic and sell it to a company like ours for 15 RMB ($2.40) – a base price that fluctuates according to the tender price.  There are approximately 200 distributors in Nanjing alone and thousands across the country.  What we do is sell products to dealers (brokers) for usually around 17.5 RMB ($2.80) – and as the wholesaler this price point still provides a comfortable profit margin for us.  Dealers maintain relationships with four different entities: doctors, delivery companies, hospitals (specifically the purchasing department) and a unique group called a billing company.  The dealer will often pay them 8-12% of the price differences as a type of fee and then absorb the remaining profit.  Thus the dealer will only buy our product if they can make a profit margin of around three times the cost to them.”

The reason why the dealer markup is relatively high is that in this system he or she needs to build and maintain guanxi with each of those four entities who in turn require a certain margin to keep for themselves.  According to Bo, “for example, the delivery company which physically delivers the product to the hospital will buy the product for around 54.62 RMB ($8.75) from the dealer, this is based on an average 6% fee yet sometimes this fee can be up to 8% or more.  In turn the delivery company resells the product to hospitals for 58 RMB.  Hospitals in turn may add additional mark-ups depending on where they are located though generally they add about 15% more.  In poorer, rural regions, the hospitals might negotiate with the dealer and receive higher terms, perhaps 20-60% of the retail price.  Simultaneously, the dealer typically hires subcontractors to maintain relationships and connections with the head doctors (deans), administrators (purchase managers) and directors at each hospital.  Thus if a finished product sells for 100 RMB ($16) to the patient, some of the top doctors’ share typically amounts to around 20% (20 RMB).  To complicate matters further, because of numerous regulations and certification requirements (like warehouses, storage facilities and transportation that must meet certain standards and provide government authorized invoices) the delivery company itself actually must physically receive the product through another middle-man called the billing company typically located in Anhui due to the laxer regulations and price structure.”

Over the past decade various governmental entities have attempted to reform this business model due to the relatively high costs and low value added in the middle-man process.48 Yet while price ceilings are set, factories will simply stop producing the product because they can no longer charge the required amount for this incentivized model to continue.49 As a consequence those medications are no longer produced, thus to prevent this shortage from occurring government regulators have allowed a certain amount of rent-seeking to continue.5051

While these prices are essentially artificially inflated at each level, because of competitive pressures due to hundreds of factories producing identical pharmaceuticals, the wholesale prices themselves are purportedly “kept in check.”  Yet according to Bo, “wholesale prices do fluctuate every 2 years after mandatory governmental checks and reauthorizations which levy or remove fees.  We call it ‘inviting tenders’ or a proposal (RFP) and as a consequence new medicines percolate into hospitals while concurrently others will disappear from the market; it all depends on the government’s attempts to control prices.”52

In a nutshell, because of all the agents, middle-men and logistical movements (e.g., Coasian transactions costs53 ), a drug that costs 15 RMB to manufacture is often sold, according to Bo, to hospitals for 3-10 times the cost to end-users without any value-added in between.  As a consequence, Chinese consumers collectively spend more on pharmaceuticals as a percentage of GDP (2.26% in 2007) than compared to most other OECD countries.54 And because patients are increasingly aware of how this pharmaceutical business model operates it has led in part to the intense emotional venting surrounding ‘Bribegate’ discussed at the beginning of the chapter.

Another solution (and one where new business opportunities may be found) to this issue that one source said is being planned for pilot programs is to allow not just salaries to reflect market conditions, where prices fluctuate based on the supply of medical professionals but also the supply of pharmaceuticals based on the market demand and consumption by end-users (e.g., wholesalers selling directly to medical practitioners).  Or in other words, removing the artificial barriers, subsidies, the price ceilings and floors and letting market participants bid on scarce resources directly from the original suppliers (e.g., directly from factories and wholesalers or the skilled labor and per usage of medical equipment).  However as Bo and others I have interviewed noted that even though some of these pricing mechanisms have been liberalized and reformed, because various institutional bodies still set compensation rates and effectively create a quota system, they have removed other incentives for doctors to perform based on productivity.55 And in some cases, some hospitals still pay top doctors based on both the new “service fee” as well as a percentage of the pharmaceuticals sold.  The analogy Bo used to describe this process in our conversation was, “Rome was not built in one day, so it would be myopic to expect such an entrenched business model to be immediately reformed overnight.”  Thus according to her, while these reforms may take years and decades to become fully realized one of the long-term opportunities for both foreign and domestic firms is to continue establishing new factories that produce pharmaceuticals because of the demand by both an aging population and from a growing middle class.

Private and foreign owned facilities

Another opportunity for foreign medical professionals is that because of this general distrust among the populace towards Chinese medical professionals, those with means have begun turning towards private, Western-run hospitals.  Beginning in 2000, Chinese policy makers “officially permitted foreign companies to pursue hospital and clinic joint ventures but limited ownership to 70%.”56 In December 2010, as part of the health care reforms, foreign companies were now allowed to own 100% in hospitals.57 Foreign-owned and managed hospitals include United Family Healthcare (UFH which is owned by publicly traded Chindex: CHDX) and Parkway (a Singapore-based company) which have opened several locations throughout Tier 1 and Tier 2 cities.58 In fact, while the majority of clients used to be typically foreigners, wealthier Chinese now make up 50% of the patients at UFH locations.  As a consequence, after 15 years since they first started, UFH has grown to include 3 hospitals and 11 satellite clinics.  While the hospitals provide many common international services, satellite clinics typically handle immigration health checks for residents applying for visas abroad.

In November 2012 I spoke to Alan Kahn, Vice President of Marketing at UFH in Beijing.  According to him, “our secret for success is that we are patient centered, we try to provide the best services available to them.  As a consequence we invest a lot of capital into unseen quality of life amenities.  For example, almost certainly none of our patients will walk out of the hospital with a staph infection because there are strictly followed hygienic and sanitary protocols in place and each patient has their own individual room.  New mothers have their own privacy in an OBGYN wing which is guarded by a permanent security detail to prevent child theft, which can occur in certain areas of China.  We are also the only JCI quality accredited hospital on the mainland and spend a lot of time bringing international standards, new innovations and ‘best practices’ to our customers.  In fact we were the first to provide Western-style in-patient care on the mainland, which has been subsequently emulated by other companies and institutions.  We were also the first in a number of other service areas like pregnancy care and post-partum recovery which have also been copied and emulated by others.  And since we are not restricted by quotas – and are privately owned – we can continually change our services to meet the needs and demands of the customers.  This includes building specialized centers, like our new Rehabilitation Hospital which is one of the first of its kinds on the mainland.”59

Accidentally transmitting diseases like staph can still conceivably occur in any hospital in any country, yet in part because of inconsistent quality control and sanitation procedures occur more frequently in public facilities.  For example, in the fall of 2009 there was an outbreak of multidrug-resistant Acinetobacter baumannii (MDR-Ab) at a large public hospital in Beijing.  Twelve patients were infected and five died because the bronchoscopes had not been properly sterilized.60

And while the costs of their services may be more expensive than visiting a public hospital, one of the reasons Chinese customers are increasingly interested in private health care facilities is that, “they do not have to worry about trust or over-medication or trying to provide a hong bao (红包, a red envelope or bribe) in hopes of seeing a specific doctor.”  Or in other words, UFH and other private firms primarily focus on providing service in an industry – that because of its system as noted at the beginning of the chapter – has struggled to fully provide.

In my own experiences with public medical treatment on the mainland (I have not utilized UFH facilities), one of the problems is that while the doctors are typically well-trained and competent, because of long queues and short face time, there is still a tendency to overprescribe, for example, antibiotics.  In fact in November 2011 I learned firsthand of the consequences of receiving too much antibiotics when it was discovered I had very little bacteria left in my GI tract to digest food (e.g., there are billions of bacteria cells in your stomach which play a key role in digestion, using antibiotics kills the ‘bad’ infections as well as your useful stomach bacteria).61 This is not a startling revelation either, as nearly every month there is a news story about this phenomenon.62 In fact, according to the Ministry of Health (now the National Health and Family Planning Commission), “on average each Chinese person consumes 138 g of antibiotics per year — 10 times the amount consumed per capita in the U.S. Meanwhile, three times as many Chinese people are prescribed penicillin compared with the international standard.”63

Another reason for UFH’s success is that its founder, Roberta Lipson came to China in 1979, thus they are a first mover in an industry that takes years to set-up.64 Throughout the initial opening and reform during the 1980s, many policy makers and potential customers alike were suspicious and uncertain of privately owned health care facilities.  Just like Pizza Hut and KFC (see Chapter 16) were seen as curiosities that few could initially afford, private health care was a service that took adjusting to.  Yet after a number of VIPs, celebrities and thought leaders had a chance to visit and use private health care services, mainland media outlets took note and public opinion has been increasingly positive towards this seemingly foreign idea.

Another reason is that as Kahn explained, “up until the recent reforms, the public health care system was under immense systemic strains.  Because there were few modern healthcare facilities in the countryside and because most of the well-trained doctors worked in cities, rural residents would surge into cities’ overwhelming resources in order to wait in line to see the few doctors who could provide needed surgeries.  For example, if you needed life-saving gall bladder surgery there may only be a couple doctors in a big city like Kunming who could provide it.  So you and your family would move to the city for weeks and months, waiting in various lines and queues for 24 to 72 hours on end just to see a specialist for a few minutes.  As a consequence sometimes desperate families take every action possible, such as trying to present doctors with large gifts hong bao (红包) in hopes of receiving admission and service.”

How long are these waiting times?  According to the former Ministry of Health “waiting times at public hospitals are 30 times longer than private hospitals.”65 In fact, one public maternity hospital in Beijing alone receives 5,000 patients a day and “there is a line stretching back 200 meters from the window where patients have their blood tested every morning. A one-hour wait to have a blood test is normal.”6667

This is not to say that private hospitals in China do not have their own problems.  In fact, in 2012 a TV station utilized an undercover reporter who visited three private hospitals.  The reporter sent green tea in for analysis instead of urine.  The private hospitals did not notice it was tea and subsequently offered several expensive treatments including “surgery for calcification.”68 This was a repeat of a 2007 scandal in Hangzhou where reporters from a different TV station sent in green tea as well.  The subsequent investigation found that five hospitals (one of which was private) prescribed relatively expensive medicines for treatment.69 Another instance of medical negligence was uncovered in Liaoning, a northeastern province in February 2013.  A doctor at a privately run clinic infected as many as 95 patients with Hepatitis C which can cause cancer.70

In November 2012 I also spoke with a Chinese doctor at a private hospital in Pudong.  According to her, “foreign health care providers can now move to China to provide their services as there are more and more expatriates in China who usually feel more at ease and secure when they are seen by doctors from similar cultural and linguistic backgrounds.  Meanwhile, the administration departments at Chinese joint ventures and private hospitals continue to transform and integrate their hospital services to the level of so-called international standards.  Hence, foreign health care providers especially from advanced health systems will find many opportunities for reshaping and improving the management-side of the facilities.  In addition, the pay of foreign doctors is usually on-par with many facilities in their home countries and local accommodations and cost-of-living perks are almost always provided by the employer.  Needless to say, legal certificates and license are also required before practicing on the mainland.  Yet despite all of these inducements and known requirements, one major challenge facing foreign doctors could still be cultural issues in all aspects of working place.  For example, at international medical centers, different doctors from different countries and health systems may have different guidelines for both treatments and consultation approaches to patients.  Ultimately however, while they will need to take time to iron out the differences and reach a common ground, overall the medical principles, practices and ideas are typically similar at these private facilities.  Hence the increased popularity of their services.”

Yet while reforms of the public industry are still being carried out (as noted at the beginning of the chapter), Kahn and others I spoke with are of the opinion that the current reforms are relatively well thought out, that the overprescribing of medication can now be tracked and prevented by software that is being rolled out in pilot hospitals.  Similarly, he thinks the new changes in doctor training more in line with Western practices, (with China now piloting a 3 + 2 system for doctors to take 3 years in general practice medical study and 2 years of specialty application before being allowed to fully practice), will help prepare doctors that are better able to handle more maladies while boosting ER capabilities.  For example, prior to reforms, doctors were assigned to the ER, not because they had that particular skill – in fact many were specialists in other areas like internal medicine – but based on hospital administrative organizational management (e.g., politics).

And according to Kahn and others, one of the opportunities that health care professional can provide to all demographics in China is internationally recognized ‘best practices’ which mainland institutions are still incorporating and adjusting to.  Thus despite all of the issues, hurdles and problems there are still potential opportunities in a growing market.  After all, China’s healthcare industry is projected to reach $900 billion by 2020, up from $275 billion in 2010.71 For instance, last year two US firms (Medtronic and Stryker) purchased two Chinese medical companies (China Kanghui Holdings and Trauson Holdings) for nearly $1.6 billion.  Perhaps you and your company can provide consultations, services and training in this growing market or even acquire a local partner.

Medical tourism

Under the current reforms, the Ministry of Health has set a target to double the utilization rate and overall contribution of private facilities in China by 2015.  That is to say, the Ministry has set a goal by which private health care facilities will manage 20% of all inpatient and outpatient volume.72 Yet as Maggie Li also informed me, “for most Chinese people, they still trust local Tier 3 hospitals more than these foreign private hospitals currently because as a local residents can still oftentimes use a network [guanxi] to see the doctor that the patient would like.  For wealthier patients, they are also willing to choose to give birth to children in Hong Kong or in North America because these children would be the citizen of Hong Kong or US at the birth.  That is the dream of many families to give their children a foreign passport so that their children can choose freely where to study, live and work when they grow up.  Freedom is the best gift that parents can give to their children.”

Tier 3 hospitals are the largest and most sophisticated hospitals on the mainland (e.g., 500+ beds and advanced surgery and treatments).  According to one estimate, there are roughly 1200 Tier 3 hospitals now on the mainland.73

There is also a controversial ancillary service within medical tourism called birth tourism or maternity tourism.  For instance, more than a third of all births in Hong Kong in 2010 were to mainland mothers (32,653 babies) compared with just 620 in 2001.74 In 2011, this increased again as 44,000 mainland mothers had babies in Hong Kong.75  Yet beginning in 2013, Hong Kong policy makers have set a new, lower quota and will begin to bar mainland mothers from giving birth in the SAR.  For example, in October 2012, more than 400 mainland mothers were arrested for traveling to Hong Kong with the purpose of giving birth on the island and thereby gaining residency and access to services (e.g., birth right citizenship).76

In the US, while specific statistics are hard to come by, there are at least several independent maternity clinics that have sprouted up over the past several years to cater to Chinese mothers as part of the market for birth tourism.  While this is not illegal, it can be risky as there have been investigations and closures of several facilities.  For instance, a maternity clinic in Chino Hills, California was recently closed due zoning violations and another in San Gabriel was closed because “neighbors complained about noise from the babies.”77 Yet despite these known risks, many others cater to the increased demand.  According to one report from the Washington Post, the costs for this alternative route (flight, 3-month maternity stay, meals, delivery) is approximately $14,750; and the medical staff at some of the facilities speak Chinese.78 For example, a motel in Arcadia, California runs a makeshift maternity ward catering to Chinese mothers.  These women pay a China-based agency $25,000 “in fees for travel, medical, visa and other related expenses.”79 Another American business owner in New York interviewed by NBC runs a similar clinic and charges up to $30,000 for all expenses.80 The family of 4-month old Ada Lin, now in China, who was born in the now-shuttered clinic of Chino HIlls, paid $27,000 for all the expenses.81 And as noted in previous chapters, with a growing middle class, the 110,000 yuan price tag ($15,000) at many of these facilities is becoming increasingly affordable.8283

Again, while the legalities are still being sorted out and discussed, perhaps you and your firm can consult with potential clients.  After all, all of the Chinese women that do choose this option have received legal travel visas and are not a burden on welfare systems as their expenses are funded privately.  For example, according to NPR, some of these women and their families will use the occasion to buy luxury, foreign-made products (as noted in Chapter 11).  In one such instance, a mainland mother, “went to a conference in Las Vegas and bought eight pairs of designer shoes, for about $200 each, half the price they cost in China.”84 Another example was recently reported by NBC, who interviewed a new Chinese mother that had also gone shopping during this gestation period in the US and “bought an iPad, suits and dress clothing, luxury brand perfumes and baby clothes from brands like Polo by Ralph Lauren.”85 In fact, according to a 2008 McKinsey & Company report, between 60,000 to 85,000 medical tourists travel to the US each year to pay for and receive medical care out of pocket.8687 Perhaps you and your company can provide consultative services with these potential customers.

Takeaway:  Because of institutionalized incentives systems involving kickbacks and over-medication, there is a strenuous relationship between doctors and patients.  While a number of reforms to alleviate these strains have begun rolling out, other fundamental issues involving the calculation problem may place additional constraints on possible reforms and changes.  During this transition time foreign firms specializing in traditional health care may find a new consumer base – one that is increasingly wealthier – that is hesitant to trust domestic practitioners and institutions.


Endnotes:

 

  1. Heartless attacks from The Economist []
  2. Harbin court hears hospital attack case from Sina []
  3. Nurse and doctor stable in brutal stabbing from China Daily []
  4. Man killed 1, injured 4 at a hospital in E. China from Sina []
  5. See Doctor axed to death in N China hospital from China Daily and Female doctor axed to death in Chinese hospital from The Telegraph []
  6. See Patient-On-Doctor Violence In China Symptomatic Of A Sick And Crippled System from Economic Observer and Chinese man convicted of murder after stabbing four hospital staff from The Guardian []
  7. How to solve the crisis behind Bribegate for Chinese doctors from The Lancet []
  8. Survey shows 54% Chinese doctors take drug kickbacks from pharmaceutical dealers from HugChina []
  9. Sun Simiao was the Chinese “King of Medicine” whose text “On the Absolute Sincerity of Great Physicians” is required reading for Chinese physicians.  See Heal Thyself? from TIME []
  10. Netizen accuses Zhejiang doctors in new kickback scandal from China Daily []
  11. Patient’s knife attack raises security fears from China Daily []
  12. 调查称61%医生不喜欢自己职业 8成认为工资低 from ifeng []
  13. This number varies from state-to-state and specialty-to-specialty.  If other compensation and perks are added, this number increases as well.  See Occupational Employment and Wages, May 2011from Bureau of Labor Statistics and Physicians and Surgeons from Bureau of Labor Statistics []
  14. See Time Spent in Face-to-Face Patient Care and Work Outside the Examination Room by Andrew Gottschalk and Susan Flocke and National Ambulatory Medical Care Survey: 2003 Summary by Hing, et.al. []
  15. See New generations of Chinese doctors face crisis from The Lancet and 第四次医师执业状况调研报告 from the Chinese Medical Doctor Association []
  16. 医生职业满意度调查:七成医生不愿子女从医 from Sohu []
  17. See The Madness of China’s Mental Health System from Foreign Policy and Freud, psychiatry, and mental health in China by Evan Osnos []
  18. See Mental illness in China by Guo et al. and Mental Illness: Far More Chinese Have Mental Disorders Than Previously Reported, Study Finds from The New York Times []
  19. Mental health in China from The Economist []
  20. Plan to improve 550 psychiatric hospitals from China Daily []
  21. The heavy toll of depression in China from Caixin and失守抑郁症_专题频道_财新网 from Caixin []
  22. See 287,000 commit suicide in China each year from Xinhua and Care, Confusion and Depression’s Heavy Toll from Caixin []
  23. After heart disease and cancer, suicides are one of the leading causes of deaths in China.  Traffic-related accidents account for the largest amount of deaths of Chinese people under the age of 45.  In contrast, suicides have overtaken traffic-related accidents as the leading cause of injury deaths in the US.  For comparison, according to Xinhua “it estimated that there are 3.12 million new cases of cancer each year in China. There are 2.7 million cancer-caused deaths, which represents 13 percent of total deaths of Chinese people.”  Road Safety Problems Pose Dire Threat in China from The New York Times, Suicides Replace Auto Crashes as Top Cause of Injury Death from ABC News, Taking traffic regulations seriously from China Daily and Cancer in China influenced by pollution, poverty from Xinhua []
  24. The suicide rate for females was three times higher than for males.  See Women and suicide in rural China from World Health Organization and Alone but alive from Global Times []
  25. Meet the woman making China fashionable from The Independent []
  26. China’s suicide rate declines, but still poses a challenge from Xinhua []
  27. Facts and Figures from American Foundation for Suicide Prevention []
  28. Care, Confusion and Depression’s Heavy Toll from Caixin []
  29. China American Psychoanalytic Alliance []
  30. Report: US Tops China’s No.1 Immigration Destination from Caijing []
  31. See China’s Brain Drain at the High End by Cong Cao, China’s Brain Drain Dilemma: Elite Emigration from The Jamestown Foundation and China fears brain drain as its overseas students stay put from The Guardian []
  32. This trend seems to be changing however.  A more recent survey by Nankai University found that “[o]ut of 2.24 million overseas students from 1978 to 2011, 818,400 had returned after studies.”  And furthermore, “[a]mong those who had returned, more than half, or 429,300, had done so in just three years from 2009 to 2011. And 2011 alone registered 186,200 returned students.”  See Fewer Chinese overseas students staying abroad from Xinhua []
  33. See Rich Chinese want to buy happiness — by emigrating from Los Angeles Times and Wary of Future, Professionals Leave China in Record Numbers from The New York Times []
  34. The Real Reason China’s Super-Rich Are Packing Up and Moving Abroad from WorldCrunch []
  35. See More Wealthy Chinese Said to Prepare Exits from The Wall Street Journal and Fast track to the American dream from Chicago Tribune []
  36. Investors and investment companies should again, do their due diligence and be vigilant against scams.  For example, the SEC recently halted aninvestment scheme from an American (Anshoo Sethi) who fraudulently collected $11 million in fees from Chinese nationals seeking EB-5 visas.  See SEC Halts $150 Million Investment Scheme to Dupe Foreign Investors and Exploit Immigration Program from the SEC []
  37. This is not to say that all high-networth individuals (HNWI) become foreign citizens.  According to Boston Consulting Group, only 6% HNWI actually take up foreign citizenship.  One reason why is because of tax laws (e.g., US taxes income on a global level) and another is due to political considerations.  For instance, Zong Qinghou, one of the wealthiest persons in China gave up his US permanent residency after receiving criticism as having dual loyalties (he is a representative of the National People’s Congress).  It may also be cheaper to purchase investor visas and gain permanent residency through new programs offered in Europe (e.g., permanent residency in Cyprus is roughly $300,000 which is significantly cheaper than similar programs in the US and Canada).  See Why Some Chinese Should Rethink Value of Green Card from The Wall Street Journal and Why Wealthy Chinese Are Giving Up U.S. Green Cards from The Wall Street Journal []
  38. Foreigners to get key rights from China Daily []
  39. In his book The World is Flat, Thomas Friedman details the Indian brain-drain.  More than 100,000 Indians — most of whom are highly trained — emigrate to the United States each year.  A 2001 UN Development Report found that the “average total cost to India of educating each one of them was between $15,000 and $20,000.”  In turn, hundreds of these Indians create startups.  In fact, immigrants from India founded “more tech startups from 1995 to 2005 than people from the four next biggest sources — United Kingdom, China, Taiwan and Japan — combined.”  See Brain drain costs developing countries billions from CNN and Immigrants Behind 25 Percent of Startups from The Associated Press []
  40. 1,333 doctors migrated abroad last year from The Times of India []
  41. See China boosts investment in grassroots healthcare from China Daily and Are China’s Doctors About to Get a Major Salary Bump? from Asia Healthcare Blog []
  42. Heroes dare to cross from The Economist []
  43. Ibid []
  44. In Crisis of Abundance, Arnold Kling notes that when a patient has a cold or broken arm, that does not mean the patient necessarily needs to have immediate access to the most experienced doctor’s from the Mayo Clinic or Johns Hopkins.  Not every condition requires having a ‘Cadillac’ doctor.  And in many cases a patient could be fully served by a nurse or physician’s assistant – thus freeing scarce resources (doctor’s) to work with other patients.  Since medical professionals and medicines are all finite, scarce resources, allocating them has become the topic du jour.  A market-based allocation method involves prices and price signals that arise via interaction between market participants (entrepreneurs, investors, customers, suppliers) which continuously reflect supply and demand and would rationally allocate medical professionals in the most efficient manner (e.g., higher costs, lower usage; lower costs, higher usage).  Conversely, because central planners would subsidize and reduce the cost of an activity, more of those resources are being bid on – ultimately outstripping the supply of the resources.  Thus attempting to rationalize identical resources without organic prices effectively makes planners ‘blind’ – they cannot coordinate and know how, where or when to allocate resources.  All decisions would be made arbitrarily.  See What’s Really Wrong with the Healthcare Industry by Vijay Boyapati and Economic Calculation in the Socialist Commonwealth by Ludwig von Mises []
  45. Hospitals in China resist bid to reform drug sales from South China Morning Post []
  46. Doctor removes patient’s stitches immediately following surgery from Global Times []
  47. China plans new medical payment system from China Daily []
  48. In economic terms part of the costs are due to “rent-seeking” by monopolies and by other special interest groups through another term called “regulatory capture.”  See Rent Seeking: Some Conceptual Problems and Implications by E.C. Pasour and The Theory of Economic Regulation from George Stigler []
  49. Milton Friedman and other economists have explained that “price ceilings” (e.g., price controls) cannot inherently work due to the fact that the inputs and economic fundamentals underlying the demand for a product or service have not changed when artificial ceilings are implemented.  For example, if demand remains constant yet supply or the price at which suppliers are willing and able to provide a good or service decreases then a shortage will occur.  See An Interview with Milton Friedman by Russ Roberts and Price Controls by Hugh Rockoff []
  50. See Rent Seeking: Some Conceptual Problems and Implications by E.C. Pasour and Rent Seeking from David Henderson []
  51. Another source explained that many of these billing companies are set up in Anhui because its provincial tax codes are more competitive than others on the mainland with this specific industry.  This is different than the Anhui pricing model which was discussed in Anhui medicine wrong for China and The Stakeholders in China’s Hospital Reform both by Benjamin Shobert []
  52. Forty Centuries of Wage and Price Controls by Robert Schuettinger and Eamonn Butler []
  53. The Problem of Social Cost by Ronald Coase []
  54. China’s Pharmaceutical Price Policies and Practices by Ziyang Wang []
  55. This is very similar to how command economies of the Eastern Bloc and Soviet Union directly removed incentives like “profit,” replacing them with an arbitrarily set quota-based system. []
  56. China’s Medical Boom from TIME []
  57. See China opens door to foreign-owned hospitals from China.org.cn and China Opens the Door for Foreign Healthcare Providers from International Insurance News []
  58. United Family Healthcare and ParkwayHealth []
  59. Another industry first is a new home medical care service from UFH which includes doctor’s visits direct to customer homes.  See United Family Home Health []
  60. A bronchofiberoscopy-associated outbreak of multidrug-resistant Acinetobacter baumannii in an intensive care unit in Beijing, China from Xia et al. []
  61. See Antibiotics: Killing Off Beneficial Bacteria … for Good? from Wired, Gut-Bacteria Mapping Finds Three Global Varieties from Wired and The Wired Atlas of the Human Ecosystem from Wired []
  62. See Overuse of antibiotics concerns officials from Xinhua, Chinese ministry, WHO warn of antibiotic overuse from Associated Press, China further curbs overuse of antibiotics from China Daily, Government warns over antibiotic misuse from China Daily and Shanghai researchers discover how bacteria develop antibiotic resistance from South China Morning Post []
  63. When Penicillin Pays: Why China Loves Antibiotics a Little Too Much from TIME []
  64. Roberta Lipson, the founder of Chindex, was recently interviewed by AM 774 and noted that among other things, that it took some time to convince local doctors to give up their “iron rice bowl” (e.g., state employment for life) to work at the private facilities (xià hǎi).  Similarly it was a struggle at first to get Western medical practitioners to give-up their careers and move to Beijing and other UFH facilities.  See Thirty three years working within health care providing in China from AM 774 and The golden rice-bowl from The Economist []
  65. Private hospitals begin to nurse big ambitions from China Daily []
  66. Ibid []
  67. Another opportunity could be for manufacturers of ambulances and EMT equipment.  According to one report, Beijing needs 600 ambulances but is 100 short and thus ‘black ambulances’ have attempted to fill in this gap, much to the chagrin of various stakeholders.  See Shining a Light on Beijing’s Deadly ‘Black Ambulances’ from The Wall Street Journal []
  68. Private hospitals in China can’t tell tea from pee: report from Want China Times []
  69. Scandal brews over China tea-for-urine samples from Reuters []
  70. Doctor detained over NE China hepatitis C case from Xinhua []
  71. Chinese Healthcare Deals in Short Supply from The Wall Street Journal []
  72. See Healthcare in China: Entering uncharted waters from McKinsey & Co., Part 3: McKinsey Evaluates the Private Hospital market in China from Asia Healthcare Blog and Organized healthcare delivery should be the future of private healthcare, in China from Asia Healthcare Blog []
  73. Healthcare in China-A Trip to the Orient from Medical Tourism Magazine []
  74. Hong Kong to slam door on pregnant mainland Chinese from Reuters []
  75. Hong Kong to Limit Birth Quota for Mainland Chinese Mothers from NTD []
  76. Mainland Moms Get Jail Time in Hong Kong from The Wall Street Journal []
  77. Born in the U.S.A.: Birth tourists get instant U.S. citizenship for their newborns from NBC []
  78. See For many pregnant Chinese, a U.S. passport for baby remains a powerful lure from The Washington Post and Pregnant and Bound for America: Why Chinese Moms Want to Give Birth on U.S. Soil from TIME []
  79. Chinese birth tourism booms in Southern California from San Francisco Gate []
  80. Born in the U.S.A.: Birth tourists get instant U.S. citizenship for their newborns from NBC []
  81. “Maternity Tourism”: How Chinese couples buy U.S. citizenship for their babies from CBS []
  82. See High risks behind Chinese mothers’ giving birth in US from People’s Daily and Parents deliver US citizenship from China Daily []
  83. While the typical goal for this form of medical tourism is to provide an alternative educational and lifestyle plan for their children (e.g., allowing the easier access to US institutions) some of these children are actually raised on the mainland for many years while their parents work abroad.  See Left-behind American children in China from Offbeat China []
  84. Born In The U.S.A.? Some Chinese Plan It That Way from NPR []
  85. Born in the U.S.A.: Birth tourists get instant U.S. citizenship for their newborns from NBC []
  86. U.S. Hospitals Worth The Trip from Forbes []
  87. According to the National Center for Health Statistics, “births of babies on American soil to foreign mothers increased from 5,009 births in 2000 to 7,462 births in 2008.”  See Born in the U.S.A.: Birth tourists get instant U.S. citizenship for their newborns from NBC []
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