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The Business of Healthcare in China

January 21, 2013www.AsiaHealthcareBlog.com

www.RubiconStrategyGroup.com

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The Opportunity

2009 investment by China’s central government of RMB 1.13 trillion into healthcare.

12th 5 Year Plan (5YP) has RMB 4.4 trillion planned specifically for healthcare.

Government plans to add: 150,000 primary care physicians in

next 5 years. 2,000 new county hospitals. 29,000 new township hospitals. 5,000 existing hospitals upgraded. 95% of all Chinese covered by

expanded national insurance. Expanded national drug formulary,

access to new diagnostics and medical devices for treatment of chronic diseases.

+A Sense of Scale

2003 2004 2005 2006 2007 2008 2009 2010 20110.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

0

5

10

15

20

25

30

35

40

China Government Healthcare Spending

Billion RMB YOY Growth (%)

+Where China’s Government Is Investing

45%

1%2%

9%

24%

7% 12%

Where China's 2009 Healthcare Reform Went

New Rural Co-Op and Urban Res-idents InsuranceInsurance Subsidies for Enterprises in DifficultyIndigent Patients Medical AidPublic Health Awareness In-vestmentPrimary Care & Public Hospitals Upgrade & ConstructionDrug SubsidiesOther

+The Opportunity What is going on within China’s healthcare industry is likely a

once in a generation opportunity.

Some estimates suggest the amount China is investing into the country’s healthcare system is the most amount in the shortest period of time any country has ever spent on its healthcare system in the history of the world.

The sheer amount of money and the number of means by which it is impacting the country’s healthcare system can easily cloud which parts are ready for foreign investment and expertise.

Some sectors are still not ready, even though the government would like to see improved infrastructure and know-how deployed there.

Before a company can determine if the market segment where they want to operate is ready, they have to consider whether they are ready to go to China and whether the capital they would like to deploy in China can be best spent there or elsewhere.

+For Company’s New To China

China should be a strategic, not purely opportunistic, pursuit.

The decision to go to China should reflect a holistic appraisal of internal capabilities, financial resources, and risk appetite versus other domestic or foreign investment opportunities.

The process of choosing should allow key management team members and other stakeholders to ask questions, raise concerns, and feel their input has been sought and incorporated into the final decision.

If a decision to go forward in China is made, your management team should have several different market access strategies presented with a comprehensive analysis of each, along with an idea on how to properly market your services to the Chinese consumer.

+A Disciplined Approach

Segments this analysis into four distinct questions: Question 1: Do we, as a company (management team &

ownership) have the bandwidth and cultural DNA to export our business model to China’s emerging healthcare economy?

Question 2: If yes, what is it going to take to export our business model? This is a resource and process question that isn’t specific to China.

Question 3: Could we more easily export our business to another country versus China? Here, the analysis begins to get China-specific, but also is looking at opportunity costs for China.

Question 4: If China is the right choice, what will it take to successfully export our company to China? What should we be prepared for, what can we do to avoid the typical China market entry errors specific to the healthcare industry?

+Some Factors to Keep in Mind

How the Chinese consumer …. Rationalizes healthcare

expenditures.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

15.5 15.9 15.7 17.0 17.0 17.9 18.1 22.3 24.7 27.2 28.6

25.6 24.1 26.6 27.2 29.3 29.9 32.633.6

34.9 34.9 35.9

59.0 60.0 57.7 55.9 53.6 52.2 49.3 44.1 40.4 38.2 35.5

How China Pays for Healthcare

Government Social Insurance Out of Pocket

+Some Factors to Keep in Mind

How they view “private” healthcare (≠ VIP).

How they view diagnostics, devices and drugs.

How they view services.

Gener

al M

edici

ne (C

heck

-Up)

Cosm

etic

Surg

ery

(Eye

lid S

urge

ry)

OB/GYN

Pedi

atric

s

Oncol

ogy

Cardi

olog

y0%

5%

10%

15%

20%

25%

McKinsey: What Drives Affluent Chinese into Private Healthcare

+Contact Information

Benjamin Shobert

Founder, Managing Director

Rubicon Strategy Group, LLC

Two Union Square

601 Union Street, Suite 4200

Seattle, WA 98101

Phone: 206-652-3572

Fax: 206-652-3205

Mobile: 317-777-2926

Email: bshobert@rubiconstrategygroup.com

URL: www.CrossTheRubiconBlog.com or www.AsiaHealthcareBlog.com