With this month's opening of Beijing (China) United Family Health Center, a U.S.-based company is proving that the Chinese wall keeping foreign hospital investors at bay can be hurdled.
It took the publicly traded U.S.-China Industrial Exchange, called Chindex for short, nearly four years to persuade 16 government authorities in China to grant needed approvals for the 43,500-square-foot primary-care hospital.
On Nov. 1, the company was scheduled to open what it says is China's first foreign-managed healthcare facility. The hospital is designed to woo Beijing's 80,000 Western expatriates and the local private-pay population.
With 1.4 billion people-one-fifth of the world's population-China's healthcare potential cannot be ignored. On the other hand, it takes a bit of finesse to get a foot in the Chinese healthcare market, which is worth $30 billion, according to an estimate by China's Ministry of Health. The ministry pegs healthcare spending at $25 per capita.
"First of all, the Chinese government is very reticent about having foreign investors involved in the healthcare area," says Roberta Lipson, Chindex president and chief executive officer. Lipson keeps offices in Beijing and the company's Bethesda, Maryland, headquarters. Because China lacks sophisticated standards governing hospital construction and operations, officials fear foreign-run healthcare enterprises will careen out of control, she says.
"We don't have in China a Joint Commission (on Accreditation of Healthcare Organizations) to help the government regulate those situations," explains Lipson, who also serves as chairwoman of Chindex's board of directors. China exerts control, she says, by making it difficult to obtain licenses.
Under Chinese government regulations, Chindex needed a Chinese partner to pursue the project. Instead of aligning with a government-run hospital, the company signed a 90-10 joint venture with a corporation controlled by the Chinese Academy of Medical Sciences, the nation's leading biomedical research organization.
The arrangement gives Chindex the flexibility it needs to establish an administratively independent, "Western standard" healthcare facility, explains Lawrence Pemble, the company's executive vice president. Plus, Lipson says, having a partner who knows the language and who can help pave the way for regulatory approvals is critical.
Chindex faced other barriers as well. By law, the construction and architecture firms on the project had to be Chinese, although Chindex also retained a foreign project manager and consulting architect. The difficulty came in communicating U.S.-based building-code standards and obtaining the right materials. "Nobody (in China) has even seen hospital-grade sink faucets," Lipson says.
"One area where we had a leg up is we're not an unknown commodity to the Chinese government," Lipson adds. Chindex is a novice in the hospital business, yet the company is known to Chinese buyers of foreign goods. The company's principal business is selling and marketing foreign-made medical products, mining and construction vehicles, and industrial machinery. Chindex, for example, has exclusive distribution rights to Acuson Corp.'s ultrasound imaging devices in China.
Last year, healthcare product distribution contributed 85% of the company's $22 million of revenues. But that may change because Chindex has made healthcare services a central part of its strategic growth plan. By the turn of the century, primary care is expected to contribute 30% of revenues and a significant portion of the bottom line.
Chindex spent a bit over $3 million renovating and equipping Beijing United, a four-story building housing programs in pediatrics, women's health and family practice. It financed the project from working capital, including proceeds from a $9.8 million public offering on the U.S. stock market last November. But the payoff should come quickly. Pemble expects the hospital to generate revenues of $200,000 to $300,000 this year, $1.5 million to $2 million next year and $3.5 million to $4 million in 1999. He thinks it will turn a small profit by the end of 1998.
Under General Manager John Rockett, the hospital employs 28 staff members, including an international mix of physicians. Each department is headed by a Chinese and a foreign physician supported by a number of local practitioners.
Originally, Beijing United was conceived as a place for Westerners based in China and affluent Chinese families to deliver their children. "We saw an opportunity for high-end healthcare," Lipson says. But local demand for broader access to primary care has broadened the hospital's scope of services to include family practice medicine.
Beijing United is only the first leg of Chindex's healthcare service strategy. The company hopes to build five more hospitals in China over the next several years and five outpatient clinics over the next 12 months. It recently hired an executive director of hospital development to spearhead future clinic and hospital development programs.
"I'm not aware of any other private or public hospital that's managed by foreigners," says Edmund K. Nelson, president of Nelson & Associates International, a Brookings, S.D.-based consulting firm specializing in international hospital development.
Measured by sheer physical access, China probably doesn't need more hospitals or clinics, says Helen Saxenian, a senior economist at the World Bank in Washington. "The country is pretty well served by its physical infrastructure," she maintains. According to a new report by the World Bank, titled Financing Health Care: Issues and Options for China, China has 3 million hospital beds.
What's lacking, Saxenian says, is financial access to services, particularly in rural areas. The report cites "deep divisions" in access between urban and rural populations.
Nelson, however, sees great need for modern buildings and equipment. "By and large the infrastructure of the hospitals (in China) doesn't match many other places in the world, and the money hasn't been available to buy the latest technology on a widespread basis for diagnostic and treatment services," he says.