DaVita Kidney Care, the dialysis arm of DaVita HealthCare Partners, is forming what the company is calling a first-of-its-kind joint venture kidney care specialty hospital chain in northeastern China to expand its global operations.
The chain, which will be in the Shandong province, will be owned by DaVita and Xiaoyi Zhang, president of Shunjing Renal Hospital. Shunjing is the only private hospital approved for dialysis services in the province's capital city of Jinan, China. Unlike a dialysis center, the renal hospitals will attempt to mitigate or delay the need for dialysis by addressing conditions like hypertension and obesity that are common among chronic kidney disease patients.
As a part of the deal, Zhang will become CEO of the already open DaVita (Shandong) Kidney Disease Hospital. The company is in the process of building another hospital.
The company has over 2,300 centers worldwide, including locations in 10 countries outside the U.S., serving about 184,000 patients. Its international business is a small, carefully-grown part of the company, and DaVita has made significant progress recently in India, Malaysia and Taiwan, said Dennis Kogod, president of the company's HealthCare Partners physician group subsidiary and CEO of the DaVita HealthCare Partners' international operations. The company had just two outpatient dialysis centers in China serving about 90 patients through a joint venture with 3S Bio, a China-based biotechnology company, as of June 30.
In 2014, DaVita lost $25 million on $1.14 billion in revenue from its international business.
“International entry is a marathon, not a sprint,” Kogod said. “A 10-year journey of navigating tricky markets, being very specific and deliberate, focused not on a bunch of dots on the map and picking our markets carefully.”
Strict business ownership laws have made it difficult for DaVita to expand in China since it entered the country three years ago, Kogod said. He said the process can often be difficult and complicated because healthcare is largely handled on the regional and provincial level.
But the government has since eased up in allowing DaVita the right to own a majority in a medical clinic and has expressed more willingness to reimburse dialysis treatment under its national insurance scheme, Kogod said. DaVita was given a permit for the first hospital about a year and a half ago.
Atul Mathur, president of DaVita in the Asia-Pacific region, said in a statement that chronic kidney disease is a growing health issue in China. The company cites a recent state-funded study in The Lancet, a U.K. medical journal, that estimates that as many as 120 million Chinese residents suffer from the disease, but only 12% are aware of their condition.
The announcement by DaVita comes as an economic slowdown in China has worried investors. Earlier this month, Moody's said the deceleration of the Chinese economy is more “marked and broadly-based” than expected, and policy support from the Chinese government is only expected to partly offset the ongoing downturn.
Medical-device makers have increasingly looked to China as a potential global expansion target as they face reimbursement and sales pressures in the U.S. Earlier this year, Boston Scientific Corp. saw China revenues increase 25% and became a shareholder in Suzhou China-based Frankenman Medical Equipment Co., a maker of products like surgical staplers.
Medtronic CEO Omar Ishrak has told investors that he expects see an annual growth rate in the mid-teens in the company's emerging markets. He predicted the developing world will be a $7 billion market opportunity by 2019.