UPMC to manage five hospitals in China
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October 28, 2019 06:15 AM

UPMC to manage five hospitals in China

Tara Bannow
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    UPMC and a partner broke ground Monday on the first of at least five private hospitals they will operate in China, in what UPMC calls the largest presence of American academic medicine outside of the U.S.

    The Pittsburgh-based academic medical center is partnering with the Chinese conglomerate Wanda Group to open at least five hospitals in five major Chinese cities. The first, in Chengdu, is expected to open in 2022; dates for the others haven't been set.

    "No one has actually been successful in importing a truly American or Western style of medicine into China at the scale in which we are proposing here or planning to go forward with," said Chuck Bogosta, president of UPMC International.

    UPMC won't pay for any of the construction. The Wanda Group is funding both the hospitals' capital and operating costs. UPMC will manage the facilities under an agreement with Wanda, for which Wanda will pay the health system "significant" management fees, Bogosta said. He added Wanda will also play a management role.

    A handful of U.S. health systems and other types of U.S. firms have tried developing private hospitals in China, with varying degrees of success. The country's public hospitals are struggling to keep up with demand, and its government has encouraged the development of private hospitals to ease the pressure. In 2014, the government announced it would allow wholly foreign-owned hospitals, up from a maximum of 70% foreign ownership previously.

    But foreign operators still face a number of barriers. It's a highly regulated area, and developing private hospitals in China takes a long time.

    For one, several Chinese government ministries are involved in getting hospitals up and running, said Lawton Robert Burns, a healthcare management professor at the University of Pennsylvania's Wharton School.

    "It's so byzantine, and they don't necessarily work together," he said.

    Jeff Bernstein, senior vice president of UPMC International and its country manager for China, said the approval process for getting hospitals built in China is not unlike what happens in the U.S. In any case, Wanda Group will oversee regulatory approvals, he said.

    Boston-based Partners HealthCare announced in 2014 it was in preliminary talks with two Chinese partners to build a 500- to 1,000-bed facility. It declined to share an update on that project. ProMedica in Toledo, Ohio, has also worked aggressively to expand its business in China, and is currently advising on three healthcare projects there. Cleveland Clinic last year announced an advising relationship on a hospital in Shanghai.

    More importantly, it's tough to convince physicians to leave prominent posts at public hospitals to work in private ones. And once they do, it's hard to go back.

    "It's kind of a chicken and egg," Bernstein said. "If there aren't enough patients in the private hospital, the public hospital doctor does not want to leave his or her position at the risk of losing patient volume, losing the prestige of a professorship and then a lot of these private hospitals aren't surviving."

    Bogosta and Bernstein said they don't think UPMC will suffer the same fate because it will place its own specialists in the hospitals it's developing. The doctors UPMC recruits to work in the hospitals can come from outside the organization, too.

    "The ideal profile would be a physician who has come to the U.S. or come to another country with a Western style of medicine and wants to go back," Bogosta said. "There's a lot of physicians that fit that profile."

    UPMC plans to recruit through professional associations like the Chinese Association of Orthopaedic Surgeons.

    Private hospital operators also struggle with the fact that Chinese patients don't trust their facilities and still largely view public hospitals, especially tertiary hospitals, as delivering the highest quality care, Burns said.

    "They eschew the smaller hospitals and the private hospitals because they don't trust them as much," he said. "That's a huge hurdle."

    The vast majority of people in China have public insurance, but there's also a growing commercial insurance market and large middle- and upper-class populations who view private insurance as a way to see doctors faster and in cleaner environments, Bernstein said.

    The average doctor visit at a public hospital in China lasts less than five minutes, he said. They will be much longer at UPMC and Wanda's hospitals, which will have roughly 400 to 500 beds, compared with roughly 1,500 beds at the typical public hospital.

    The first hospital under the agreement will be called the Chengdu Wanda-UPMC International Hospital. UPMC will be in charge of hiring the hospital's administrative team and clinical leaders. It will also train the staff. The other hospitals will be in "first-tier" cities like Beijing and Shanghai, Wanda Group wrote in a news release. The company, which did not return a request for comment, characterized those hospitals as the "first batch."

    The acute-care hospitals will be highly specialized in areas like oncology, heart and vascular, neurology and orthopedics, Bernstein said.

    This is the Wanda Group's first foray into healthcare, Bogosta said. Most of its business is in real estate, film, children's entertainment, sports and travel. The company generated the equivalent of $30.3 billion in 2018, according to its website.

    UPMC has been working in China for about eight years now, Bogosta said. Last year, the health system announced a five-year contract to help plan and operate a cancer center at a private hospital in Beijing. The health system signed its first medical services agreement in China in 2011, when it agreed to provide second-opinion pathology consultations to a diagnostic laboratory. UPMC also helped create an international medical center in Changsha and partnered with a women's hospital to raise its standards of care.

    UPMC is among the country's largest health systems, having drawn $18.8 billion in operating revenue in 2018. But like other health systems, it has struggled in recent years with a slim operating margin and has focused on building up its non-hospital businesses, like its enterprise arm. Bogosta said UPMC wouldn't be in the Wanda partnership if it didn't think it could generate margins to help offset the declining U.S. reimbursement market.

    But Burns, of the Wharton School, said he's seen many U.S. health systems announce international hospital operations over the decades—not just in China—and it's not clear that any have been successful.

    "I've seen this stuff come and go repeatedly," he said. "I'm not sure people get the message."

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