China's healthcare: The case for a joint approach

Over the past decade the speed of development in China has placed the country's infrastructure under increased pressure.

This is never more apparent than in the healthcare market, where, despite increased spending over the past six years, access to quality clinical services that respond to the wave of challenges China faces are far from what the population expects or needs.

Karen Prosser, head of the health sector at EC Harris Asia-Pacific [Photo/China Daily]

A growing elderly population, who tend to require more complex care, has increased the strain on hospitals, while the rise in lifestyle diseases such as diabetes, heart disease and cancer has created a need for more specific types of treatment and preventative care.

Furthermore, a growing affluent middle class demographic has raised expectations about the level of service on offer, particularly those who have worked or studied overseas and become accustomed to receiving top-class healthcare whenever they need it.

Rather than simply go to the hospital when you are sick, the Chinese population is increasingly interested in being more proactive in managing its health, all of which has led to significant interest in the development of international or private hospitals, particularly for patients who are willing to pay, either via insurance or with their own savings.

In order to capitalize on this demand, new solutions are being considered around how to develop, finance, deliver and operate the next generation of healthcare assets.

Since 2008, about 200 joint venture applications have been submitted for the provision of new overseas-owned private medical institutions.

More than 60 of these are operational today and the success of many of these projects has led to an increased appetite amongst Chinese and international developers, investors and operators, to pursue a similar arrangement.

This is particularly the case where such an agreement can help to secure access to land, funding of initial capital costs and expertise in construction, clinical and operational service delivery.

Case for investment

While joint-venture hospitals in China can be both profit and non-profit making organizations, the success of either depends on meeting a number of key factors.

First, given that the success of any organization will depend on attracting patients who are willing to pay a premium to see a doctor, it is crucial that the asset is located in a region where there are large numbers of people who have the ability to pay themselves or have access to private insurance.

The design of these hospitals must also be aligned with both the clinical services that will be delivered there and the wider market demand.

More efficient buildings don't just cost less to operate, but also require fewer employees, which is of importance given the current skills shortage in the Chinese market.

However, before these schemes become operational they need to be built, which inevitably requires funding. In order to secure investment in healthcare projects in China, developers must have a robust business case in place that provides an overview of the hospital's baseline operating costs, clear budgets from a capital and operational perspective, the expected patient mix along with the consequent income that will be achieved in the short, medium and long term.