China’s enormous healthcare market continues to expand rapidly, driven by an aging population, economic growth and an expanding basic health insurance. In 2013, healthcare expenditure in China hit RMB 3.2 trillion, maintaining an annual growth rate of 17.2% over the past 9 years. Yet healthcare expenditure accounts for a mere 5.6% of GDP, in comparison with a high-income country average of 7.7%. Given population trends and consumption patterns, it is evident that there is room for promising growth in China’s health care market.
At the same time, health policy is undergoing extensive reform. The government has been focusing its efforts on ensuring the availability of basic medical services for the whole population, while encouraging private capital investment to improve service quality and meet the public’s diverse and complex needs.
Deepening reform efforts are bringing new opportunities to invest in the healthcare market and bring profound change to the healthcare landscape.
Private hospitals, which remain a minor player within the healthcare system, are in a phase of rapid growth thanks to powerful policy support. By leveraging the power of both industrial and institutional capital, private hospitals will realize accelerating integration and market expansion, and improving management capabilities, technical expertise, service quality and scale-oriented operation. Nevertheless, the rapid market expansion will bring greater risks for which careful decision-making is essential. We believe that private hospitals should carefully consider the local economic context and competitive landscape, as well as healthcare and tax policies, to determine the appropriate strategic plan.
We identify four promising growth areas. First among these is premium healthcare. The high-end healthcare market will extend into lower-tier cities, while main customer groups, on which key specialties focus, will shift from middle-class to high-end customers. At the same time, services that integrate medical services with tourism are also expected to grow. Second among these is specialty chains. Specialties that are more reproducible and deliver higher service quality are expected to be hot spots for investment. Meanwhile, with hospital reform, particularly with increased medical professional mobility, private hospitals will be able to enter specialty areas that previously held high technical barriers.
Third, general hospitals have high barriers to entry given its greater requirement for funds, talent and management. This also means that these hospitals with high public standing will be hard to duplicate with an apparent first-mover advantage. Based on these observations and the obvious supply shortage, we will see greater interest in investment in general hospitals over time. In addition, increased emphasis on quality of life and health services will accelerate the development of the health sector; the rapid development of health capital markets, and the interest of traditional medical institutions towards telemedicine, mobile health and wearable devices is evidence of this change.
Public hospitals are expected to hold a dominant role in China’s healthcare system, providing 90% of healthcare services and retaining a strong pool of talent and medical resources. However, national health reform is forcing public hospitals to overhaul their revenue streams, improve their service efficiency and cut costs, while painting a new reality where both patients and clinical talent flows towards private hospitals. In the face of this brand new world, we suggest that the public hospitals work on the following five aspects: construct better performance management systems, improve the patient experience, introduce marketing management systems and establish a solid relationship of mutual trust with patients, encourage standardization of medical services and clinical processes, and optimize and integrate hospital information systems.