US Hospitals Continue to Explore Ways to Work with China

Across the United States, hospital executives are eagerly seeking out ways they can tap into the lucrative China market.  As we shared in late 2011, the prestigious Wharton Business School published an article which suggests that the opportunity for western expansion into the Chinese hospital market may finally be opening; however, the shifting sands that constitute China’s healthcare policies – which sectors the government is most concerned in, those it most needs outside help for, and yet others where it is reluctant to accept outside help in the form of private operators – still constitute large and unknown questions.

As the Chinese government works through its positions on these important questions, there are opportunities in China’s hospitals that forward-thinking American institutions can tap into today.  The most lucrative one may be the opportunity to offer US-based training to Chinese hospitals desperately in need of the expertise American institutions have to offer.  While this may seem a long way from the opportunity to manage a Chinese hospital, an idea that has been making the rounds within American hospital systems, it is an important first step towards building the relationship and know-how that will allow a US hospital to ultimately move very efficiently into broader opportunities within China’s hospital system.

I recently had the opportunity to speak with , the head of the China team at Miller & Martin, a US-based law firm where he has, among other things, headed up the legal team which worked on the first Sino-American equity joint venture in China (CHC Chinaco).  His firm is actively involved in helping American hospitals reach out to their Chinese counterparts as the US hospitals structure training programs for Chinese doctors.  Tim was kind enough to share his thoughts on how the ideal training program is structured and what to look for in finding the right Chinese partner.

Ben:  Can you expand on who the typical counterpart in China is for these training programs, and what the typical US-hospital based training is designed to cover?

Tim: Typically you would be dealing with someone in China who has a strong department in cardiology, oncology, women’s and children’s health, or orthopedics. Those would be the four most common specialties in China that reach out for training.  These are the areas where the Chinese medical groups feel they are most behind in terms of being able to intervene with western medical techniques.  The Chinese believe that Chines medicine has great strengths in terms of prevention and long term care, but that western medicine is stronger at times where you need to have surgery to intervene, or where there is something broken that needs to be fixed.

Secondly, these are also the areas they have the greatest demand for with an aging population.  As you pointed out in your recent Asia Times column, diagnosis of cancer often coincides with a fatality from cancer.  With cardiology they have things to deal with as simple as a stent, but you have to work out the economics and the procedure.  With women and children’s health issues, that is always of great interest in a country where families have a single child.  They don’t want anything to go wrong, so this becomes a very important area to be certain everything goes as best as it can.

The training program is primarily designed to place a Chinese physician in the actual setting where diseases that a physician faces in China are being addressed in the US.  It is not a passive teaching experience, but it is to be tied in with a major medical facility and usually a university or medical school so that the people they are engaging with are physicians facing the same problems Chinese are facing day after day.  This also ensure that the procedures they witness are those they want to perform, and the equipment they see being used is equipment they want to acquire.  This is not hands-on experience, but as close as it can be.  They also get to see how a hospital works in the United States versus in China:  what do nurses do, how is it laid out, what makes sense, what happens before and after surgery, who is responsible for these actions?  All of these processes are shown.  We also get to show them new things that are fully developed.

Ben:  What do the American hospitals take away from this exchange?

Tim:  It is going to vary by the institution, but at a minimum they make money on the training, so there is a financial reward.  The people who are involved in the training love working with people who want to learn, and who want to get better at what they do.  There really is no difficulty getting the surgeons to want to share what they do with other surgeons.  There is enthusiasm on their part by being involved with the biggest healthcare market in the world.

The way I see this developing over time is that you start wit training, build your institution’s name recognition and prestige in China, and you move on to consulting and managing – not just training – but you take on a new role where you are offering services to existing hospitals, consulting with regard to the cardiac care as an example, or helping to manage the cardiac unit for them, and you then develop a business of consulting and management.  Or, if you really are a for-profit healthcare facility, you can then work toward a joint venture of a specialty hospital, which is what one of our clients are actively involved in now.  Training is, in a way, the beginning of a path that can be a very significant business path, or it might also lead to joint research opportunities.  If you are doing research on any kind of equipment or drug, there are large numbers of potential test participants in China for whatever it is you are looking at.

Ben:  How did this training opportunity evolve?

Tim:  As we began looking at a lot of locations in China for JV hospitals in every circumstance one of the things that was most important to the Chinese partner was training in Western medicine in one of these four specialties.  We kept hearing this is something they want, and it became apparent we could speed up the delivery of that service without having to wait for the construction of a new facility, or the more complex negotiation of a JV.  The service of providing training could be done quickly so long as we were hooked up with a major university or medical institution in the United States.  Most medical schools have some sort of relationship in China underway now or at least thinking about it.  It was really a natural outgrowth of what are you really looking for and it was the easiest thing to deliver quickly.

Ben:  Describe for me the typical rationale of an American hospital manager / executive / entrepreneur who is exploring China.  What are their typical motives?  What are their biggest misconceptions?  Where do they need the most help?

Tim:  The most important thing is to ask what the Chinese partner really wants to learn ahead of time.  It is very easy especially for academics to put together a week of training that is wonderful training for something the Chinese physicians aren’t really interested in learning.  That doesn’t make them feel they had a great experience or increase the value of your institution in China.  You need field research in China to make sure you know what they are most interested in.  There is a lot of modern equipment in China that is not fully utilized.  That is an area where there can be a lot of learning just by seeing “that is what it is for” or “you can do that?” … those eye-opening moments.  The flip side is that we can learn a lot from what the Chinese physicians do as well.  They describe all sorts of experiences not common in the US medical system from which they have rough and ready knowledge we do not have.  Also, this is critical – a translator that understands medical lingo and that has some understanding of what they are in the middle of – you have to break through the language barrier.  It isn’t enough to have someone good at conversational Chinese; you need someone who will be able to explain to six Chinese physicians in an operating room gallery what is going on.

It is easy to over-estimate the complexity of putting together something that works.  Everyone you talk to says how hard it is to get things done.  If you are working with someone who has done it once before, it is not that hard to do it a second time.  Real care needs to be paid to the particular localities you are dealing with.  Each city in China is different, they each have their own local leadership at the health bureau and if they want the training to happen, it will happen, if not, no matter how clever you are it will not happen.  The best way is to work with alumni or people who know you well and see what connections they have with the local health bureau to help smooth the path because it is the health bureau that makes the decision, not the heads of the hospital.  Someone has to pay the money, and it is going to be the bureau of health and typically you will be paid in RMB in China, but depending on how well set the group you are working with, they ought to be in a position to receive RMB and manage the currency issues for the university or medical school.

Ben:  What goes into “picking your partner”?

Tim:  Start with somebody you know.  Start with an alumnus of an established American medical school who has stayed in touch, was well regarded and trusted at school, and has been somewhat successful in some area of medicine in China. It is very different than going to an investment banker; I would not do this.  I would go to a doctor, one you know because of the training they received in the United States and ask them what is going on.  Almost every city – fifth, fourth, second tier – all of them are trying to establish some trophy facility in some aspect of medicine that will be a world-class facility to meet the 5-Year plan goals.

So, they have the money, they already have hospitals that are not world-class and they need to have somebody to come in and work with them to make the facilities world-class.  For that they go to the big names. If you approach them through a respected colleague there is a chance or real communication between the head of the hospital and the head of the Bureau of Health and an intermediary who may or may not be part of the transaction, but is a trusted gatekeeper by both sides.  Then, of course, you have to get together.  You have to go to the facilities – you can tell so much by walking through the hospitals.  Then you know what the magnitude of the undertaking is.  You have to try a lot of times to find the right one – it is not an easy selection and some times you can get cross-purposes with other government policies.  The 5-Year Plan has all sorts of major policies, some of which could run counter to the Chinese hospital being able to work with a US-party; they may favor a Taiwanese party or European party.

Ben:  What is the role of the 12^th 5-year plan from point of view of hospital executives looking at building a China strategy?

Tim:  You have to be able to offer is the possibility of a world-class, first-rank program of some character.  It is very hard to say you are going to do a world-class hospital in all areas, so you are automatically forced into a specialty.  You need to listen very carefully to what the municipality wants to pursue; you don’t want to be the third city pushing a world-class orthopedic hospital.  Let the Chinese partner tell you what they want to pursue – where they are closest to being world-class and where they can get to quickest.  Each local head of the Bureau of Health is going to be judged based on the success of the venture, not just the success of the announcement, or how quickly you build your facility.  You have to show results, so I guess I would say to the US parties, don’t go with a set agenda except you are world-class and have a reputation for being world-class, listen carefully to where your Chinese partners think they can best advance, and if that coincides with where you can show real quality, then you have the makings of a transaction.  If not, you are pushing as square peg into a round hole.

Ben:  What is the role of privatization of Chinese hospitals, or of allowing doctors in state-owned hospitals to work one day a week in a non-state owned hospital?

Tim:  Now, we get to the subject of red envelopes.  Physicians need to be managed; surgeries need to be readied for them when they arrive.  The reputation of the surgeon is critical but, if you are going to manage the business, you need to be in charge of the compensation of the people who are being managed.  The DRG system is using the Anhui model and slowly ratcheting down on the indirect compensation of physicians.  But there is still a great deal of indirect compensation to physicians through red envelopes so their compensation is not in direct control of those operating the facility.  That is an enormous dilemma that has not yet been solved.

The Chinese government wants to solve it because the social safety net needs to be strong enough to people spend money instead of saving it, yet the only way to get the best surgeon (at least this is the thought) is to pay money straight to the physician and that is a problem.  If you are going to be operating a facility all you can do is increase the real compensation and eliminate the practice.   These red envelopes are provided by the family and the patients – it is not some heinous thing – many Americans have their own physician.  In China they will pay the very best heart surgeon to work on them; it will have nothing to do with Chinese reimbursement, it never passes through the compensation system of the hospital, it all runs ex-hospital.  That is certainly going to be one of the challenges in running an operation. If you are going to operate a facility, you need to have a full facility and so if the best physicians are all at one location so that location gets the reputation as the place to go if you have X, then it becomes extremely difficult for a general or specialty hospital to function in an efficient fashion, whether for profit or just as a matter of efficiency.

 For more information on Miller & Martin’s China training program, please contact Tim Perry.