Credit: Jim McIntosh
Until two years ago, people in China who wanted medical care from Brigham and Women’s Hospital, an affiliate of Harvard University, had to take a 7,000-mile plane ride to Boston. That all changed in 2018, when the Boao Evergrande International Hospital opened on China’s Hainan island. The facility, a Brigham partnership with one of China’s biggest property developers, is focused initially on treating breast cancer.
Brigham is only one of a growing group of world-renowned American hospitals planting their flags in China. They are tapping into one of the world’s fastest growing health-care markets, one that is on track to spend $2.4 trillion annually on medical services by the year 2040, according to China’s National Health and Family Planning Commission.
The Cleveland Clinic has struck a deal with Luye Medical, a Singapore-based company, to set up a hospital in Shanghai. Mount Sinai Health System in New York has agreed to advise Taikang Healthcare on a 500-bed hospital in Nanjing. And the Rochester, Minn.-based Mayo Clinic, one of America’s top-ranked hospitals for cancer treatment and heart disease, has a partnership with Sir Run Run Shaw Hospital to operate a 2,400 bed facility in Hangzhou.
“For American hospitals, China represents an entirely new customer base,” says Benjamin Shobert, a health-care analyst at Microsoft.
As China grows more affluent, more people are demanding and willing to pay for high-quality health care — a trend seen first-hand by many top American hospitals as wealthy Chinese flocked to the U.S. for treatment in the past two decades.
The U.S. hospitals are coming to China at a time when the government is relaxing restrictions on who can provide medical care. According to a report published last year by Deloitte, the consulting firm, about two-thirds of the country’s approximately 35,000 hospitals are now privately managed.
While few American hospitals make detailed disclosures about their Chinese ventures, analysts say that most of the deals consist of lucrative consulting agreements in which American medical institutions provide support and advice on hospital management and clinical practices. In addition, Chinese hospitals often pay a hefty licensing fee in order to affiliate themselves with brand-name American hospitals.
Though China opened the door to wholly foreign-owned hospitals in 2014, few American clinics have opted to operate independently in China, since that might involve acquiring land, building their own facilities, hiring staff and getting the necessary approvals and a license to operate in a highly regulated Chinese system. Some hospitals also worry about unforeseen risks that they might face as independent operators. Instead, analysts say American hospitals typically enter China through consulting deals and partnerships with local companies.
One exception is Columbia Pacific Management, a Seattle-based investment firm that operates hospitals around the world, including two owned and operated in China and a third one under construction. The company entered the Chinese market in 2013 to build elder care facilities, but has since ventured into hospitals and clinics aimed at the middle class. “We deliver a very high quality international standard product to a middle and upper middle-class population,” said Nate McLemore, who oversees Columbia Pacific Management’s international healthcare investment portfolio.
Instead of Chinese state-run hospitals or local health-care providers, fast-growing private firms are forming most of the recent American hospital ventures. The private operators, including Chinese insurance companies, property developers and even entertainment giants, are more comfortable tying up with foreign partners.
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One of the biggest entrants into the field, for example, is the Wanda Group, which has a nationwide presence with residential properties, shopping malls and theme parks. The company has ventured to Europe and the U.S. to buy high-rise buildings, a European soccer club and AMC Theatres, the second largest cinema chain in North America. In China, Wanda is teaming up with the University of Pittsburgh Medical Center (UPMC) to develop five hospitals in China, with the first slated to open in Chengdu in 2022.
Wanda plans to invest $2 billion in the hospital venture over 20 years. The University of Pittsburgh Medical Center will receive management fees and a share of the revenue, according to Wendy Zellner, a spokeswoman for UPMC.
An even bigger push has come from the Evergrande Group, one of China’s largest property developers. The Hong Kong-listed company, with a stock-market value above $27 billion, has over the years diversified into everything from bottled water and electric vehicles to health care, with the Boao Evergrande International Hospital, its partnership with Boston’s Brigham and Women’s, one of the spots where Harvard teaches its medical students.
Credit: PAS China
The company, which is led by billionaire tycoon Xu Jiayin, has a longstanding relationship with the Boston-area institutions. In 2013, Evergrande donated an undisclosed amount to fund new initiatives: an immunological-disease center at Harvard and Brigham, plus centers for environmental-studies and applied mathematics and science at the university.
In 2019, when Evergrande entered the electric-vehicle market, the company said it was in discussions with Harvard to collaborate on vehicle research and development. In February, Evergrande agreed to donate $115 million to Harvard Medical School and the Guangzhou Institute for Respiratory Disease to establish a five-year collaboration to research Covid-19.
Although Harvard announced its intention to partner with Evergrande on the same day as the company announced its donation funding the research centers, the university has maintained that these two developments were unrelated. Dr. Mark Davis, a vice president at Brigham Health International and an associate professor at Harvard Medical School, told The Wire there was no direct connection between the donations and the hospital venture.
Privately run hospitals in China are on the rise partly because the state system couldn’t keep up with demand. “Chinese hospitals have not been able to increase the quality of care to satisfy the higher expectations of people in the upper-middle income class,” says William Hsiao, an authority on China’s health-care system and a professor of economics at the Harvard School of Public Health. This is partly due to the relatively low amount spent on medical treatment. In 2018, for instance, China’s health-care spending as a share of GDP was less than half that of America’s expenditures.
The Chinese population is also rapidly aging. According to the World Health Organization, the proportion of the Chinese population over 60 years old is likely to reach 28 percent in 2040, up from 12.4 percent in 2010. And this demographic trend is fueling the growth of hospital care in China, since the elderly typically require more medical services.
Chinese hospitals have not been able to increase the quality of care to satisfy the higher expectations of people in the upper-middle income class.
William Hsiao, Harvard School of Public Health
The government’s decision to relax regulations and encourage private investment in hospitals has been one driver of change. But analysts say that American hospitals are also attracted to the Chinese market because of their rapidly diminishing profit margins in the U.S. market. “Hospitals want to figure out how to increase their revenue and profits,” and collaborating with Chinese private hospitals is one way to do it, said David Chou, a hospital executive with experience working in the Chinese market.
For American hospital groups, collaboration with Chinese hospitals affords more research opportunities and expands their scope. “It gives American physicians a wider range of patients that have complex and complicated conditions,” said Harvard’s Hsiao.
China isn’t the only foreign outpost for American hospitals — the Middle East has been another region for projects. Last year, Mayo announced a joint venture to build a new 741-bed hospital in Abu Dhabi. And the Cleveland Clinic also opened a clinic in Abu Dhabi in 2015, in collaboration with Mubadala Development, a state-owned holding company.
In any country, the hospitals say choosing a partner is key to success. Dr. Arthur Klein, the President of the Mount Sinai Health Network, said before agreeing to a deal in China, Mount Sinai sent clinical, operational and administrative staff to China to see whether Taikang Healthcare could execute on Mount Sinai’s consulting. Additionally, Mount Sinai clinical leaders have met continually to vet the partnership, even after a deal was brokered. “This is a good book of business for us, as long as we choose our partners carefully,” Dr. Klein said, adding: “We are very careful in extending our resources.”
Despite the dollars added to the bottom line, American hospitals face significant challenges in their collaborations with Chinese hospitals. Chou said American hospitals have an uphill battle in these consulting arrangements. “They have to change the whole ecosystem,” he said. “It’s not changing one piece of it. They have to change how physicians see patients, how nurses practice, how IT works. The whole organization has to change, and that’s a tough task.”
Microsoft’s Schobert added that rising political tension could create further obstacles. He asked: “How do health-care services withstand the current distemper in the U.S.-China relationship?”
Dr. Klein of Mount Sinai sees reasons for optimism. At the beginning of the Covid-19 outbreak in China, Mount Sinai helped Taikang Healthcare supply critical protective equipment for its medical staff. And when the outbreak spread to New York, Taikang returned the favor. According to Dr. Klein, that incident illustrates the importance of global collaborations.
Executives at Brigham and Women’s Hospital have been encouraged to pursue other opportunities beyond the Boao Evergrande in China. “There is tension these days,” Dr. Davis said, “but that only shows the importance of working together.”
Katrina Northrop is a journalist based in New York. Her work has been published in The New York Times, The Atlantic, The Providence Journal, and SupChina.
