Shaking Up China's Medical System

Bethesda Firm Breaks Into New Market With Western-Style Hospitals Catering to Wealthy

Paparazzi looking to snap photos of China's pregnant rich and famous often lurk near United Family Hospitals.

"In a way it's great soft advertising for us," said Roberta Lipson, co-founder and chief executive of Chindex International, the Bethesda company that runs the facilities.

And, in a way, it speaks volumes about how a foreign company is breaking into the heavily regulated Chinese health-care system by targeting the elite, who are willing to pay premium prices for premium care. Chindex has opened Western-style hospitals and clinics in Beijing, Shanghai and Guangzhou to cater to affluent expatriates and wealthy Chinese. Staffed by foreign doctors and some of China's top physicians, its fees -- as much as several hundred dollars for a single visit, compared with just $10 or $20 at a state-owned hospital -- are too high for most Chinese, who make that much in a month. Under Chinese government mandate, United Family Hospitals share 10 to 30 percent of their revenue with local Chinese partners.

While the company devotes half of its business to selling medical products, its exclusive hospital and clinic services are becoming the core vehicle for its expansion, as well as the target of competitors. United Family Hospitals are among the few foreign-invested medical institutions in China, and they have the "lion's share" of the market, said Cao Yanlin, a researcher at the China Academy of Medical Science and Peking Union Medical College.

By many measures, China offers strong medical care for its citizens. Its hospitals are inexpensive, well-staffed and well-stocked with pharmaceuticals.

But they treat patients with an assembly-line mentality. Patients often receive treatment in massive rooms packed with rows of wheelchairs. Even procedures like sonograms are conducted with little privacy, with other patients in the same room looking on.

In recent years, some wealthier hospitals, such as the government-run China-Japan Friendship Hospital in Beijing, have sought to shake the system of treating everyone the same regardless of how much they pay. They have creating new wings for more affluent Chinese clients, threatening Chindex's hold on premium care for the rich.

Chindex faces additional competition from better-known clinics that also target business and diplomatic expatriates, such as those operated by internationally focused firms like International SOS, Global HealthCare and ParkwayHealth.

To expand its patient pool beyond the Western expatriate community, who fill a majority of United Family Hospitals beds, Chindex plans to open hospitals in Beijing and Guangzhou in 2010 that are three times larger and employ an all-Chinese staff. The target: China's growing upper and middle classes.

"We're aiming our services to the Chinese consumer that likes to buy a Gucci bag -- a real Gucci bag," said Lawrence Pemble, Chindex's chief financial officer.

But this expansion also depends on the development of private health-insurance products, which are practically nonexistent in China. Chindex visits are not covered by China's state-run insurance. Chinese pay out of pocket, while foreign patients are typically covered under international insurance policies. An insurance product that would cover some or all visits to Chindex facilities would significantly increase the number of Chinese patients, analysts said.

The company, with government approval and a Chinese insurance underwriter, in 2006 launched a pilot program offering China's first comprehensive medical-insurance package so that large multinational corporations could offer the same health-care benefits to all employees, both local and expatriate. But the annual premium of about $5,000 per person per year is too expensive for most locals, said analyst Julie Chen of CRT Capital Group.