Bethesda Firm Breaks Into New Market With Western-Style Hospitals Catering to Wealthy
By Kendra Marr and Ariana Eunjung Cha
Washington Post Staff Writers
Monday, June 23, 2008; D01
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.
Lewis Fan, an analyst with Brean Murray Carret & Co., questioned whether wealthy Chinese are willing to pay top-dollar for health care.
"I have my reservations whether they can get away with that kind of pricing," Fan said.
Earlier this month, following Chindex's $2.7 million fourth-quarter loss, investors backed away from Chindex stock, sending shares down nearly 30 percent to $6.17 that day. The company blamed the loss on one-time interest charges that it gained when it converted a J.P. Morgan bond that quarter and foreign exchange adjustment.
Its medical products division has experienced losses over the past three years caused by delays in product approvals from the Chinese government and the government's recent crackdown on imports that has caused many would-be equipment purchasers to stop buying.
Yet, the company's quarterly revenue rose 40 percent, to $34.6 million, and revenue for the year rose 23 percent, to $130.1 million. The stock has begun to climb again.
U.S. analysts credit the strong health-care services market.
"We expect China's healthcare environment will continue to grow as the Chinese government increases its healthcare spending budget in order to improve the quality of healthcare for the overall 1.3 billion population," Chen wrote in a research note.
Analysts and Chindex officials pointed to other factors that could help the company: pending regulatory approval of advanced robotic surgery tools, China's baby boom and Chindex hospitals' strict privacy rules.
Though competition is mounting, analysts doubt Lipson's influence in China is about to wane. She is one of the few entrepreneurs to navigate China's heavily regulated world of health care.
"What was available was so inadequate," Lipson said. "It was my moral imperative, something I just had to do."
In 1981, Chindex was one of the few companies to enter China's newly opened economy, pioneering importing Western medical equipment. In 1997 Chindex introduced private, for-profit health care.
"A lot of people have tried and it didn't work," Fan said. "But she succeeded."
Cha reported from Shanghai. Researcher Wu Meng in Shanghai contributed to this report.
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