China healthy province index final

A white paper from The Economist Intelligence

Unit Healthcare

China Healthy Province Index

© The Economist Intelligence Unit Limited 2014 1

Foreword 2

Introduction 4

China’s changing healthcare needs 7

The China Healthy Province Index 10

Box: Methodology for the China Healthy Province Index 10

Box: Ageing in China 13

Box: Consumer spending power 17

Box: Will building more hospitals improve healthcare provision? 19

Conclusion 21

Contents

CHINA HEALTHY PROVINCE INDEX

2 © The Economist Intelligence Unit Limited 2014

CHINA HEALTHY PROVINCE INDEX (CHPI)

ForewordChee Hew, Head of Greater China.Clearstate, an Economist Intelligence Unit Healthcare business

With a population of 1.3 billion spread over a vast geographical area, China can no longer be viewed as one single market in terms of market access. This is even more apparent in the healthcare sector, whereby huge disparities exist across China.

Asides from socio-economic factors, there are major variations across provinces in terms of the type of care needed by patients, how healthcare expenses are paid and what type of physicians and hospitals are available to patients locally. In response to healthcare reform started in 2009, provinces are also at different stages of piloting and testing new ways to improve accessibility and quality of care while reducing costs. This has resulted in additional complexity for companies operating in China’s healthcare sector.

With China poised to become the largest healthcare market in the next five years, healthcare companies are also now positioning themselves for sustainable growth. In recognition of the need for credible market insights, The Economic Intelligence Unit aims to provide a fresh view of healthcare in China, via this paper, by highlighting the “health” status of provinces.

Our global healthcare practice – EIU Healthcare, formed through the acquisition of two established and highly specialised healthcare-focused consultancies, Clearstate and Bazian- is aimed at providing validated in-market insights that can help healthcare companies to navigate through the changes in complex healthcare ecosystems, which can differ widely by geography, therapy area and product type.




Clearstate, a healthcare market insight and intelligence business, is a specialist in healthcare Industry advisory with existing, deep networks with stakeholders within the healthcare ecosystem, with rich experience and expertise in China. Bazian, a clinically led consultancy, is dedicated to evidence-based medicine, epidemiology, health economics and outcomes. We have meshed these consultancies together with our existing analytical, econometric and strategic consultancy division, which has strong macro and forecasting expertise.

The result is a practice that provides customised research, analysis and recommendations in the following areas:

l Market insight and intelligence: with global expertise, and a unique focus on emerging markets;

l Value optimisation: helping industry clients to develop propositions, products and services for a market where value is the emerging currency;

l Strategic advisory: analysing global and local trends and mapping these against clients’ priorities;

l Insurer and payor solutions: helping payors, insurers and their partners to build healthcare ecosystems that optimise value.

Aligned with our business direction, we will be releasing a series of whitepapers specific to healthcare industry to stimulate thought, discussion and feedback. We hope this whitepaper provides new insights to view the dynamic market and emerging opportunities in China. We invite you to share with us your feedback and to generate continuing conversations. Please contact us at [email protected]

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CHINA HEALTHY PROVINCE INDEX (CHPI)CHINA HEALTHY PROVINCE INDEX

Introduction

As China’s population transforms from one that is rural, young and poor into one that is urban, ageing and middle-class, its healthcare needs are morphing rapidly alongside. The government is in the midst of an

ambitious drive to provide universal access to essential healthcare by 2020. Alongside strong income growth and greater awareness, this will drive

demand for healthcare-related goods and services. The Economist Intelligence Unit (EIU) forecasts that annual expenditure (both public and private) on healthcare will have almost doubled on 2012 levels to US$900bn by 2018. China overtook Japan as the world’s second-biggest healthcare market in 2013, and is rapidly closing the gap on the US.

Although the market has vast potential, challenges remain. Regional disparities are vast: some regions are poorer than others, some more rural and others more polluted. There are large differences between regions in the amount of funding available for social insurance and the quality of healthcare infrastructure. This makes it a challenging operating environment for healthcare companies and professionals alike.

To help to grasp better the current realities in China’s vast and rapidly changing healthcare landscape, The EIU’s Access China service has developed the China Healthy Province Index (CHPI).

China’s Healthy Province Index

Health status The index pulls together a substantial dataset, including data and

forecasts unique to Access China, to provide policymakers, businesses

and other observers with a detailed healthcare profile of each of China’s

31 provinces. It ranks provinces according to which are best placed in

terms of resources and financing to meet current and anticipated local

healthcare demand.

Health awareness

Health resources

Health financing



Two of the subindices of the CHPI therefore relate to healthcare supply—the hardware and funding that support the provision of care. The first subindex, health resources, measures access to healthcare personnel and health service centres. The second subindex, health financing, assesses the level of financial support offered by the local government and spending on healthcare more broadly.

The other two subindices relate to healthcare demand—the characteristics of the population that will affect demand for care. The first subindex, health status, presents a composite snapshot of general health levels in the province, including life expectancy and mortality rates from select diseases. It also includes indicators relating to the determinants of health in a population, such as air quality. The second subindex, health awareness, measures the general level of health awareness in a province, as suggested by individual actions related to preventative care and overall education levels.

Key points from the report include:l China overtook Japan as the world’s second-largest healthcare market in 2013, according to EIU estimates, and it will narrow the gap on the US, which is comfortably the world’s largest healthcare market, in the coming five years. This estimate covers government and private spending.

l We forecast that annual expenditure on healthcare will reach nearly US$900bn by 2018, compared with just under US$450bn in 2012. Spending on healthcare in the US is forecast to stand at US$3.1trn in 2018, up from US$2.3trn in 2012.

l In the China Healthy Province Index (CHPI), Beijing, Shanghai and Zhe-jiang have the three strongest healthcare profiles when assessing the re-lationship between local supply and demand. Beijing boasts the strongest resources, financing and awareness of all the provinces, while Shanghai, as a rich yet less polluted metropolis, scored highly for status and financing. Zhe-jiang, which is also on the Yangtze River Delta, also recorded robust scores for status and awareness, as well as an adequate level of financing support.

China Healthy Province IndexFinal ranking

Rank Province

1 Beijing

2 Shanghai

3 Zhejiang

4 Qinghai

5 Gansu

Rank Province

27 Hubei

28 Henan

29 Yunnan

30 Hebei

31 Anhui



l In the health status subindex, provinces that perform most strongly are found in southern China, which generally has cleaner air and younger popu-lations. In the health awareness subindex, the richest provinces tended to score the highest, as they boast higher levels of education and their residents tend to go for more regular check-ups.

l In the health resources subindex, provinces benefiting from recent indus-try transfer, such as Anhui and Chongqing, or regions where the manufac-turing and urban boom took place earlier, such as Guangdong and Jiangsu, suffer from poor access, particularly to doctors and other healthcare person-nel. At the city level, the richer a region becomes, the worse the access to medical institutions. The health financing subindex presents a mixed picture. Some of the country’s poorest and most remote provinces score the highest, owing to strong central-government support. Central provinces, by contrast, score weakly as relatively limited resources prove insufficient to support their booming populations.

l Annual urban per capita expenditure on healthcare in Beijing and Tianjin in 2018, according to the forecasts incorporated into our index, will be more than double that in some central and western provinces, such as Sichuan and Guizhou. Some eastern provinces, such as Shandong, Jiangsu and Fujian, are forecast to have surprisingly low per capita spending on healthcare.

l In recent years the government has opened up parts of the healthcare sector to private-sector investment. Firms based in Hong Kong, Macau and Taiwan have been allowed to set up wholly owned medical institutions since 2012. Private companies, including foreign players, can potentially play a valuable role in the provision of a range of goods and services.

l Stresses in the system are mounting, as popular frustration over costs and access to healthcare boil over in highly publicised incidents of violence against medical staff. More reforms are under way to bolster provision, re-form pricing and deepen coverage, but they will take time to carry out.



China’s changing healthcare needs


In the past 20 years, China has made impressive gains in raising basic levels of health. Vaccination rates for children against common diseases such as measles and tetanus are among the highest in the world, accord-

ing to the World Health Organisation (WHO). The country’s infant mortality rate has fallen to just one-third of what it was in 1990. People also now live longer: the average life expectancy has risen from 68.3 years in 1990 to 74.9 years in 2013.

The health issues facing China’s population have altered rapidly as a result. The population is now mostly urban; China’s urbanisation rate surpassed the threshold of 50% in 2010, and is likely to cross 60% by 2020. Lifestyles in urban areas are more sedentary and stressful than in the countryside, and spur changes in diet towards processed foods and more meat. Rapid urban and industrial growth has also brought with it worsening air quality and water pollution. These shifts have created the conditions for growing rates of non-communicable diseases like diabetes and cancer, as well an increase in issues related to mental health.

China is also ageing rapidly. The proportion of the population aged over 65 rose to 9.7% in 2013, from just 5.6% in 1990. Ageing is the one of the main risk factors for the development of many types of cancer, and the risk of hypertension also increases as people get older.

Surveillance systems to monitor threats from infectious disease were strengthened significantly after the severe acute respiratory syndrome (SARS) epidemic in 2003. However, relatively weak sanitary conditions in many areas mean that infectious diseases remain a risk. The lack of continuous healthcare coverage for migrants from rural areas puts them at risk of diseases associated with rural poverty (such as schistosomiasis) as well as ailments related to crowded environments (such as tuberculosis).



Challenges aheadMeeting the challenge of China’s changing health needs will prove a daunting task. A drive to boost insurance coverage, launched in 2009, has raised the proportion of the population covered by some form of medical insurance to over 96%, compared with just 45% in 2006—a remarkable feat in such a short period of time. This is the first phase of an ambitious plan to provide universal access to essential healthcare by 2020.

But the coverage is shallow. According to a UK-based medical journal, The Lancet, participants in the urban and rural schemes remain responsible for more than 60% of their out-patient spending and more than 50% of in-patient spending. Out-of-pocket spending remains high, prompting government efforts to ban under-the-table (“red envelope”) payments to doctors. Many who are insured cannot reap the full benefits, as they live in a different place from where they are registered. Social benefits such as healthcare are tied to an individual’s hukou, or place of household registration.

In terms of relative healthcare spending, China remains far behind its developed counterparts. According to the WHO, healthcare spending as a proportion of GDP hovered at just 5.4% in 2012, compared with an average of around 10% in developed economies and a huge 18% in the US. Based on these figures, The EIU estimates per capita healthcare spending (public and private combined) at just US$284 in China, well below the average for Asia (US$414) and Latin America (US$892).

At first glance, China compares well with regards to public health infrastructure. The EIU estimates that China had 1.5 doctors per 1,000 people in 2011, roughly the same ratio as in Hong Kong and South Korea. The ratio

GDP per capita and healthcare spending, 2011

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,0000

2,000

4,000

6,000

8,000

10,000

12,000

Note: Size of the bubble equates to total healthcare spending.Source: Economist Intelligence Unit.

GDP per capita (nominal, US$)

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US Switzerland Norway

RussiaBrazil

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ChinaIndia

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is slightly ahead of Brazil (1.3) and well ahead of India (0.6). The number of hospital beds per 1,000 people is not far behind those of large developed countries, at 2.6 in 2011; Canada and the US offered 2.1 and 2.9 respectively. Part of this can be attributed to a spurt in healthcare-related infrastructure construction following the outbreak of SARS in 2003.

However, access is not distributed evenly across the country. Disparities persist among urban programmes in different regions, and between urban and rural programmes, as they are related to local-government financing capabilities and priorities. Newly qualified doctors tend to want to work in urban areas; those working in rural areas are often less well trained. Moreover, the rapid pace at which China’s cities have grown has put intense strain on facilities in the more popular destinations, but less so in others. Patients tend to seek care at larger hospitals, believing the treatment at lower-tier institutions to be of a poorer standard, which exacerbates the differences in crowding between city hospitals and county ones.

Stresses in the system are mounting, as popular frustration over the costs and access to healthcare boil over in highly publicised incidents of violence against medical staff. According to a state-owned newspaper, China Daily, the incidence rate of medical disputes has risen by 23% a year since 2002. More reforms are under way to bolster provision, reform pricing and deepen coverage, but they will take time to carry out.

Doctors per 1,000 people, 2011

Source: Economist Intelligence Unit.

GDP per capita at purchasing power parity (US$)

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The China Healthy Province Index


The EIU has put together the China Healthy Province Index (CHPI) to illustrate where the disparities lie for those operating in China’s health-care market. It compares, across China’s provinces, the characteristics

of the population that will affect demand for care, as well as the resources available to support the provision of it.

Methodology for the China Healthy Province IndexThe China Healthy Province Index (CHPI) is a tool to help businesses and policymakers to assess the dynamics of healthcare supply and demand across China’s 31 provinces. The index comprises four subindices: health status, health awareness, health resources and health financing. We incorporated a total of 22 quantitative indicators, chosen by EIU analysts and drawn from a variety of sources, to ensure that the index provides a comprehensive snapshot of the healthcare market.

Indicators within each subindex were given equal weighting. These indicators were first aggregated into component scores for a given subindex. The subindices were then aggregated to generate an overall CHPI score. The scores were then normalised on a scale of 0 to 100. The subindices for health status and health resources were each assigned a weight of 30% in the overall index, with health awareness and health financing given a weighting of 20% each. Although this weighting was chosen by The EIU to reflect what we considered to be the relative importance of factors determining healthcare supply and demand, the weights could be adjusted to suit individual client demand.



Beijing, Shanghai and Zhejiang exhibit the best-aligned relationships between healthcare supply and demand, according to the CHPI. Beijing is ranked at the top because it boasted the strongest resources, financing and awareness among all the provinces, while Shanghai, as a rich yet less polluted metropolis, scored highly for status and financing. Zhejiang, which is also on the Yangtze River Delta, also recorded robust scores for status and awareness, as well as an adequate level of financing support.

Surprisingly, these three rich regions were followed by two poor ones: Qinghai and Gansu. This is a reflection of how the better developed yet more populous provinces have weaknesses with respect to financing and resources. Poor provinces in the west are for the most part sparely populated, which eases pressures on local healthcare infrastructure and funding. Their populations are

China Healthy Provinces IndexSub-index Indicator Year

Health status Infant mortality rate 2010

Life expectancy 2010

% of population above 65 2013

% of population above 65 2020

Mortality rate of infectious disease 2010

Mortality rate of lung cancer 2010

Air Quality Index Jun-14

Health awareness % of pregnant women undergoing prenatal and postnatal

check-ups

2012

% of population aged 6 or older with high-school education

or above

2010

Medical check-ups per m population 2012

‘Health check’ keyword Internet searches Jan-Jul 2014

Health resources Medical personnel per 1,000 population 2012

Medical institute per m population 2012

Tier-three hospitals per m population 2012

Hospital bed per 1,000 population 2012

Patient visits per doctor per day 2012

Health financing Government spending on healthcare as % of GDP 2012

Out-of-pocket spending as % of healthcare spending 2011

% rural population enrolled in New Rural Co-operative

Medical Scheme (NRCMS)

2012

NRCMS funding per capita 2012

% urban population enrolled in urban medical scheme 2012

Urban Employee Basic Medical Insurance per capita 2012

Average healthcare spending per capita 2012Sources: China Healthcare Statistical Yearbook 2013; National Bureau of Statistics; Ministry of Environmental Protection; China 2010 Census; The Economist Intelligence Unit; Baidu Index; Ministry of Environmental Protection; Haver; Chinese Center for Disease Control and Prevention.



younger and more rural, and so suffer to a lesser degree the ills that beset an older and more highly urbanised population, such as lung cancer and diabetes.

Those that bottomed out the CHPI include the rapidly developing central provinces of Henan and Anhui, as well as the region immediately surrounding Beijing—Hebei. Access to resources and funding in these regions are especially low.

China Healthy Provinces IndexFinal ranking (100=Best)

Rank ProvinceNormalised index score

1 Beijing 100

2 Shanghai 79

3 Zhejiang 75

4 Qinghai 73

5 Gansu 73

6 Shanxi 72

7 Sichuan 72

8 Jiangsu 71

9 Shandong 71

10 Shaanxi 70

11 Liaoning 70

12 Tianjin 69

13 Fujian 68

14 Ningxia 68

15 Xinjiang 68

16 Guangdong 68

17 Guangxi 68

18 Inner Mongolia 68

19 Hainan 67

20 Guizhou 67

21 Tibet 66

22 Chongqing 66

23 Jiangxi 65

24 Hunan 65

25 Heilongjiang 64

26 Jilin 63

27 Hubei 62

28 Henan 62

29 Yunnan 62

30 Hebei 61

31 Anhui 54



Health statusThe health status component of the index is built on indicators relating to health outcomes (such as life expectancy, infant mortality rates and mortality rates from infectious diseases and lung cancer) and determinants of health in a population (such as air quality and the proportion of elderly citizens). It is meant to reflect the general health levels of the population in a province.

The provinces that top this category tend to be in southern China and have younger populations. Yunnan and Guangxi both have a sizeable population of ethnic minorities, among whom fertility rates are higher (ethnic-minority and rural families were subject to looser restrictions under the one-child policy).

Guangdong and the Pearl River Delta have long drawn the country’s young and mobile to work in their factories, which has kept the proportion of younger residents fairly high. Yunnan and Hainan have lower levels of air pollution, given their hitherto light presence of industry compared with provinces in central China. Beijing is ranked highly as well, as life expectancy is rated among the highest in the country and infant mortality rates among the lowest.

CHPI: Health status(100= Best)

Top 5 Bottom 5

Hainan 100 Qinghai 23

Shanghai 89 Heilongjiang 18

Guangdong 88 Liaoning 12

Guangxi 73 Hubei 4

Yunnan 71 Xinjiang 0

Ageing in ChinaChina is ageing rapidly, which will have a significant impact on the country’s healthcare profile. For example, older populations have a stronger tendency to develop cancer and hypertension. Results from the biennial China Health and Retirement Longitudinal Study (CHARLS), published in May 2013 by the National School of Development at Peking University, illustrated the extent of the problems faced by China’s elderly. Some 32% of those surveyed reported having poor health, while 33.4% experienced bodily pain and 38.1% reported having a disability.



% of elderly population

Source: The Economist Intelligence Unit.

20+

15-20

10-15

5-10

0-5

Not ranked

% of elderly population

Source: The Economist Intelligence Unit.

20+

15-20

10-15

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Not ranked

China's ageing cities(% of the population aged 65+)

2020

2010

ChengduMianyang

Dandong

Shenyang

Wuhan

Guangzhou

Xiamen

Nantong

Xi’an

Chongqing

ChengduMianyang

Dandong

Shenyang

Wuhan

Guangzhou

Xiamen

Nantong

Xi’an

Chongqing

The north-eastern part of the country will age the earliest, as inbound migration is minimal and fertility rates low. Inland prefectures that were traditionally exporters of labour to the eastern seaboard are also ageing rapidly. The working-age residents that moved away years ago are settling down in new cities and having families there, leaving the old behind.



Contrary to other aged societies, such as Japan, most of China’s elderly currently reside in rural areas. This population presents different challenges when attempting to improve care, as many are illiterate and few receive preventative care. This will change as those who now reside in cities grow older and more people move to the cities as the ongoing drive to urbanise continues. By 2020 the number of elderly will have doubled from the number in 2000 to 184m, and the majority will reside in urban areas. While this should in theory improve access to better care for the elderly, it will pose a heavy strain on resources in densely populated urban areas. Municipal healthcare services will have to be adjusted to reflect the changing needs of their demographic. Demand for care home facilities will rise, as cultural dispositions towards caring for the elderly at home gradually change. Accessibility to public transport systems will need improvement.

How local governments find the funds to improve their healthcare systems will be critical. As the old-age dependency ratio (the ratio of the population aged over 65 to the population aged 15-64) rises, there will be relatively fewer taxpayers to support the healthcare needs associated with an aged population. Regional administrations will probably have to find new fiscal revenue streams to meet this demand. A dynamic in which municipalities compete to attract working-age migrants who can widen the tax base could also emerge.


China population aged 65+ (m)

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2020201520102005 2000

30.040.7

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71.3

100.259.9

63.4

66.8

72.4

83.8



Health awarenessThe health awareness subindex measures the predilection of a population to seeking preventative care, which should in turn translate into better health outcomes.

It ranks provinces according to the average number of years in which an individual has been in formal education, on the assumption that higher education levels correlate with improved health awareness. The EIU also used proxies such as the percentage of women taking part in regular prenatal and postnatal check-ups to assess health awareness. An understanding that regular check-ups are conducive to detecting ailments increases the chance of an illness being discovered while it is still treatable.

For this category, there is a strong correlation between average income levels and overall health-related awareness. The richest provinces performed the best in this category. However, Shanghai posed a notable exception, as the proportion of women engaging in pre- and postnatal check-ups is among the lowest in the country. Poorer provinces generally have larger rural populations with lower levels of education, which translate into lower scores.

Health financingThe health financing category attempts to capture the degree of support available for a given province’s population when seeking care.

CHPI: Health awareness(100= Best)

Top 5 Bottom 5

Beijing 100 Yunnan 40

Guangdong 89 Qinghai 39

Zhejiang 84 Anhui 38

Jiangsu 78 Hainan 33

Sichuan 70 Tibet 0

CHPI: Health financing(100= Best)

Top 5 Bottom 5

Beijing 100 Jilin 12

Shanghai 93 Hubei 8

Tibet 61 Hebei 2

Qinghai 61 Henan 2

Zhejiang 53 Heilongjiang 0



The high headline figure for insurance coverage nationwide belies the large proportion of healthcare spending that users still end up providing out of pocket. Nationally, the proportion of total healthcare spending that was out of pocket figures at 34.8%. For residents in Beijing, that figure falls to just 25%, while in the neighbouring province of Hebei, it averages a much-higher 42%.

The amount of financial support that the government offers for healthcare spending should give some indication of either support for patient payments or the building of infrastructure to serve the population. Less-developed western provinces have been the beneficiaries of central-government support for social services, which explains the strong performance of two of China’s poorest provinces, Qinghai and Tibet.

Consumer spending powerPer capita annual expenditure on healthcare, which takes account of average spending in urban and rural areas, was used as one of the components of the health financing subindex. Total expenditure includes both public and private spending, and is one of the most telling indicators in terms of assessing consumer demand for healthcare goods and services. The data indicate that spending on healthcare services varies widely across regions, reflecting different levels of income and varying healthcare needs. This has significant implications for the affordability of healthcare goods and services in a given province.


Expenditure per capita on healthcare and medical services (Rmb)

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According to EIU forecasts, which draw on historic data, per capita expenditure on healthcare in Beijing and Tianjin in 2018 will be more than double that in a number of central and western provinces, such as Sichuan and Guizhou. Some eastern provinces, such as Shandong, Jiangsu and Fujian, are forecast to have low per capita spending on healthcare. In contrast, spending in regions where average incomes are much lower, such as Chongqing and Ningxia, is unexpectedly high, indicating that consumers are spending a larger proportion of their income on healthcare-related goods and services.

This may reflect that residents of some eastern provinces are more confident in their healthiness and less impelled to spend on related goods and services. Another likely factor may be that the spending power of migrants resident in such areas is restrained by problematic access to public health services.

Health resources Infrastructure has always been China’s forte, and the health sector is no exception. Hospital construction has taken place at a very rapid place in the past decade, alongside the broader construction boom, which has resulted in a fairly impressive proportion of hospitals and beds to the total population.

Northern provinces such as Liaoning, Heilongjiang and Shanxi have the strongest provision of medical institutes to the total population. Infrastructure investment and state-led development there has remained strong in the past few years. Access to medical personnel is high, helped by the fact that population growth and urban expansion have slowed significantly in the past decade.

By contrast, provinces benefiting from recent industry transfer, like Anhui and Chongqing, or regions where the manufacturing and urban boom took

CHPI: Health resources(100= Best)

Top 5 Bottom 5

Beijing 100 Guangxi 28

Liaoning 97 Shanghai 22

Shanxi 85 Yunnan 16

Qinghai 79 Anhui 15

Heilongjiang 78 Guangdong 0



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Will building more hospitals improve healthcare provision?Even though health infrastructure provision is strong in many regions, it is not always utilised efficiently. Those needing more advanced care tend to seek it at larger hospitals. Many believe the treatment at lower-tier institutions to be of a lower standard, which leads to overcrowding at some hospitals and empty beds in others.

China’s hospital system includes three tiers. Tier-one hospitals are small, and there are fewer doctors per bed than in hospitals at tiers two and three. These facilities largely operate on a township or village level, and offer a more limited range of services and medical devices. Tier-two hospitals are medium-sized, with 100-500 beds each, and generally operate at the medium-sized city, county or district level. Tier-three hospitals are the strongest, and offer a wider range of specialist services, operating at the city, province or national level. They are the largest facilities, with more than 500 beds.

On the whole, patient flows into China’s hospitals have risen. The bed

place earlier, like Guangdong and Jiangsu, suffer from poor access, particularly to doctors and other healthcare personnel. At the city level, the richer a region becomes, the worse its access to medical institutions.



utilisation rate—a government measure of hospital use—has gone up steadily since 2005, as wider insurance coverage has allowed more people to bear the costs of seeking medical care. The bed utilisation rate went up from 70.3% in 2005 to 90.1% in 2012.

Even so, gaps in utilisation between the three tiers of hospitals remain. The bed utilisation rate at tier-one hospitals has gone up significantly, from just 49.6% in 2005 to 60.4% in 2012. However, the gap remains large between that and the bed utilisation rates for second- and third-tier institutions, which have shot up to 90.7% and 104.5% respectively. The figures illustrate the overcrowding that affects the country’s best hospitals: tier-three hospitals, with a bed utilisation rate above 100%, are operating at well over capacity.

The construction of more hospitals will not necessarily ameliorate the uneven spread of patients. Hospital administration plays a strong role in affecting patients’ decisions, as does the availability of specialists and medical devices. As patients’ medical needs grow more complex, so will demand for more specialised care.

For example, heart disease is now the second leading cause of death in China, but cardiologists and the equipment needed to treat heart attacks are not available at tier-one hospitals or some tier-two hospitals. A survey published by the World Journal of Cardiovascular Diseases found that in 2010, only 18% of tier-two hospitals and 67.5% of tier-three hospitals had access to percutaneous coronary intervention procedures (usually known as coronary angioplasty), a procedure to treat narrowed arteries from coronary heart disease.

In countries like the US, emergency medical services are able to identify nearby facilities to which a patient needing these procedures can be sent. However, in China the system is underdeveloped. Patients’ current preference for tier-three hospitals is unlikely to change much unless better access to necessary care is provided.




ConclusionThe combination of rising demand and gaps in supply highlighted by the

CHPI points to plenty of business opportunities in China’s healthcare sector, but firms will need to remain keenly aware of disparities within

the national market. In many regions, much needs to be done on the supply side to meet the anticipated surge in demand, pointing to opportunities in areas such as hospital design and infrastructure. In other provinces, where the relationship between healthcare supply and demand is better aligned, there may be less demand for such services.

The CHPI highlights that a number of provinces have inadequate healthcare infrastructure for their needs. Guangdong province, which has a population of more than 100m, ranks towards the bottom of the index’s subindices for healthcare resources and healthcare financing. The province’s relatively young population has so far partly insulated its healthcare system, but rapid ageing, demanding middle-class consumers and continued inward migration are likely to exert a huge strain in the coming years. A failure to meet such demands could have implications for political stability.

As such, the province stands out as a place to do business for companies interested in developing private hospitals and clinics. There has been a surge of private-sector interest in building hospitals in China, as well as the privatisation of existing facilities. However, firms should keep a keen eye on where supply gaps are to be found. Investing in a province with an already well-developed network of healthcare facilities may deliver only limited gains.

Provinces that exhibit strong supply-side characteristics will not necessarily provide a surfeit of opportunities. Beijing, for example, scores strongly in terms of healthcare resources and financing. However, consumers in the region are also among the most demanding in the country, according to the subindices of the CHPI that evaluate demand-side factors. Their desire to see continual improvement in the quality of healthcare provision will drive opportunities for healthcare companies. Such regions may offer few opportunities to develop



hospitals and clinics, but there will be opportunities for firms that can help public hospitals to update their information technology systems and drive efficiencies through more effective use of data. Demand for private healthcare insurance, as well as advanced pharmaceuticals and medical devices, is also likely to be at its most firm in such regions.

The CHPI also serves to highlight some specific demand-related issues. Experience in providing elderly-care services will be vital across China as it becomes an increasingly aged society. However, as our demographic data make clear, demand for such services will be proportionally higher in some provinces than in others. The north-east stands out as a region likely to be burdened with a large elderly population, along with some parts of western and central China that suffer from the outward migration of their working-age populations.

Private companies, including those from overseas, can take encouragement from the fact that regulators appear open to investment. Although healthcare provision in China is dominated by the state, fiscal constraints and the overloading of public services have forced a reappraisal. In recent years the government has opened up parts of the healthcare sector to private-sector investment. Regulations for foreign direct investment in healthcare and life sciences are also relaxed in comparison with other sectors. In May 2014 the State Council (China's cabinet) announced plans to allow foreign ventures to hold higher stakes in joint-venture hospitals (they are currently limited to 70% holdings). Companies based in Hong Kong, Macau and Taiwan have been allowed to set up wholly owned medical institutions since 2012.

Nevertheless, as with many other business areas in China, the healthcare sector has its challenges. This has been highlighted by recent well-publicised bribery investigations into the activities of pharmaceutical firms, most notably GlaxoSmithKline (UK) but also some leading domestic companies, such as Sinopharm. This has been widely interpreted as part of an effort by the government to rein in prices. Profitability has been difficult to achieve in private healthcare service areas, partly owing to rules that require them to operate outside the public insurance system. Generics continue to benefit from official support—unfairly, in the eyes of some foreign firms. Businesses should also be aware that regulations in the sector also vary across provinces and cities. Compliance in a rapidly changing regulatory landscape will be challenging.

Although the opportunities presented by China’s healthcare sector are sizeable, the risks are plentiful. Vital to the development and maintenance of a foothold in the market will be market intelligence that allows firms to grasp supply and demand dynamics at a subnational level. This will enable them to pinpoint demand for their goods and services.



Access China Access China is a unique service that will help your business to succeed in China. It is the only single source of data, analysis and forecasts for all 31 provinces and 287 of China’s largest cities, providing you with a comprehensive understanding of the country today. More importantly, it will give you confidence that you will still understand China in 10 and 20 years’ time.

What will Access China allow you to do?

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Cover image - xtock/Shutterstock

China healthy province index final

Health & Medicine

yangtze river

highly publicised

economist

recorded robust

infant mortality

bed utilisation

general health

largest healthcare