Sean Xiang:
Now we have alum chapters in Beijing, Shanghai and Hong Kong. Our goal is to keep Brandeis' community close. Alumni can support each other, especially to those new graduates and young alums. ChinaFocus@Deis is a series of alumni panels, where Brandeis alumni in China share their experience and the insights on a particular sector of the Chinese economy.
Sean Xiang:
In tonight's first installment of the series, we will be discussing China's healthcare sector and then we are honored to have with us Roberta Lipson, John Cai, Tao Wu and Grace Wong as our panelists to discuss this sector. Grace has some technical issue, I hope she will join us very soon. First of all, can each of you introduce yourself? We'll start from Roberta.
Roberta Lipson:
Good evening Sean, and good morning or evening everybody else, depending on where you are. My name is Roberta Lipson. I am a proud graduate of Brandeis Bachelor's Program in 1976. Since 1979, I've been in China first as an employee of a trading company then as the founder of Chindex International, then as the founder of United Family Healthcare, and now as the CEO of New Frontier Health United Family Healthcare. I'm really happy to be with you all, and I'm looking forward to our discussion.
Sean Xiang:
Thank you, Roberta. John, can you introduce yourself?
John Cai:
Okay. Good morning, good evening. I'm John Cai. I graduated from the Heller School PhD program in the health policy major in 1996, officially 1997 with the graduation ceremony. Afterwards, I work in Boston for a consulting firm, then for Massachusetts State Government in the Department Health and Human Services. I was involved in the Romney Care, the Massachusetts Healthcare Reform.
John Cai:
Since 2006, I start come back between China and the US. Until 2012, I came back full-time, work for business school called China Europe International Business School. Many years ago, I left CEIBS, I created my own consulting firm in the healthcare consulting.
Sean Xiang:
Thank you, John. Next, Tao Wu, could you just briefly just introduce yourself? Thank you.
Tao Wu:
Thank you. Yeah, good morning, good evening. My name is Tao Wu. My life is simple, for the first 23 years I stayed in Beijing. I was born there and I stayed in Beijing until finishing my college at Beijing University. Then, I went to Brandeis for graduate school.
Tao Wu:
For the next 22 years, I worked on a new technology for breast cancer screening called digital breast tomosynthesis, also called 3-D mammography. Actually I did my PhD project at Massachusetts General Hospital and after graduation in 2002, I stayed in MGH for another couple of years.
Tao Wu:
Then in 2005, I joined a company Hologic, probably some of you know that company. Working on women's health. I spent five years in R&D developing the product, then another five years traveling to Asia Pacific promoting this new product, new technology. Then there's some major changes with the company so I left in 2015 after 10 years serving the company.
Tao Wu:
I started this company in China about three years ago in 2017. This company, I call it DART Imaging, also working on similar technology like digital breast tomosynthesis, but in China and we have an optimized technology for the local Chinese population. So, that's what I've been doing. Nice to meet you here.
Sean Xiang:
Thank you Tao, and thank you all for your introductions. I think Grace also still has some problems, so we will let her jump in when the problem is solved. And for today's agenda, Roberta and John will first give 15 minute talk. Afterwards they will be joined by Tao Wu and Grace for panel discussion and end with 15 to 20 minutes of Q&A.
Sean Xiang:
Before Roberta's speech, please note that this event is being recorded. All attendees will be muted throughout the event. We received many questions in advance of the event and we encourage you to submit questions during the event as well.
Sean Xiang:
If you would like to ask a question, please write it in the chat to Brandeis Alumni Office. We look forward to getting to as many questions as possible. And now, without further ado, please welcome Roberta Lipson who will give a talk about her understanding on the Chinese healthcare industry. Thank you.
Roberta Lipson:
Thank you so much Sean. Well, good morning, evening again everybody. I want to share with you something about my own experience on my journey in healthcare in China, as well as my view of the market and the opportunities.
Roberta Lipson:
I began my journey to China almost 50 years ago when I got the bug to study Chinese, after getting the inspiration from my first Chinese history class at Brandeis. Back then, there was no Chinese department, only a spattering of relevant courses in the History, Politics, and Fine Arts departments. And no Chinese language was offered at Brandeis.
Roberta Lipson:
But because of the flexibility of Brandeis, I was able to piece together a major, get credit for my unstructured junior year abroad in Taiwan, and gain the confidence and foundation to embark on a lifelong journey that intricately wove my love of China and my interest in healthcare together with a strong thread of understanding that both China, and healthcare, and the US/China relationship are key importance to the future of world wellbeing and peace.
Roberta Lipson:
I've been blessed with an entrepreneurial career and the opportunity to build a business that responded to the unmet needs in the healthcare space over time. When I first arrived in China in 1979, it was just after the opening up of the country to Western business.
Roberta Lipson:
The country had literally been closed to the importation of modern medical equipment for the full 10 years of the cultural revolution. And before that, the only imports came from the USSR. China itself really didn't have a medical equipment industry to speak of.
Roberta Lipson:
As such, there was a crying need for every piece of modern medical hardware that had become essential to the practice of modern medicine over the previous 30 years in the rest of the world. Therefore, we were able to build a medical equipment distribution company that was able to answer the most basic needs, filling the gaps in medical imaging, diagnostics, and patient care.
Roberta Lipson:
Through the '80's, Chinese hospitals became increasingly well equipped, thanks to the efforts of our company and others from the industry that slowly began addressing the Chinese market. However, it was clear that there was rampant dissatisfaction with the care and the service that was available in the public system despite the fact that they had better and better hardware. And there was no private alternative except for a smattering of iffy stand alone STD clinics.
Roberta Lipson:
So, we saw an opportunity to meet a market need by providing a different level of healthcare services with the patient at the center of evidence-based service, but with equal respect and care for the medical professionals.
Roberta Lipson:
Of course there were no clear regulations about opening such a foreign invested facility, and no roadmap to make it happen, but we saw the need. At that point, we were a distribution company. Without a huge cash reserve there were no angels or PE (private equity) in China to turn to, so we had to do an IPO. We raised enough money to open our first small hospital in Beijing, and as many of you know, the rest was history.
Roberta Lipson:
We slowly built our brand, and as we expanded our services, now after being public on the NASDAQ for almost 20 years, a subsequent corporate privatization being listed again on the New York Stock Exchange in 2019, and now being on the road to a second subsequent privatization. We have a healthcare platform consisting of seven hospitals, going on nine, and 14 clinics as well as an internet hospital platform which is about to go live.
Roberta Lipson:
I tell you this history because I hope that through the history of our company you can have a window on the evolving opportunity of the healthcare market in China. Over these years, not only have consumer attitudes changed, and their appetite for products and services rapidly evolve from embracing all kinds of supplements, TCM, Western medicine, high tech interventions, gene and targeted therapies, and now all kinds of wellness and anti-aging services. And so has the governments policies and attitudes towards private participation, they've also evolved.
Roberta Lipson:
Evolution happens continually, but we have also seen some quantum revolutionary changes as a result of events such as SARS, which brought new approaches to infection control and hospital design, as well as huge increase in the demand for health insurance.
Roberta Lipson:
Health insurance premiums grew by 309% in the three months after the outbreak of SARS. We also observed that COVID-19 definitely improved public awareness of healthcare, which also leads to expansion of the commercial insurance market. And the more careful consideration on choices of health and wellness have become commonplace.
Roberta Lipson:
For example, in the first two months of 2020, the total premiums of insurance overall only increased by 1.1%, but health insurance premiums increased by 22.1%. After the Wenchuan earthquake, demand for air and land ambulances and emergency services and equipment skyrocketed. And in our COVID year, we saw consumer acceptance of online medical services, and the growth of internet hospitals growing at an unheard of rate.
Roberta Lipson:
Government policies supporting this new consumer willingness to go online also liberalized with unprecedented speed and efficiency. As of July 16th, 2020 there was 711 internet hospitals developed in mainland China. About a third of these hospitals were established at the beginning of 2020 as an emergency response to the COVID-19 epidemic.
Roberta Lipson:
The 711 internet hospitals consists of the following three types of facilities, 6% of these online platforms are government sponsored. 5.9%... Yeah 5.9% are government sponsored, and only 20% are started by hospitals. And the rest, the majority or 74% were started by purely commercial enterprises. That means Ali (Alipay) and various other platforms that may or may not be tangentially related to healthcare, or might just be online sales platforms, registered and started internet hospitals.
Roberta Lipson:
Anyway, the dramatic increase of internet hospitals in China has played an important role in the prevention and control of COVID-19. Internet hospitals provide different and convenient medical services for people in need. But I mention this because it's really an anomaly to see a whole new sector just grow out of almost nowhere in almost no time in response to an outside societal stimulus like the epidemic.
Roberta Lipson:
When looking at opportunities in the industry, one has be open to opportunities afforded through both changes on the demand side as well as to those afforded by changing government policies. Sometimes these two determinants of opportunity don't synchronize, and then it's the job of the entrepreneur to push along one side or the other, and not just be a passive reactor to the status quo.
Roberta Lipson:
Likewise, this horrific year of US/China relations has also brought challenges to those of us that are somehow related to the US, whether through our corporate identities, the origin of our technologies, or just by virtue of our Brandeis education. In this case, we must also not be passive bystanders to the situation.
Roberta Lipson:
Healthcare cooperation is one of the few areas that both business and the public on both the Chinese and US side have profited from over 40 years. From a business perspective, China healthcare market is huge. Overall healthcare spending was eight trillion yen or $1.2 trillion in 2020. Having doubled since 2012, and expected to double again by 2030.
Roberta Lipson:
Every major US pharmaceutical company and medical device company is in China, both through exports as well as local production. Pharma spending in 2019 was 1.8 trillion yuan. Also, growing at an average of 6% over the last five years and about 16% for the previous five years. The medical device market was about half a trillion in 2019 and almost doubled in 2020, which of course was a bit of an abirritation.
Roberta Lipson:
In China there are over 176 million people over the age of 65, up 50% since 2010. And the elderly population is expected to double to 360 million by 2020. Of course, this along with growing urbanization and lifestyle factors, contributing to fast growing rates of non communicable diseases including four million new cases of cancer per year, means the market will continue to grow at a rate that neither US industry or Chinese industry could ignore.
Roberta Lipson:
In my own field of medical service, the Chinese health system used to be overwhelmingly dominated by public hospitals. Now, although private hospitals still only provide about 20% of the medical care, well over 50% of the healthcare institutions are private. And they own more than 2.7 trillion renminbi assets. The opportunity for growth in this area is tremendous, and capital knows this.
Roberta Lipson:
In 2020 alone, there were over 150 billion yuan in new public market healthcare financing. People of not only the US and China, but much of the world have benefited from collaboration in drug discovery and development as well as international participation in the markets for medical devices and technology.
Roberta Lipson:
Companies on both sides have profited from being able to participate. China has increasingly opened its market, both to imports and investments. Although many foreign companies still rightly complain that they have yet to attain full national treatment either in tendering or in market assets. Yet, it would be impractical and almost impossible given how important the China market has become to any company's bottom line to walk away.
Roberta Lipson:
In fact, US companies owe to their stakeholders to continue to find ways to continue to engage China to improve market access and even the playing field. In the field of medicine and public health, academic, industry, and government collaboration have been a hallmark of the US/China relationship from the earliest time.
Roberta Lipson:
Until 2016, there were many robust collaborative programs led by the NIH, the HHS, and CDC together with China's pure institutions, which included work on training, joint research, and capacity building in epidemiology, emerging infectious disease control, and other areas.
Roberta Lipson:
Recently, this traditional strong point of the bilateral relationship has been greatly diminished, both due to the defending on the US side and increasing fear and distrust on both sides. Compare the way both countries successfully work together on the SARS outbreak of 2003, with a mutual suspicion and accusations we've seen in the past year over COVID.
Roberta Lipson:
In the period leading up the SARS epidemic, we had many experienced public health professionals stationed in China working on joint projects. After 2016, much of the relevant funding from the US government was no longer available, and so there were very few American medical scientists or public health experts in China when COVID-19 struck.
Roberta Lipson:
Those few who were here were fairly new and lacked relationships and access that could have helped avoid hundreds of thousands of needless deaths in the US and around the world. Part of the tragedy of COVID could have been avoided if both bilateral and multi-lateral collaboration in the field had not deteriorated so extremely over the four years of the Trump's presidency.
Roberta Lipson:
To add insult to injury, in April of 2019, the Trump Administration announced the US withdraw from the WHO. Previously, the US was the largest supporter of the one organization that with the right support, might have been able to coordinate a more effective response to the COVID challenge. When finally COVAX, a glocal initiative to address the equitable distribution of vaccines was launched, Trump made it clear that the US would not participate. China joined the alliance in October 2020.
Roberta Lipson:
Thankfully on January 21st, President Biden announced his commitment to rejoining the WHO and to supporting COVAX as a priority initiative. The importance of strategic stockpiles in case of medical emergencies has become clearer over the past year. US stocks of PPE and other urgent supplies have become seriously depleted. Our supply chains in these fields are in fact very mutually entwined. Decoupling them would most likely not solve this problem, but only exacerbate it by twisting supply chains in an uneconomic, inefficient, and unnatural ways.
Roberta Lipson:
Advanced strategic planning, reliable treaties, and collaboration could be a better way to tackle the problem. Not only do we all have a lot to gain from greater cooperation, both bilaterally and globally, but we have much more to lose if we avoid it. Of course it's not black and white, and we need to work together to assuage the paranoia on both sides.
Roberta Lipson:
Last month, I was fortunate to attend a reception for a so-called foreign experts in Beijing hosted by Li Keqiang (Chinese Premier). For most of the meeting he talked about China's openness and inclusiveness on science and development issues. We were all so pleased when he said, "Scientists have nationalities, but science has no borders." Sadly, this was followed by, "However, some technology might have to have borders due to IPR issues in a competitive world."
Roberta Lipson:
At the same time, the government cannot deny that consumers demand whatever therapies or technologies will cure their illnesses, no matter where the medicines or technologies originate.
Roberta Lipson:
We need to continue to work with both governments to ensure that we can have comfort in IPR protection and enforcement. Equal treatment, national tendering, and market access. Both China's cyber security law and genetics material law are impediments to collaboration in science, technology, and industry. Partially because they have been too broadly interpreted.
Roberta Lipson:
Paving the way to fuller engagement in medical science requires that these regulations be clarified and limited. On the US side, we have also work to do. Over the past three years, the climate in the US for academic exchange and scientific collaboration has been poisoned by the Trump sessions so called China initiative, in which the FBI launched 1,000 investigations in to alleged criminal activities by Chinese people or others with connection to China.
Roberta Lipson:
In many cases, Chinese academic students and scientists were racially profiled and some were falsely accused, often turning ethical lapses by individuals into accusations of illegal actions including spying. Implications were made that all of these allegedly illegal actions were systematically coordinated by the Chinese state. This turned the halls of research and academia terribly toxic for Chinese students and scientists, causing many to rethink the US as a desirable location for study and research. And potentially depriving the US of needed scientific talent.
Roberta Lipson:
The numbers of US students studying in China have also greatly reduced. This will make avoiding misunderstandings all the harder to avoid in the future. The world has made so many amazing advances in medicine over the last 40 years. Not in small part due to openness and international cooperation.
Roberta Lipson:
What has happened over the past four years to tear apart the framework, if not repaired, will not only stand in the way of progress over time, but could also lead to more immediate catastrophic consequences just as we've seen in the last painful year. Hopefully, the new Biden Administration and China's coming 14th Five Year Plan will see the importance of bridging the divide. Thank you.
Sean Xiang:
Thank you, Roberta for the passionate speech, we have learned a lot. And now let's welcome John to give his presentation about China's healthcare system after COVID-19. Thank you John, please.
John Cai:
Okay. Let me share my screen. Because most of my career time was in for professor school, so I'm used to use my PowerPoint. I'm glad to hear Roberta talk a lot about the international relationship, especially between the US and China. I'm going to focus on the China's healthcare system, especially after COVID-19.
John Cai:
So, I would like to give you a lot of basic statistics to show you the big picture of the China healthcare systems. So, that's the per capital healthcare expenditure in China. So the latest number we see, Chinese spent almost 5,000 RMB per capita. It's close to represent around 700 USD per person. We see the last 10 years, that increased pretty rapidly over the last 10 years. That's because after 2009, China started a new run healthcare reform, so government increased the expenditure on healthcare.
John Cai:
We see China spent on the healthcare expenditure represent about close to 7% of GDP. Compared to the US, this number is much smaller. US has spent about 18%, however US is an outlier, spent much higher than other countries.
John Cai:
Okay, that's per capita expenditures. We spent almost 5,000 RMB in the latest 2019. That represent about 7% of GDP in China. However, we see the last 10 years, the increased expenditure for the healthcare increased very rapidly. We see the gap between China different populations, especially between the urban and the rural population. So, these are the basic number to measure the healthcare status. We see the newborn infant mortality rate and the five under children mortality rate between the urban and China. So, the rural, the mortality almost double, more than double the urban mortality rate. We see the big gap in China right now.
John Cai:
So, this is the financing the China's healthcare system. We often call this three row and the three columns. In the middle row, that's the ballpark basic, we call the basic social healthcare program. We have three major programs. Two for urban, one urban employee, urban residents. And the rural population, the benefits and the financing number will be gradually reduced.
John Cai:
Urban employees, they have the best benefits. The rural populations do have the lowest benefits. So, on the bottom one, that's the medical assistance, that's usually for the really poor, these vulnerable populations. The top one is the supplementary, basically is the commercial health insurance. But that part in China is highly underdeveloped. Okay, so that's the basic financing structure.
John Cai:
Also, we see this chart, that's the financing those three major resource for the healthcare financing. And the top one is individual out-of-pocket payment. Middle one is the social health insurance, mainly it's the three major social insurance sponsored by the government I just mentioned. On the bottom one, it's the government developed expenditure. Government spend on the infrastructure, building, research, and some kind of direct payment for the public hospital employees.
John Cai:
So, we see the trends start from the 1978, that's the year China start the economic reform and the open door. So, we see the trend gradually out-of-pocket increase reached a peak time in the early 2000's. Over 6%. So people talk, the affordability is still basically related to how much people pay out-of-pocket. In the last 10 years we see the trend just reverse. The out-of-pocket payment gradually reduced to 28%. This percentage compared to internationally still not very low.
John Cai:
We know that in the US, the out-of-pocket payment, it's about 13%. The US, the per capita healthcare expenditure is higher, but most people if you have health insurance, the affordability issue will be minimized if you have insurance coverage.
John Cai:
Also, we see the number of hospitals in China, we see the trend in the last 10 years. China right now have 3400 hospital in total, including the private and public hospitals, including really large ones. They have, the largest one in China hospital with the 10,000 beds. The small one maybe only have a few dozen beds. So, we see the number of hospital beds right now over nearly close to seven million, the total beds. We see the trend in the last 10 years increase very rapidly.
John Cai:
Also, that's the medical beds per thousand population we see gradually increase over the last 15 years. So, we see just Roberta talking about the public and private sectors for the hospital. We see the total 3400 hospital, public hospital right now only account for about one third. Private account for two thirds, however you cannot just be deceived by this number. The private sector in China becomes so dominated. Now we need to look at the other three numbers, the proportion of hospital beds, outpatient visits, and the inpatient stays. We see the public hospital account to about 80% of the total healthcare market share.
John Cai:
So, that means in China for the healthcare services, public side still pretty dominant. Account to about 80%. Also, in China healthcare system we see a very long time, it's a very serious problem we call the inverse, upside-down pyramid. In tier three hospital, they tend to in US call the teaching hospital, tend to be large hospital, general hospital. On the bottom is community hospital. For a normal size, should be most patient, they should go to community hospital first. If they have a serious problem, they are referred to tier two and the tier three. Because in China, without the formal referral system, most people just directly skip the community hospital, tier two hospital, they direct go to the tier three hospital.
John Cai:
This phenomena in the last year, COVID-19, the Wuhan Hubei become a very serious problem. If people have symptoms, have a fever, they just direct go to the teaching big hospital. They create a crowded situation in the big hospital. Also, they create a problem like cross infections. So, the big hospital in Wuhan tend to be the all the physician, the beds become very crowded.
John Cai:
So, a lot of other countries, even they have a more infected patient than in China because they have a strong community hospital, people have to go to get first screened in the community levels. So, they are avoiding this kind of situation in Wuhan Hubei.
John Cai:
So, we show you some numbers. We see the large sized hospital in China after 2009, that's the year China start to have a new round of healthcare reform. So, we see over 800, the large size hospital increased most rapidly. These hospitals tend to be in the top pyramid. The small hospitals tend to be in the community levels. We see the large hospitals increase much rapidly than the middle sized and small sized.
John Cai:
Also, we directly see the number. I'm sorry, I forgot to translate into English. So, the large part, there's the outpatient, inpatient, the distribution among the tier three, tier two, and the tier one and the undefined tier. So, we see the really large portion is the tier three hospital. For the outpatient, account to 54%, for the inpatient, a tier three hospital account to 49%. That's in China. The tier three hospital, their number is smaller, the number, they only account to about 8% of the total 3400 hospitals. They only have 8%, however, because these kind of tier three hospitals, they tend to be really large sized. So, they really occupy the almost half of the inpatient/outpatient.
John Cai:
Also, we see after 2009, the increase rate for the tier three hospital, no matter outpatient/inpatient, the increase rate is most rapidly than tier two and the tier one than the undefined hospital. Undefined hospital tend to be private hospital, tend to be really small sized hospitals.
John Cai:
So, that means in China, even after new round of healthcare reform the government want to consolidate, want to strengthen the community level hospitals, we call the tier, in China call the fenjizhenliao (graded diagnosis and treatment), the tiering, the service. However you see the patient, they still skip the community hospital, they skip the tier two, tier one, they direct go to the tier three hospitals.
John Cai:
Also, then we see what's the reason behind this kind of upside down pyramid. We see the physician population ratio among the 10 countries with the most population in the world. The number, because the international number, they tend to be a little bit older. So, we see China, the physician population ratio tend to be in the middle. Between these 10 countries, much lower than the US and the Russian. A little bit lower than Brazil and Mexico. However, this number in China more than doubled than India. So, look at this number, China seems okay in the middle.
John Cai:
However, we look at physician education background, we see China close to four million physicians. However, only close to 60% of physicians with college and above education background. China still have more than one million so-called physician, they only have a two year college vocational school. Even they have high school, even the under high school.
John Cai:
So, in many, most of the country I believe you don't have a college level education, you are not even qualified to call a physician, MD's, right? So, China used to call it the barefoot doctor, but it's a surprise for most, even for the Chinese people. A lot of people even don't know we still for so many years, after 40 years it cannot make a reform and open door, we still keep so many barefoot doctors.
John Cai:
Because we know the healthcare we need the best educated people to be a doctor. To treat people, more important than to treat the other machines, the technicians. So, we see the paradox, it's very strange thing. On the one side we still need a lot of educated doctors to fill in the community level. But on the other side, we look at this number, we see this number after 1978, we break down into the first 10 year in the one rows. Also, the last row it's the most recent two years. We see the column is the medical and the pharmacy college graduates. In the middle row it's the amount this period that's increased to physician. So, this two number closely represent the physician supply and the physician demand. So, we calculate supply and demand ratio, we see the first 10 years with the one graduate, a physician... Yeah, one graduate students, physician increased more than about two. So that means more than half of the newly increased physicians, they are undergraduate levels.
John Cai:
We see the second row, it's these two numbers close to each other. The third row we see the 1998 to the 2007, that's the period where China really very rapidly increased the college enrollment. Also, including the medical school the enrollment increased. However, the definition of physician for this period, the Minister of China, the Minister of Health, they tightened the definition, so these physician numbers tend to be smaller than the previous year.
John Cai:
So, we look at 2008 to 2017, we see much more increased graduates than the physician. Even the last two years we see still a lot of newly graduated, the medical school graduates, they could be the clinical physician however they changed their career. They give up to be the physician, they're doing something else. Most people, they be the representative to selling the drugs for the pharmaceutical companies.
John Cai:
So, that's really the very strange thing in China. On the one hand, we really have a huge shortage of qualified doctors. So, that's why in China on the community level, so people don't trust the physician there. But on the other hand, we have newly graduated, medical school graduates, they could be the physician, they just switch their career. They give up to be the doctors.
John Cai:
So, then I'm quickly, due to the time. I quickly go to the impact after COVID-19, what's the major trend impact? So, I'm summarizing about the 10 trends, public health, and the preventive care versus medical care. Because in China, in the last almost 10 years, we really put a lot of strength, spent a lot of money on the medical care, however we don't put enough investment on the public health and preventive care. So, these kind of things, public health, preventive care, will become more important after COVID-19.
John Cai:
So, the second trend is the primary and the community care versus tertiary medical I just mentioned. Still most people go to tertiary care, but these kind of things will be after COVID-19, should have a gradual change. Primary care and community care will become more important.
John Cai:
Also, we said O2O online and offline. Last year, during the time, really COVID-19 because the offline, a lot of hospitals closed to the regular patients. So the online, the medical care online pharmacy, online healthcare insurance become more active last year. So, the online healthcare services will become more important after COVID-19. That's also mentioned, Roberta just mentioned.
John Cai:
Also, outpatient versus inpatient, we see the trend, especially after COVID-19, the more and more service, something can move out of hospital, go to the community care, home care, day surgery, third party service. Like a third party independent imaging, third party lab. A lot of things can be doing out of hospitals. That's also because last year, a lot of hospitals, they closed their regular service.
John Cai:
Also, the diagnosis become more important. Diagnosis versus treatment. Especially the last year related to the COVID-19 diagnostic, these kind of service become really very important. So, we believe diagnosis in the future for the preventive care, for the community care will become more important even for the critical care of the aging population in China. We believe the diagnosis could be even COPD, people could do some kind of simple diagnosis even in the community, even at home. So, diagnosis will become more important, this sub-sector of the healthcare will become more important.
John Cai:
Also, in the last year, COVID-19, the traditional Chinese medicine really play a very important role. We also see the trend is really right now is to help and to favor traditional Chinese medicines.
John Cai:
Also, software and hardware, I mean software that's made the medical health human services and information technology. I just mentioned China used to spend a lot of money on the hardware, on the infrastructure. They paid the doctor, they pay money on other people, on the nurse, on the public health staff, really not enough. So, that's made the healthcare career become not as attractive as in most of other countries. So, these kind of trend should be gradually corrected.
John Cai:
Also, private versus public healthcare. So, private healthcare in China, the last 10 years they gradually increased, especially the number of hospitals increased a lot. However, their service portion doesn't increase enough because private sector in China still couldn't really attract the most talented people from the public sector. We believe, we hope the trend will be... Gradually private sector in China will become more and more important because Chinese government, the budget become tighter and tighter. They don't have enough money spent on the public sectors. So, this is the trend we hope will be gradually changed.
John Cai:
Also, another trend we all the consumption medicine versus serious medicine. Consumption medicine, what I mean, people spent on the preventive care, especially last year. For example, the face mask. A lot of even preventive, the well. A lot of these kind of... nutrition. These kind of things become pay a lot of attention. They are not belong to the serious medicine, but this kind we call the consumption medicines. They will become more and more important because people will pay a lot of attention for the preventive care, for the family discounted preventive goods and services.
John Cai:
The last thing is the peace versus wartime. What I mean peace is the strategic medical supply system and some kind of logistic. Especially last year, most of the country, they found they have a problem. They don't have a good rations, they don't have a lot of drugs, medicine, they don't have preventive device. And a lot of supplies have a huge shortage.
John Cai:
Also, in China, I'll give an example. In Shanghai, at that time, in the Shanghai during early last year, they found in the warehouse we only have 300,000 face masks. In China, the medical staff almost close to that number. So that means only in the warehouse the face masks only could use one time for the medical staff. But, Shanghai government found the Hong Kong government... In Shanghai, they have a huge storage of the face masks. They have almost 15 million face masks in Shanghai, so that means that during the COVID-19, post COVID-19, Chinese government really start to pay a lot of attention to these kind of strategic medical supply systems in China.
Sean Xiang:
Thank you John for the very great speech, we really learned a lot from the Chinese healthcare system. And now I think we can get into the panel discussion. We have Roberta, John, and Tao Wu to join us in this panel discussion. And during the discussion, if anyone has any questions to ask, please just send out to the chat. That box.
Sean Xiang:
First question I have here is, China's birthrate dropped severely in 2020. It's the lowest in 20 years, and with just about 10 million new babies were born all year. Compared with 26 million in 1990. That's more than 60% drop. Adding to that, the aging population is getting larger with 250 million people over 60 at the end of 2020, and the number will be double by 2050. So, how do you think the Chinese plunging birth rates and the aging population will affect this healthcare system?
Sean Xiang:
Roberta, would you like to take that question for us? (silence). Okay, maybe-
Roberta Lipson:
Yeah. So sorry. All kinds of problems are going to come out of that. It's really something very, very scary. Not only if you look at the drop in birth rate in 2020, but it's been increasingly bigger drop for the last 10 years. So, where that's going to end up is going to be with not enough of a work force unless we do amazing things with automation. It's going to be a challenge to the economy, and it's going to be a challenge, a super challenge on the one hand to the healthcare system because of course people in the last part of their lives are much greater consumers of healthcare than in any other part of their life.
Roberta Lipson:
So, it's going to put a very big burden. On the one hand, on the healthcare system. On the other hand, it opens up all kinds of opportunities for healthcare providers. And it's definitely not only healthcare providers, but people who are meeting the consumer needs of those older people.
Roberta Lipson:
So, from our perspective where we were originally best known for making babies in a really nice environment and taking care of little babies, we have been working hard on developing our geriatric capabilities. And so every one of our hospitals now offer special packages for check-ups for people over 60 and specially customized design packages. We have hospice care, palliative care in some of our special facilities. These are things that really the market needs to look at in a really sensitive way.
Sean Xiang:
Thank you Roberta. John, Tao, do you want to add to that? Do you have anything more to say about the question?
John Cai:
Actually ask Tao because I just finished talking.
Sean Xiang:
Okay.
John Cai:
I add a few sentence because many, many years ago after I first went to the US, I see not many people in the shops, on the street. So, I really feel a huge, sharp contrast between compared to China. Because right now in China we... relative China still have more population than the US because the ratio between the younger population and the elder population, so that's a problem. We see Chinese government start to, just recently, to loosen the population control, especially in the Northeastern Provinces, in Dongbei (Northeastern), in China to start to allow people to have more. Because I'm afraid even you loosen the control, still people don't just... The willingness to give children substantially minimized.
John Cai:
The one major problem I think is the housing price in China, because that's a huge cost for people to have children. Because interesting, I just bought/moved to my first apartment in China, in Shanghai. So, right now I live in a very small 100 square meter, that's not a living range, that's called a construction range. It's about 800 square feet probably equal to the US. So, however this house, more expensive than the house I have in the suburb in Boston. But my suburb in Boston my house much, much huge than this one.
John Cai:
So, I just couldn't understand the reasons. We have such kind of high housing price. So if we don't resolve this kind of problem, I'm afraid no matter you ask people to have many children if you want, people really don't, they don't have the money to raise their children. I don't know how to resolve these problems.
Sean Xiang:
Thank you John. And Tao? You want to add something or we move to the next question?
Tao Wu:
Well, this is beyond my expertise.
Sean Xiang:
Okay.
Tao Wu:
I have only one child.
Sean Xiang:
Okay. You have made your contribution. Okay, I'll move to the next question. It looks China's healthcare system is a bit different than the US and the other Western countries. You won't see government representatives negotiating price with big pharma and making them face the toughest customer ever. What role does government and the private sector play in the funding of China's healthcare system?
Sean Xiang:
The first part of the question we want to discuss in terms of how healthcare systems, how healthcare treatment is funded in China. And the second part, we will discuss how do you view the healthcare startups and the venture capital market in China.
Sean Xiang:
I think the first half, John and Roberta, you probably have more experience to share with us.
John Cai:
Yeah, my-
Roberta Lipson:
John, you want to go first?
John Cai:
Yeah, my numbers really show some kind of big picture. So, in China the total, the proportion of the healthcare expenditure out-of-pocket amount to close to 30%. So, depends on what kind of insurance coverage you are. If you are urban, you have a formal job, there are employee programs. Especially if you have a good company, they provide some kind of implementary health insurance, probably you spend a small percent out-of-pocket.
John Cai:
If you are rural population, you spend a quite high proportion. I got an impression the number in the rural population you spend at least out-of-pocket equal to maybe half and half. Half is out-of-pocket, half covered by some insurance. If you have a really serious healthcare problem, you will be quite easily end up into the poverty. So, that's still quite a serious problem if you are unfortunately have a really big problem, have cancer or do some kind of big surgery. So, that will be still problematic.
Sean Xiang:
Roberta?
Roberta Lipson:
Yeah. Yeah, the numbers are the numbers. The amount of out-of-pocket participation from individuals is now something under 30% whereas John told us that the government was bout 30%. So, what's left is the other 40% or so, is paid by our employers. So, it's really the burden of society as well and comes out of the overall salary and benefits package of the individual.
Roberta Lipson:
So, in many ways you have to add the 40 ad the 30 together and that's juxtaposed to the government's 30%. So, the problem is that when you want to get contribution by the government's 30% or even the 40% that comes from your employer, you have to go to designated public hospitals. So, you can't bring that benefit to United Family and get treatment there, or even bring that benefit to United Family, pay extra and be able to get treatment there. Or buy supplementary insurance.
Roberta Lipson:
So, right now the government is only, for the most part, reimbursing public hospitals or hospitals that are willing to and able to charge the same amount for their services as would be charged in public hospitals.
Roberta Lipson:
So, there are a few exceptions. There are two exceptions in Shanghai. Our Tianjin hospital and our QIngdao hospital both have exceptions.
Roberta Lipson:
You did Sean, ask something I'm not sure I understood it about would we see the government negotiating with pharma companies on price. And the answer is yes. This centralized tendering for pharmaceuticals over the last few years is the really big bad scary thing going on for pharmaceutical companies. Volume based purchasing, which has gotten the price of many pharmaceuticals down substantially. I don't know, to even 10%. And also medical devices, maybe 10% or 15% of their formal price. And this is super scary for pharma companies, but I think it's worth noting that they're still willing to continue to do this business, so they must make some money at it.
Roberta Lipson:
But, getting that right for the companies and the government, and convincing the government that it's not only the very low price product that's going to be most efficient for them in the long run, that sometimes it's worth it to pay for a higher price product which will cure the illness quicker. Or have less side effects, or less toxicity. So, I think this is a dialog that's very popular now between companies and the government.
Sean Xiang:
Thank you Roberta.
John Cai:
Everyone reduced the price after negotiation with government is 50%. Pretty high drop, the price.
Roberta Lipson:
Yes.
Sean Xiang:
Yeah, that's why I say they target the customer there, they're facing. So, would you think the US will take the same strategy? To bring down the price? And what's the pros and the cons involving these kind of market activity?
Roberta Lipson:
Tao? Would you like to answer that one?
Sean Xiang:
I think Tao, I will leave him for the venture capital market. Seems he is the startup entrepreneur. Okay, so if nobody wants to answer my question we will move to the next one.
John Cai:
I could answer a few sentence.
Sean Xiang:
Okay, John please.
John Cai:
I don't think government will take the same strategy like Chinese government is now doing because the innovation of the pharmaceutical industry really is a very important stress for the United States. But mostly European country, like Canada, they negotiated price with the private sector. Maybe the US government will be, but they probably will do some kind of pharmaceutical, we call the health economic study to provide some kind of evidence. But I don't think the US government will directly will be doing something similar like Chinese government and the European government. The way they are doing.
John Cai:
I'm afraid in the foreseeable future I don't see this kind of possibility.
Sean Xiang:
Okay, thank you John. Tao, we see a lot of Chinese pharmaceutical companies going public in recent years, especially in chuangyeban (referring to the Shenzhen stock exchange), opening Shanghai stock exchange. So, will you share with us your experience in... I don't know if you have raised money for your startup, could you share some insights in that venture capital market?
Tao Wu:
Sure, yeah. Actually I work on medical equipment, not really pharmaceutical part of it. I founded the company in July of 2017 and in the same month we raised about $1 million US dollars funding the first round for purpose of developing the prototype.
Tao Wu:
And this funding is from 100% private, like a VC company. And then the next year, we raised the second round of financing for $6 million US dollars approximately. And for the VC, this round... I mean it's a private, but one LP (limited partner) is a government fund. The government fund only 20% of this VC. This is very typical in China, a mixture of private and the government funding.
Tao Wu:
As a return, because the government is LP of this VC, so they encouraged me to have a subsidiary in the local cities. That's where I am sitting now, in Zhongshan, Guangdong province. So, this can be a win-win prediction because of the local government. Be part of the VC and as a return they kind of attract startup companies to the local cities to create job opportunity, to create a tax, and also to kind of promote technology in the industry in the local area.
Tao Wu:
So, this is my experience in the fundraising, and I think this is very typical in China. A mixture of private and the public.
Sean Xiang:
Okay, thank you Tao. I'll move to the next question. How has COVID-19 and the worsening relations between China and the US affected healthcare collaboration between the two countries? I think everyone can share your opinion on that. Roberta, would you like to go first?
Roberta Lipson:
I think I mentioned that things have gotten really pretty awful. And how did COVID-19 make it more awful? There was already a terrible environment of mutual suspicion and there were already very few public health people in the country in China when COVID broke out. The US wasn't ready for it, it didn't have full information on what happened in China, and they made a mess out of the whole thing.
Roberta Lipson:
So, in response to the fact that we didn't help each other, the US blamed China on the COVID outbreak and China looked at the US and laughed at its response and lack of effective response. So, it was... Yeah, it was absolutely terrible. And this was on the background on the China initiative where Chinese academics were already feeling very put upon and uncomfortable. I think it was just absolutely awful.
Roberta Lipson:
At the same time, we were dealing with two new laws that also stood in the way of collaboration in health care. One being the human genetics material law and one being the cyber security law. And both of these laws have been in light of the mood of ultra-nationalism and concern about making a mistake that people will get in trouble for. These regulations have been interpreted in very broad ways.
Roberta Lipson:
So, whereas the human genetic material law says that you can't send abroad Chinese genetic material. So, we recently had a collaboration of collaborative research project where we worked with some American doctors to look at the quick approach to testing for cervical cancer. And through our screening and huge large scale screening, all of the cases where there were tissue changes, we took biopsies, took those biopsies back to Beijing, found out if the women needed further treatment, and had pictures of the tissue biopsies. Our partner said, "You can't send those pictures abroad because you'll violate the human genetics material law." But they were two dimensional pictures, there was no genetic material being included in it. You can't tell what the genetic makeup is of a piece of human tissue by looking at a picture of it.
Roberta Lipson:
So, it's those kinds of over-interpretations that get people super nervous and it really slowed down the results of an important research project. So, things like this happen.
Sean Xiang:
Thank you. Okay, so we'll move to the next one. What advice would you give alumni who wish to start a career in healthcare? Whether it be the first job of those looking to switch from another industry. John, I know you have a consulting company, which advice, the professional and also people who are not from the healthcare industry. Would you like to share something on that?
John Cai:
Okay. I work in China Europe International Business School. We have a lot of students, MBA students. They want to switch career, they don't have a healthcare background, they want to switch to the healthcare. They spent one half year at school, they will be able to go to my courses, also participating a lot of activity. They also do internship, they do a research project with the healthcare. So, I see quite a students after they spend one half years due to this kind of participating activity, go to lessons. They are to find to talk with alumni in the healthcare field. They are able to switch to healthcare.
John Cai:
Also depends on what segment of healthcare. If the pharmaceutical industry, some jobs really they need to have really training. Some of them they don't really, depends on what kind of sub-sector, also depends on what kind of function you are going to take. If you do some kind of human resource marketing, or something maybe you don't need a lot of specific knowledge for the healthcare. Some they do need more trainings than the others.
Sean Xiang:
Thank you, John. We also got a question from the audience. First question is, what role does traditional Chinese medicine play in China's healthcare? Is it wider used among the public and is covered by insurance? For example, is acupuncture covered by insurance?
Roberta Lipson:
Well, I'm a big believer in traditional Chinese medicine and all of our hospitals and clinics, we do have departments of traditional Chinese medicine. The hospitals of traditional Chinese medicine in the public system tend to be administered by separate administrations. So, the two fields are quite separate and it's very rare to find Western medicine doctors in China that believe in traditional Chinese medicine. And that's a shame because I see the best results where our Western doctors and Chinese doctors collaborate.
Roberta Lipson:
I think there was also a question in the notes that just some people ended up missing their diagnosis or missing a cure because they've stuck to traditional Chinese medicine. So, I think that responsible doctors of Chinese medicine know when to send their patients to a Western doctor. And responsible doctors of Western medicine should know when to call in a TCM doctor for certain cases.
Roberta Lipson:
And is it covered? Well, acupuncture is covered my commercial insurance. I don't know if it's covered by Chinese social insurance, Sean. You probably do.
John Cai:
Yeah, it's still covered.
Sean Xiang:
I don't think so.
John Cai:
It's covered. It's covered because almost in all the major Chinese hospitals, they have traditional Chinese medical, the department in China. It's quite popular to have... Also, after living in the US for more than 20 years, I first went back, it surprised me even all the young middle aged Chinese people, they really believe the Chinese medicine. Especially Chinese medicine for very good, for some kind of things, for preventive care, for some kind of injury. Some kind of things, it really have that effect.
Sean Xiang:
Okay, thank you. Second question is, could you please talk about the trend of abroad or online diagnosis and the treatment services which are provided by many agencies in China nowadays? How would these services, medical services provided by local Chinese hospitals affect each other in the future? Online diagnosis. Tao-
Roberta Lipson:
Yeah, I can do that. Yeah, so as I mentioned about 70% of the online hospital licenses have gone to places like Alipay, Ali, and diangxiangyuan (online community for health care professionals). Online services that are already doing online sales of other sorts and they've expanded into online medical services. Which I frankly think I weird, and they've been questioned about what is their motive and what is their objective. And for some of them, it's very clear. It's a way to sell drugs. So, mass market sale of pharmaceuticals.
Roberta Lipson:
So, that's one approach. The other approach is about 20% of the online hospital service providers are started by hospitals. There's been a lot of question about whether online facilities can only do second visits. They can't do the first visit diagnosing a problem. If you have a chronic disease, if you have high blood pressure and you want to check in with your doctor about medication, that's the kind of thing that's being done online and is very encouraged to do online.
Roberta Lipson:
Then, you can also just do general consultation online, which might not result in a final diagnosis and might just allative your fears until you can have an actual offline consultation. So, in our experience we get many new customers through our online services that would not necessarily would have walked into our hospitals ever before. And many of those customers will end up becoming our offline patients as well. And they appreciate the fact that they can have continuity of care when it's more convenient to go back online with their doctors.
Roberta Lipson:
Our existing patients also have taken up online services very intensively, but in almost every case an offline appointment is followed in a pretty short amount of time with an offline appointment.
Sean Xiang:
Okay, thank you Roberta. The third question, would you please provide some suggestions on how college and the masters PhD graduates can navigate their way through their careers in the healthcare field?
John Cai:
Ask Siri.
Roberta Lipson:
I'm sorry, is that question on the chat?
Sean Xiang:
Yeah, the third question is what's your advice for those who are looking for a career in the healthcare field?
Tao Wu:
Well, stay long enough.
Roberta Lipson:
We have a management training program, and every year we're taking young graduates or people who have worked for three or four years in related fields, and we have a one year management training program. So, if there are any people who are interested in healthcare service delivery, I guess applications should open up sometime toward the end of the year.
Sean Xiang:
Okay. (silence).
Sean Xiang:
Okay, I have a personal question that I want to ask Roberta and all of you. Because John is starting a consulting company, so he is also an entrepreneur. When you start your startup, start your venture, is there a hard time... What's the hardest time? And how do you hold up? And what's your takeaways? Thank you.
John Cai:
Yeah, although I start my consulting firm, but this is a not for profit consulting firm. But I'm also a US citizen, so I have a US passport. It will be difficult in China for foreigners to open a not for profit consulting firm because other consulting not for profit consulting firm you need to register and get sponsor for the one government agency. Because I spent many years in China, I get quite well known among the government department, and also among the healthcare industries. So, through a lot of efforts finally get approval by the government, by the Bureau of Health in Shanghai government. They are the sponsor of our thinktank. So, we are not a for profit company, we are not for profit thinktank. So that's why the process, the approval process is quite complicated.
John Cai:
But that's basically if you want to have a...no matter of if you are entrepreneur, no matter what you do, you need some kind of resource. You need money, you need a connection, some kind of support. Also, Roberta in China spent almost 40 years in China, have the United Family success, it's not the stuff on the one day, you need many years, accumulate your resource.
Roberta Lipson:
Can I- Yeah, I was actually... There are hard times all the time, and you just have to know that they'll pass. Yeah, often my hardest times are when something that's out of my control like government not wanting to give me a license or things that I actually can't control. But then you just keep at it and eventually it all works out.
Roberta Lipson:
But, one I noticed that Lewis Wolf, who is an acquaintance and I want to say hi to has asked the same question twice on the chat. So, I'd like to respond as I can to it. And the question is, a question about the anticipated future of institutional post acute settings and home care.
Roberta Lipson:
So, rehabilitation hospitals have become the flavor of the year over the last few years. We have one rehabilitation hospital that took a very, very... Well, because all of our facilities are aimed at the very high end of the market, it took quite a while for that hospital to take off. And finally it has and it's very well accepted and we offer a very broad range of services there from postpartum care, to orthopedic rehab, to stroke, neuro rehab. It's great, it's well thought of, but there is a much larger market on the mid to lower end.
Roberta Lipson:
In fact, our biggest investors, New Frontier Corporation has an investment in another company, which just does rehab hospitals and nursing homes. And they're doing very, very well.
Roberta Lipson:
And then of course there's also a big market for elder care. And you saw the way the demographics are going, how could there not be? And the government is very supportive and encouraging of anyone who wants to make investments in that area.
Lewis Wolf:
Thank you.
Roberta Lipson:
You're welcome. Hi.
Sean Xiang:
Thank you. Thank you Roberta. I think since Roberta already answered the fourth question. So, I think that will be all for today. Thank you all for joining us in this event and a special thanks to all our panelists for sharing their insights with us tonight. We look forward to seeing you at other virtual programs, so please continue to check your email, social media, and alumni website for details about the future events.