This article was published by Insight in April, 2016
Private sector firms expected to play key role in enabling advancement across China, says PwC analyst
By Mark Gilbraith
China is entering a new era in medicine, in which healthcare systems will manage more treatments and cures than ever before. Budding technology such as mobile health and data analytics offers smart options to old problems. Yet core challenges remain, not least in accessing affordable care.
For China, the situation is framed by a context of development, where economic growth and urbanization have come with changes such as new work patterns and physical activity, together with an aging population. Such trends have contributed to increases in noncommunicable diseases (NCDs). To present an idea of the scale, the World Health Organization (WHO) documents that in 2012, there were 38 million deaths worldwide from NCDs including 8.6 million in China alone. In terms of finance, data from the WHO show China's total expenditure on health was 5.6 percent of GDP in 2013.
Commitments to meet the national health challenges were noted by Premier Li Keqiang in March during his annual work report at the National People's Congress. The report calls for coordinated reform of medical services, medical insurance and the medicine industry. This will translate to progress in key fields that impact much of the population, spanning insurance, drug development and pricing, hospitals, primary care and elderly care.
For healthcare recipients, the reforms offer potentially sizable shifts. The government aims to encourage more facilities and funding options this year. Also, over 2016, patients will begin seeing a deeper role for digital technology. This has the potential to extend across the spectrum of needs, from knowledge platforms, concierge services, to assessment and undertaking remote consultations as well as compliance with treatment regimens and empowering individuals to monitor health, all via smartphone applications.
The private sector is anticipated to play a sizable role in enabling these ongoing advancements for patients across China, presenting broader opportunities for international companies. Given the sweeping scope, however, the nature of opportunities will vary.
Globally, major players in the pharmaceutical and devices industries have been adjusting to demographic, economic and socio-political shifts, including aging populations and rapid urbanization. Dynamics such as these contributed to M&A activity reaching record levels in 2015, with over US$400 billion in closed deals. Perhaps the biggest news came in November, with the announcement of the largest pharmaceutical merger to date (Pfizer–Allergan), valued at US$160 billion and on course to close in the year ahead. So the stage is set for a dynamic year in 2016, as companies look to adapt and reposition portfolios.
In China, investments look likely to continue with quality assets that merge offline sales channels with e-commerce, digital, precision medicine and gene sequencing. Concurrently, plans by domestic organizations extend to opportunities overseas through acquisitions.
Beyond the intricate spheres of pharmaceuticals and devices, however, at PwC China we expect to see established foreign firms and nimble new players contributing more in insurance, hospital advancement and provision of certain types of primary care.
In addition to government spending, Chinese consumers are reacting to the swelling social changes. The trend is demonstrated by growing demand for more comprehensive health insurance products, reflected in health sector data from the Chinese Insurance Regulatory Commission, showing that the 5-year CAGR up to 2013 had reached 18.3 percent. The focus is notably at the premium end of the market, as well as supplemental insurance to the national Basic Medical Insurance. Firms from overseas have already established entry points in the China market via joint ventures with their Chinese counterparts, with a view to developing products and services on demand. In addition to these products, companies have been looking at service provision to increasingly sophisticated clients, with offerings such as concierge services for patients, assistance programs, administration services and even more outright health services such as health assessments, chronic health management and tele-assistance. Adequate design with appropriate pricing remains a challenge for the future, however, and will rely on more fluid information sharing. Perhaps the most rigorous shakeup in 2016 will stem from new entrants with digital expertise, in turn creating more options for investors to engage with in the industry. Legal, industrial and management issues will need to be overcome by the firms that will go on to play instrumental roles in the arena.
By dismantling some of the previous limitations on private hospitals, China has already made headway in creating a more level playing field. Consequently, overseas healthcare institutions may look more seriously at China as an expansion play. For example, American health service groups that have executed their domestic expansion strategies can now look overseas to attract inbound health tourism from China, as well as new ventures to expand their geographic footprint. Within China, American companies' forms of expansion could vary considerably, encompassing scientific affiliations with institutions in China, teaching coalitions to share knowledge and nurture connectivity, or more directly through operations management ventures and green-field opportunities. Acquisition remains an option; nevertheless, capital lay-out may not be the preferred mode for many overseas firms at this juncture.
The emergence of new hospitals will coincide with more investment in big data and fresh opportunities for sharing information through non-relational databases. Non-relational databases enable connections between unstructured datasets, such as clinician notes and transcripts, making it easier to analyze different types of data together. For instance, in traditional relational databases, two patients using a common therapy may appear similar in terms of gender, age, height and weight. Yet, by including non-relational data, physicians can identify more personal differences, such as under what circumstances the patients suffer most and how medication is used, thereby opening up new options for personalized care. Integrated electronic medical records (EMR) are an example of data heralding greater flexibility for patients, improving prospects for isolated or itinerant patients to benefit from the opening of new facilities. Foreign firms could be well placed to enable these processes, but early entrants may need to pay particular attention to nurturing patient participation, both with data sharing and care delivery.
A significant priority within China's reform agenda involves re-focusing efforts on primary care, a target which our own research at PwC China closely aligns with. China is adjusting to an aging population, and with it, a rise in chronic disease. To give scale to the issue, when the 13th Five-Year Plan draws to a close in 2020, the number of Chinese seniors (aged over 65) will account for over 12 percent of the population, up from less than 3.9 percent in 1970.
Socio-economic changes have also seen voluminous increases in NCDs, including a dramatic rise in diabetes. According to the International Diabetes Federation (IDF), the disease already impacts approximately 114 million people in China, and 11.6 percent of the adult population. As a result, China has a pressing need to elevate a system of care for aging patients and those with chronic conditions.
The goal to entrench a care system that is sustainable, while combining both treatment of illness and preserving wellbeing, will see more opportunities for combined services that place greater emphasis on care outside the walls of hospitals. Healthcare users should have a more active voice in determining their own situations, while support services will be brought as close to the citizen as possible. As such, disruptive new players will see increasing scope to influence the future of a broader definition in healthcare provision. Nimble companies are already capitalizing on wireless connectivity and advanced mobile devices to erase traditional healthcare boundaries and deliver health and wellbeing services regardless of location. The trajectory is on course for even more development in 2016.
To recap, technology will be significant but not the whole story. The voice of the health consumer will become louder in 2016. Providers will want to factor in new measures for health outcomes that take on board patient concerns, quality of life and wellbeing, in addition to tackling illness.
The significance of China's far-reaching agenda indicates just how high a priority healthcare is. Advances in digital technology have the potential to underpin success in key areas, and foreign firms able to bring to bear specific expertise in these fields will be very well placed, particularly in what should be a formative year ahead. Ultimately, developments in 2016 will allow for increasingly personalized paths to more comprehensively improved health outcomes.
Mark Gilbraith is the Partner leading PwC China Hong Kong Health and Life Sciences, as well as the Shanghai Consulting practice.