Clearstate_China Healthcare by 2020 (LS)

Navigating through China’s Evolving Healthcare MarketNavigating through China’s Evolving Healthcare MarketNavigating through China’s Evolving Healthcare MarketNavigating through China’s Evolving Healthcare Market
Healthcare by 2020
August 2015
www.clearstate.com

Navigating through China’s Evolving Healthcare Market
Healthcare by 2020
©Clearstate Pte Ltd 1
ContentsContentsContentsContents
Foreword....................................................................................................................2
Executive Summary ....................................................................................................4
Growth Prospects for China’s Healthcare Industry: Slowing but still strong.............5
5 Key Trends in China’s Healthcare Market by 2020............................................... 10
Getting ready for 2020: Are you prepared.............................................................. 19
About Clearstate..................................................................................................... 21

Healthcare by 2020
Ivy Teh, Managing Director at Clearstate, an EconomistIvy Teh, Managing Director at Clearstate, an EconomistIvy Teh, Managing Director at Clearstate, an EconomistIvy Teh, Managing Director at Clearstate, an Economist
Intelligence Unit business.Intelligence Unit business.Intelligence Unit business.Intelligence Unit business.
China has shored up healthcare spending tremendously since it
announced the need to reform its inefficient healthcare system
back in 2005. Since then, major initiatives have been launched
and substantial investments made, resulting in the building and
upgrading of thousands of hospitals and community health
facilities across the nation. However, despite near to a decade
of reform push, China still has a long way to go in achieving its
aim of equal access to public healthcare for all its citizens by
2020. China’s struggle to meet healthcare demand led by a fast-
aging population, are made more pronounced as the nation
faces its slowest economic expansion in the last two decades.
Both the on-going reform and the headwind faced by its
economy are challenges that are rapidly changing China’s
healthcare business landscape. While it may be getting tougher,
China’s sheer size and the relative robustness of its healthcare
demand, ensure that it remains the priority geography for most
companies looking for growth.
ForewordForewordForewordForeword

Healthcare by 2020
Players in the space, from pharmaceutical, medtech and health
services companies, need to understand and be ready for these
changes that will inevitable change how they operate in China
in the next 5 years. Our current paper provides the reader with
some level of clarity on the major trends that we anticipate will
have significant impact to China’s healthcare landscape. We
provided our views and predictions on how these trends will
alter the environment and made suggestions on how
companies will need to rethink their business model and more
importantly the way they engage healthcare stakeholders.
Clearstate, an Economist Intelligence Unit business, is a
healthcare market insight and intelligence consultancy that
specializes in discovering opportunities in emerging economies
for pharma, medtech and health services clients. We hope that
through this whitepaper, we are able to provide not just an
update on China’s healthcare development and future progress
but also some new perspectives to think about in terms of risks
and opportunities.
We do look forward to your feedback and will be happy to
generate continuing conversation with you on this topic.

Healthcare by 2020
Executive SummaryExecutive SummaryExecutive SummaryExecutive Summary
hina is entering a new era of economic development. The decades of rapid, double digit growth thathina is entering a new era of economic development. The decades of rapid, double digit growth thathina is entering a new era of economic development. The decades of rapid, double digit growth thathina is entering a new era of economic development. The decades of rapid, double digit growth that
China has enjoyed is now transitioning to slower but more sustainable and “higher quality” growth.China has enjoyed is now transitioning to slower but more sustainable and “higher quality” growth.China has enjoyed is now transitioning to slower but more sustainable and “higher quality” growth.China has enjoyed is now transitioning to slower but more sustainable and “higher quality” growth.
This has raised concern on whether China’s healthcare markThis has raised concern on whether China’s healthcare markThis has raised concern on whether China’s healthcare markThis has raised concern on whether China’s healthcare market will be adversely impacted, and if itet will be adversely impacted, and if itet will be adversely impacted, and if itet will be adversely impacted, and if it
remains a key market for multinational companies to continue to focus and invest in. In this paper,remains a key market for multinational companies to continue to focus and invest in. In this paper,remains a key market for multinational companies to continue to focus and invest in. In this paper,remains a key market for multinational companies to continue to focus and invest in. In this paper,
we highlight the key macroeconomic factors at play that will drive continual and solid demand for healthcarewe highlight the key macroeconomic factors at play that will drive continual and solid demand for healthcarewe highlight the key macroeconomic factors at play that will drive continual and solid demand for healthcarewe highlight the key macroeconomic factors at play that will drive continual and solid demand for healthcare
servicservicservicservices and products in China. While growth will be slower, China will remain a strong growth market and ines and products in China. While growth will be slower, China will remain a strong growth market and ines and products in China. While growth will be slower, China will remain a strong growth market and ines and products in China. While growth will be slower, China will remain a strong growth market and in
fact, will be THE fastest growth market among the Top 10 healthcarefact, will be THE fastest growth market among the Top 10 healthcarefact, will be THE fastest growth market among the Top 10 healthcarefact, will be THE fastest growth market among the Top 10 healthcare----markets globally.markets globally.markets globally.markets globally.
The healthcare industry in China is also undergoing significant changes, driven by ongoing healthcare
reforms, opening of government policies, introduction and adoption of new technologies such as wearable
devices and mobile apps. All these have profound impact on the type of healthcare products and services
consumers need and where patients seek care. Needless to say, this also alters the competitive landscape
with growth of local players. This paper highlights the Top 5 Trends that Clearstate anticipates will be
realized by 2020, requiring companies to rethink how they should engage key stakeholders including the
government, payer, service providers, physicians, patients and even their industry peers.
C

Healthcare by 2020
End of double digit GDP growth: Transition to
more sustainable growth
he Economist Intelligence Unit (EIU) has forecasted China’s GDP growth at CAGR of 6.5% from 2014-
2018, which is actually the weakest growth in 24 years. Unlike previous dips due to regional or global
crisis, we see this as the start of a structural shift whereby the government is moving away from
rapid but sustainable growth. As Xi Jinping’s economic reform package is beingimplemented, China’s
economy is expected to slow as it re-balances for “healthier” growth (see figure 1).
T
0
2
4
6
8
10
12
14
16
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
ReadGDP(%change)ReadGDP(%change)ReadGDP(%change)ReadGDP(%change)
Growth Prospects for China’s Healthcare Industry:Growth Prospects for China’s Healthcare Industry:Growth Prospects for China’s Healthcare Industry:Growth Prospects for China’s Healthcare Industry: SlowinSlowinSlowinSlowin
but still strongbut still strongbut still strongbut still strong
Asian financial crisis,
restructuring under Zhu
Post-WTO entry export boom;
investment in property and
manufacturing spikes
Global financial crisis and
government stimulus package
Figure 1: China’s GDP GrowthFigure 1: China’s GDP GrowthFigure 1: China’s GDP GrowthFigure 1: China’s GDP Growth
Post-Tiananmen
recovery and Deng’s
southern tour
“Long, soft fall”: Focus on
quality rather quantity of growth
Source: The Economist Intelligence Unit (EIU)

Healthcare by 2020
The drivers for GDP growth however, are shifting. Fears of overcapacity and excessive debt levels have
led the government to crack down on lending and investment. On the other hand, a weak global economy,
especially in the EU, will continue to exert a drag on China’s export sector. However, rapid growth of the
service sector in recent years has been lifting personal incomes and thus consumers’ expenditure. The
encouraging element for the healthcare sector is that the new sources of economic growth are coming
from domestic demand.
China is urbanizing: Drive healthcare
expenditures along with healthcare demand
EIU projects that urban population will grow to 900 million by 2019, driven by a new urbanization plan,
the hukou reform, as well as the loosening of one-child policy in urban areas. As urbanization intensifies,
the healthcare expenditure per head will intensify along with increased public insurance coverage on hukou
holders in urban areas. As such, urbanization will fuel healthcare service demand, particularly in smaller
cities. Governments are now gearing up to increase healthcare infrastructure and supply of healthcare
services to meet expected rise in demand within the next decade.
China is aging: More than 176 million seniors
are concentrated in urban areas
In 2000 just 90 million people in China were over the age of 65, representing around 7% of the total
population. By 2020 EIU forecasts the total population above 65 to reach 176 million, and to surpass 300
million by 2050 – roughly equivalent to the entire population of the United States and a staggering 22% of
China’s total population (see figure 2). This means that in densely populated urban areas there will be a
heavy strain for healthcare resources and thus the need for community level healthcare.
Figure 2:Figure 2:Figure 2:Figure 2: CCCChina’s aging cities (% of the population aged 65+)hina’s aging cities (% of the population aged 65+)hina’s aging cities (% of the population aged 65+)hina’s aging cities (% of the population aged 65+)
Source: The Economist Intelligence Unit (EIU)
20202020222200002010201020102010

Healthcare by 2020
China is “getting sicker”: Rise of chronic diseases
attributed to lifestyle changes and pollution
While rates of infectious diseases have declined dramatically, there are still outbreaks of respiratory
and gastro-diseases, while the incidence of blood-borne and sexually transmitted diseases is rising. What
is of more concern is that chronic diseases now account for more than 80% of the country’s 10.3 Million
annual deaths. A study by the Institute for Health Metrics and Evaluation indicates that the leading risk
factors contributing to health conditions in China are dietary risks, high blood pressure, smoking and
pollution. With increased urbanization, these factors will continue contributing to increases in chronic
diseases. The changes in disease profile is driving the demand for both pharmaceutical and medical devices
in therapeutic areas such as oncology, cardiovascular along with diabetes.
China, DALYSChina, DALYSChina, DALYSChina, DALYS
Both sexes, All ages, 2010Both sexes, All ages, 2010Both sexes, All ages, 2010Both sexes, All ages, 2010
Area mapArea mapArea mapArea map shows relative proportion (based on box size)
of global burden of disease (DALY) attributed to each
condition. (X- and Y-exis have no meaning.) Diseases are
organized into disease family clusters.
Source: Institute for Health Metrics and Evaluation
FigureFigureFigureFigure 3333:::: CCCChina’shina’shina’shina’s burden of diseases profileburden of diseases profileburden of diseases profileburden of diseases profile

Healthcare by 2020
China is getting richer: Huge base of affluent
households along with rise of super rich
The number of households that can afford more out of pocket spending on healthcare is increasing and
becoming significant. In 2014, there were 32.6 million urban households in China earning more than the
median US household. By 2018, this number will more than double to reach 75 million. In contrast, there
will only be 62 million such households in the US in 2018.
The rise of “high-net-worth” and “super-rich” individuals is also driving the adoption of high end
healthcare products and services in China. Hurun estimates that there are more than 1 million individuals
with a personal wealth of more than CNY 10 million (~USD 1.6 million), and close to 70,000 individuals with
more than CNY 100 million (~USD 16 million). What is significant is that the wealthy are willing to spend on
managing their health. Studies from Hurun have indicated that the wealthy eat healthy, exercise regularly,
and consume health & wellness products. 80% of these individuals go for annual health checkups, while
15% go twice a year. On average these individuals spend RMB 3,500 annually, almost double the typical
amount on health checkups1.
With increased income comes increased affordability and willingness to pay for more high-end products
and services. It is thus no surprise that there is continuous interest to launch more expensive products and
services that are not necessarily lifesaving, but can improve the lifestyle. For instance, higher income
patients are now more willing to spend on surgical treatments of conditions such as pain management and
urinary incontinence. There are also private hospitals entering the market in China, intent on introducing
high end services to retain high-net-worth individuals who may currently be seeking care abroad.
More importantly, the government remains
committed to further investments in healthcare
A major factor for strong growth in the healthcare sector is the fact that the government will continue
to invest in providing “safe, effective, accessible and affordable healthcare”. Annual expenditures on
healthcare are expected to grow by 9.5% per year between 2015 and 2019, largely driven by the
government’s public healthcare reforms. More efforts will be made to invest in rural areas to address
inequality of health services, although the bulk of healthcare spending between 2015 and 2019 will be
directed to cities.
The Chinese government will need to achieve a balance between various priorities. Asides from
increased investments in infrastructure and training, cost reforms will continue to ensure affordability of
1
Hurun Report 2014

Healthcare by 2020
care. The government has to consider the push towards innovation while most important, ensure that there
is social stability. The recent opposition by dialysis patients in Chongqing highlighted the healthcare
reform’s complexity and possible consequences for affected patients. The abandonment of the “market
price” reform of healthcare services after being implemented for only six days in Chongqing indicates the
need and willingness of governments to adjust policies as required.
China’s healthcare sector has strong prospects
for the next five years, and will continue to be
one of fastest growing markets globally
Despite the economic slowdown in China, the growth prospects for the healthcare sector remain strong.
The new locomotive of economic growth is private and public consumption. Multiple factors such as rising
income, aging population, urbanization and increasing chronic diseases are all in favor for an increased
demand of healthcare services. EIU analysis indicate a direct correlation between growth in disposable
income and growth in healthcare spending per capita. We estimate that the demand of healthcare services
will grow at 10.6% CAGR between 2015 and 2019.
China will remain a market that cannot be deprioritized. In terms of growth of health spending per head
relative to real GDP growth, China still stands out from all major developed and developing markets.
Industry estimates indicate that for both the pharmaceutical and medical device industry, China will
continue to have the highest growth rate globally, while in terms of absolute size will surpass Japan to be
only behind the US by 2020.

Healthcare by 2020
long with changes in the socio-demographic and economic environment, the healthcare market
in China is undergoing structural changes due to ongoing healthcare reforms, evolving market
dynamics and, most importantly, changing needs of patients in China. Clearstate shares five key
trends that will impact the healthcare market by 2020.
#1: Gradual emergence of new service
providers, although public hospitals will remain
the key provider of health services
The landscape of service providers is transforming, largely attributed to some key government policies.
Besides allowing ownership of private hospitals, another key policy is to permit physicians and maybe even
nurses to practice at multiple sites. Liberalization of the private insurance sector will encourage demand
for services beyond public hospitals. At the same time, public hospitals are also under pressure to become
more efficient, driven by changes in profit models.
Even today, public hospitals are forming alliances and partnerships along with consolidations, to realize
operational efficiency and cost savings. Shenkang is a group purchasing network that operates on behalf of
23 Class 3 hospitals in Shanghai. Class 2 hospitals are also trying to find their positioning to gain sustainable
patient volume.
The recent country-wide reform of Class 2 hospitals aims at preventing unnecessary duplication of
resources and over-expansion. It advises that only two province-level hospitals are allowed per province,
while other existing province-level hospitals will need to change ownership and/or downgrade. It is thus
A
5 Key Trends in China’s Healthcare Market by 20205 Key Trends in China’s Healthcare Market by 20205 Key Trends in China’s Healthcare Market by 20205 Key Trends in China’s Healthcare Market by 2020

Healthcare by 2020
not surprising that many Class 2 hospitals are now looking to differentiate themselves by offering either
more value added services such as less complex MIS surgeries and/or niche areas like rehabilitation
functions.
In March 2015, the Ningbo Health & Family Planning Commission announced the launch of the “Ningbo
Cloud Hospital” the first government-led initiative intended to integrate virtual healthcare delivery. Using
a cloud network, the Cloud Hospital aims at integrating CHCs, hospitals, pharmacies, insurance companies
and 3rd party diagnostic labs (see figure 4). The hospital has piloted with diabetes patients and mostly CHCs,
offering each resident to have their EMR record online. The eventual goal of the Cloud Hospital is to provide
patients with online teleconsultations to refill their prescriptions and, in the future, get access to health
awareness and education via live casts and talks.2
China is also seeing a proliferation of new service providers, capitalizing on new government policies.
Dr. Smile Medical Group is an example, which was set up by seven specialists from Top 3A hospitals. These
doctors are partnering with three premium private hospitals in Shanghai and Beijing, offering highly
specialized medical skillsets that are otherwise hard to recruit by the private sector. Dr. Smile started to
seek a first round of financing in January 2015, and is already planning to establish the first day surgery
2
“Ningbo cloud hospital will restructure healthcare system thanks to internet”, Xinhua News Zhejiang Channel,
http://www.zj.xinhuanet.com/newscenter/focus/2015-03/13/c_1114625945.htm, Clearstate analysis
FigureFigureFigureFigure 4444:::: Ningbo Cloud HospitalNingbo Cloud HospitalNingbo Cloud HospitalNingbo Cloud Hospital
Source: Xinhua News, EIU – Clearstate analysis
Profile:Profile:Profile:Profile:
• Co-founded by Ningbo Health and
Family Planning Commission and
Neusoft Xikang in March, 2015
• Aims to integrate CHCs, hospitals,
pharmacies, insurance companies, 3rd
party diagnostic labs using cloud
network
Key elements:Key elements:Key elements:Key elements:
• Allow each resident to have EMR
online: Residents can seek care for
relevant doctors based on physical
conditions
• Hospital will make appointments based
on “tiered referral” system
• Online consultation system for chronic
diseases, pilot with diabetes
• Online tele-imaging, etc.
• Health awareness and education (talks,
livecasts etc.)
“We aim to provide drug delivery service
and work on reimbursement by June,
increase clinics in July and launch cloud
hospitals standards in August.” - Head of
Ningbo HFPC
• Remote consultation
• 3rd party
lab testing
• 3rd
party
imaging
• GP care
• Insurance• Pharmacy

Healthcare by 2020
center in Hangzhou. Also only in January 2015, Jiangxi planned to establish the first 3rd party medical
imaging center. Started as a private enterprise, it will offer services such as x-ray, CT and MRI scanning
services. Its services lie beyond just imaging but it rather intends to provide nearby smaller hospitals with
tele-diagnostic capabilities. Smaller hospitals often have the equipment to run imaging tests, but lack the
staff with the skills to interpret and diagnose more complex conditions. Jiangxi Medical Imaging Center will
help alleviate this issue, while providing higher income patients with an option to seek diagnostic imaging
services in less crowded and more comfortable facilities.3
By 2020, Clearstate anticipates that public hospitals will still remain the major provider of healthcare
services. However, the service provider landscape will become much more diversified and complex.
#2: Private health insurance will take off, driven
by a demand from higher income individuals
and enterprises
China’s private health insurance market is at a nascent stage of development, with much room for
growth. Health insurance accounts for only 8% of total insurance income in China, compared to 40% in the
US. Private insurance premiums account for 37% of the total healthcare expenditure in the US, and for
approximately 10% in developed countries like France, Canada, Australia etc., whilst in China the figure is
3
“No need to go to hospitals for CT: the first private medical imaging center is approved in Jiangxi”, The China Daily,
http://cnews.chinadaily.com.cn/2015-05/15/content_20727778.htm, Dr. Smile Medical Group Website,
http://www.topdoctor100.com/
• GP ClinicsGP ClinicsGP ClinicsGP Clinics • HealthHealthHealthHealth
screeningscreeningscreeningscreening
centerscenterscenterscenters
• 3rd party3rd party3rd party3rd party
diagnosticdiagnosticdiagnosticdiagnostic
labslabslabslabs
• SurgerySurgerySurgerySurgery
• SpecializedSpecializedSpecializedSpecialized
centers e.g.centers e.g.centers e.g.centers e.g.
dialysis,dialysis,dialysis,dialysis,
cardiaccardiaccardiaccardiac
• PostPostPostPost----
DischargeDischargeDischargeDischarge
ClinicClinicClinicClinic
• SurgerySurgerySurgerySurgery
• ConfinementConfinementConfinementConfinement
• RehabRehabRehabRehab
CenterCenterCenterCenter
• GP ClinicsGP ClinicsGP ClinicsGP Clinics
• NursingNursingNursingNursing
HomesHomesHomesHomes
• High endHigh endHigh endHigh end
retirementretirementretirementretirement
FigureFigureFigureFigure 5555:::: Change in Service LandscapeChange in Service LandscapeChange in Service LandscapeChange in Service Landscape
Today
PreventionPreventionPreventionPrevention DiagnosisDiagnosisDiagnosisDiagnosis
TreatmentTreatmentTreatmentTreatment
(e.g. surgery)(e.g. surgery)(e.g. surgery)(e.g. surgery)
PostPostPostPost----OpOpOpOp
CareCareCareCare
RehabRehabRehabRehab
ManagementManagementManagementManagement
& Monitoring& Monitoring& Monitoring& Monitoring
HospitalsHospitalsHospitalsHospitals
Source: EIU – Clearstate analysis
Future
HospitalsHospitalsHospitalsHospitals
CHCsCHCsCHCsCHCs
CHCsCHCsCHCsCHCs CHCsCHCsCHCsCHCs
CHCsCHCsCHCsCHCs

Healthcare by 2020
only 1.3%.4
The industry estimates the projected YTY growth rate to be 25-30% for the next five years.5
In
addition to a rising awareness for higher-end services from richer individuals, many companies are also
hoping that the inclusion of private health insurance will help to retain key talent in a highly competitive
market.
Supportive government policies will be the key determinant of growth. While there have always been
high-level policies to encourage the growth of private health insurance, the translation into concrete details
has been slow. The industry is hoping that the new pilot reform to offer personal income-tax reductions,
implemented after Premier Li Keqiang’s speech in the National People’s Congress, to “actively develop
commercial health insurance” in 2014, will have more significant impact on growth. Similar reform
programs had successfully increased the coverage of medical insurance in countries like the US and
Australia.
Recognizing that obstacles are being resolved, Clearstate is optimistic on the future outlook of the
private health-insurance sector. Private insurance will alleviate the financial burden of governments, and
there is real demand from both consumers and companies.
#3: Strong government support for domestic
players, but only selected “local stars” will flourish
The government’s intent to support domestic players in the healthcare industry has become more
apparent in the last few years. The 12th Five Year Plan, announced in 2011, identified the medical device
industry as a priority-industry with favorable procurement policies in place for domestic companies, while
the government also hoped to cultivate a few strong domestic pharmaceutical companies. In the recent
“China Manufacturing 2025”, the focus on biological medicine and high-performance medical devices was
even more pronounced, as it was identified as one of nine priority areas.
One of the most apparent forms of support has been more favourable policies for domestic brands. On
1st of June 2015 NDRC cancelled the government-set pricing for most drugs. While this encourages market
competition, cheaper domestic brands will have an advantage. Many provinces have also adjusted their
tendering or purchasing processes, either giving preference to cheaper domestic brands, or putting in more
complex processes for hospitals to purchase international brands.
United Health Imaging is an example of a company that has benefited from government resources and
support. Founded in 2011, it has more than 1,700 employees and a sales volume of more than RMB 600
million in 2014, from eleven imaging products. Aligned with the government’s vision to move from “Made
in China” to “Created in China”, United Health Imaging intends to become a global industry leader within
15 years. It has enjoyed a good start by focusing on provinces that have implemented favourable
4
Statistics of China Insurance Regulatory Commission, http://www.circ.gov.cn/web/site0/tab5179/
5
Estimate by People's Insurance Company of China,
http://finance.ce.cn/rolling/201411/20/t20141120_3942186.shtml

Healthcare by 2020
procurement policies, while gaining access to top hospitals nationwide. There are three main areas that
benefit from government support, mainly in product development, market access and brand awareness.6
The reality is that government support alone is not enough for leading companies to flourish.
Companies such as United Health Imaging are able to enjoy such traction because it inherently has strong
quality products with solid development capabilities. A quick scan of the medical device sector to identify
other “local stars” include players such as Mindray, Leadman, BSBE, Neusoft, Microport, Shinva and Wego.
Similar to United Health Imaging, these players exhibit some key traits: They enjoy high market share in
China, even within the “premium” segment with high brand awareness and reputation among customers.
Most of them compete by offering “good value for money”, in terms of offering stable technology products
that are reasonably priced, particularly relative to multinational competitors. While they might not conduct
truly innovative R&D work, these companies are fast in finding unique needs in China’s market and in
quickly improving design or product features. In short, they all have strengths in introducing “quality and
value-priced” products quickly into the market. Some companies such as Mindray and Microport are
already having success in replicating this capability in international markets.
Despite government support, smaller “me too” domestic companies will face challenges to survive.
Hospitals today expect “good enough” quality along with lower pricing, as they are under pressure to be
more accountable while keeping costs down. Even the local stars will need to continually improve their
competitiveness, forming new partnerships to win not only in China but to achieve their ultimate goal of
entering international markets.
6 United Health company website, http://www.united-imaging.com/zh/, Clearstate analysis
FigureFigureFigureFigure 6666:::: Support and StreSupport and StreSupport and StreSupport and Strengthening of Local Starsngthening of Local Starsngthening of Local Starsngthening of Local Stars ---- United ImagingUnited ImagingUnited ImagingUnited Imaging
HospitalHospitalHospitalHospital
- Collaboration with
leading research institutes
to build R&D capability
- Gain access to top
hospitals to establish as
reference sites and to
improve product
development
ProductProductProductProduct
developmentdevelopmentdevelopmentdevelopment
- Enjoys favourable policies in certain
regions e.g. quota system whereby
public hospital need to apply for
license to buy international brands
- NFHPC initiated catalogue of quality
domestic branded medical devices
- Favored in certain hospitals for e.g
military hospitals and government led
procurement such as Shanghai
Shenkang
Market AccessMarket AccessMarket AccessMarket Access
"Medical equipment is necessary to
develop a modern healthcare industry.
Now, some high-end medical devices are
so expensive that the grassroots
healthcare institute and ordinary people
can hardly afford (them). China will
"accelerate the localization of high-end
devices, lower the cost, and promote
national brands,“ - President Xi Jin Ping
(May 24, 2014…2 days before NHFPC’s
announcements)
Brand AwarenessBrand AwarenessBrand AwarenessBrand Awareness
Source: United Imaging Website, EIU – Clearstate analysis

Healthcare by 2020
#4: Definition of “Health” extending beyond
just treatment, more emphasis on wellness and
health-management
Like their global peers, consumers in China today no longer see being healthy as merely treating
illnesses. Rather, it is the prevention of illness by physical and mental wellbeing. This change in mindset is
being driven by factors such as the rise of mobile apps or the convergence of diagnostics and therapeutics.
Governments and manufacturers are also actively promoting health prevention, such as screening
programs on key chronic diseases. With higher income, consumers are now shifting from critical to lifestyle
treatments.
Philips is a company that has identified this as a key trend, and has combined its healthcare and
consumer-lifestyle business to form the new “healthtech” market. It intends to capitalize on the
convergence of professional healthcare and consumer end-markets across the health continuum, targeting
an addressable market of more than 100 billion Euros in revenue. The objective is to provide end to end
products and solutions from prevention to treatment to recovery to home care. Even in China today, Philips
has introduced products that integrate homecare with hospital care. Philips works with physicians to allow
patients to rent Actiwatches that can be worn at home. The watch collects data on sleep patterns that can
be used for screening and diagnosis purposes. For patients that means that they no longer have to stay in
the hospital overnight and that they can reduce the need for manual sleep logbooks. For hospitals, this
solution increases efficiency and turnover, and also shortens waiting time for hospital monitoring
equipment. For Philips, the intent is to provide patients with solutions to be used at home and also within
the hospital.

Healthcare by 2020
Clearstate anticipates that consumers and patients will be open to more lifestyle and health-wellness
products, spurring demand for higher-end products and services.
FigureFigureFigureFigure 7777:::: Extended View of HealthExtended View of HealthExtended View of HealthExtended View of Health –––– Case Study of PhilipsCase Study of PhilipsCase Study of PhilipsCase Study of Philips
In September 2014, Philips combined its healthcare and consumer lifestyle business to formIn September 2014, Philips combined its healthcare and consumer lifestyle business to formIn September 2014, Philips combined its healthcare and consumer lifestyle business to formIn September 2014, Philips combined its healthcare and consumer lifestyle business to form
“healthtech” market“healthtech” market“healthtech” market“healthtech” market
• Capitalize on the convergence of professional healthcare and consumer end-markets
across the health continuum
• Addressable market: >100 Billion Euros in Revenue
• Reshape and optimize population health management by leveraging health data and
delivering care with cloud based digital health platforms
Benefits to patientsBenefits to patientsBenefits to patientsBenefits to patients
• Improve convenience:
Reduce need for patients
to keep sleep logs
• Improve user experience
and comfort: No need to
stay in hospital
overnight, or undergo
complex testing
Benefits to hospitalsBenefits to hospitalsBenefits to hospitalsBenefits to hospitals
• Increase hospitals
turnover/efficiency
• Shorten waiting time for
hospital monitoring
equipment
• Effective utilization of
medical resources
• Better clinical outcome
ActiwatchActiwatchActiwatchActiwatch
Philips work with
physicians to allow
patients to rent
Actiwatch and wear at
home for 7-10 days, to
collect data on sleep
patterns, which can be
used for screening
purpose and as
reference for diagnosis
Home care productsHome care productsHome care productsHome care products
• Air purifier & humidifier for better
sleeping/breathing environment
• SleepMapper – a mobile and web-based
system to enhance therapy experience
• Asthma management product i.e. peak
flow meters, mask
Hospital care productsHospital care productsHospital care productsHospital care products
• Sleep diagnostic systems
• Sensors for airflow, limb movement, snore
etc.
• Sleep studies management software
• Sleep recorder
• Etc.
Healthy LivingHealthy LivingHealthy LivingHealthy Living PreventionPreventionPreventionPrevention DiagnosisDiagnosisDiagnosisDiagnosis TreatmentTreatmentTreatmentTreatment RecoveryRecoveryRecoveryRecovery Home CareHome CareHome CareHome Care
Source: Philips Website, EIU – Clearstate analysis

Healthcare by 2020
#5: M-Health will proliferate with consumer-
driven Apps accelerating faster than Hospital
related Apps
The proliferation of m-health is a factor towards health & wellness. China is expected to become the
2nd largest m-health market globally, with a phenomenal growth of 59.6% between 2015 and 20187. Some
unique elements in China are at play: Lack of access to quality healthcare-services, tense physician-patient
relationships and concentration of resources have resulted in physicians’ limited ability to provide sufficient
time beyond treatment and diagnosis. Chinese consumers are hungry for reliable and credible information
about health-management and are extending the prevalent use of internet and mobile apps to do so.
Mobile health can also be used in more rural parts of China to help resolve accessibility challenges.
Despite the optimistic outlook for m-health, there are still some challenges to overcome. The
prohibition of diagnosis and treatment via the internet and lack of reimbursement and coverage of online
services are two major issues. The majority of e-health players and mobile apps are likely to go through
extensive consolidation, due to a lack of differentiation, and also the general lack of management know-
how about launching and sustaining such apps. For instance, there are more than 500 apps on diabetes-
management in the market, offering highly similar services and features. There are also many apps that
aim at linking consumers with hospitals, such as booking of appointments or hospital payments. While
these apps are indeed of value, it has been a challenge to integrate them with hospitals’ financial and
management systems on a sufficient scale to be meaningful.
By 2020, Clearstate anticipates that Chinese consumers will be widely using mobile apps for a multitude
of functions. Solutions that provide consumers with the information to choose and find right diagnostic
tools and treatment options, and to assist them in managing individual or family members’ health will be
of particular value. Linkage to wearable devices will also become more common and widespread.
7
China mHealth Market Research Report 2014 by Analysis International

Healthcare by 2020
In contrast, apps that require integration with hospitals will take longer to take off, limited by a lack of
hospital buy-in. Hospitals will be more willing to participate in programs that improve integration and
accessibility of care, e.g. use for teleconsultations between hospitals, use for improving rural healthcare,
etc.
FigureFigureFigureFigure 8888:::: Rise of mRise of mRise of mRise of m----HealthHealthHealthHealth
• Apps that are consumer
driven will flourish,
especially those that:
• Improve patient
awareness via medical
education and
information
• Address information
gaps to empower
patients e.g. help
choose doctors,
hospitals, etc.
• Manage personal health
e.g. chronic disease
management
• Drug distribution
• Adoption of
apps/websites that
Improve physician
training and education
especially in community
level hospitals will grow
• Apps that improve
patient/physician
interaction via online
communities will
become popular
Consumers Physicians Hospitals
• Apps requiring extensive
integration with hospital
systems will take longer to
take off due to difficulties in
hospital buy in
• Use of m-health likely driven
by governments to improve
rural health e.g. improve
access of care, address
inequality of care, public
health
• Selective use of
teleconsultations per
restrictions on diagnosis and
treatment

Healthcare by 2020
ooking ahead, the healthcare sector is poised to undergo further dynamic changes. Despite a generally
optimistic outlook, the honest reality is that the market is also becoming much tougher than before.
Continual growth will be realized through unearthing whitespace opportunities and responding to
changing market conditions.
A common theme is to be prepared to engage with current stakeholders differently. Companies are
now forming more strategic public private partnerships with governments, be it at national or provincial
level, in order to provide expertise and value beyond just lower prices. The government and private payers
are also actively collaborating with healthcare companies and the various governments to find new ways
to improve clinical outcomes, while ensuring more effective use of current resources. With diversity of
service providers and how physicians practice, sales and marketing teams will be challenged to execute
differentiated sales approaches and marketing engagement techniques for sub-customer segments.
Pharmaceutical companies have always been at the forefront of engaging patients. With many medical
device companies also starting to consider how to engage patients, the real challenge is how to engage
them effectively in a differentiated way, with direct impact to either brand awareness and/or product usage.
Indeed, this has driven companies to engage broader industry players, with collaboration between payers,
pharma, medical device companies and even healthcare IT companies to engage patients and leverage
analytics more effectively.
As we prepare for 2020, companies should consider how well they are prepared today to embrace the
changing environment.
L
Getting ready for 2020: AreGetting ready for 2020: AreGetting ready for 2020: AreGetting ready for 2020: Are you preparedyou preparedyou preparedyou prepared

Healthcare by 2020
Are you
prepared?
Industry playersIndustry playersIndustry playersIndustry players
Partner to provide more
GovernmentGovernmentGovernmentGovernment
Improve government relationships by
providing value in products/services
and support with key priorities
Service providersService providersService providersService providers
Provide segmented solutions based on
specific needs and priorities
PhysiciansPhysiciansPhysiciansPhysicians
New engagement methods for different
roles and skillsets of doctors, especially
with multi-site
PatientsPatientsPatientsPatients
Understand when patient
engagement is required and how
to provide new products &
services
PayersPayersPayersPayers
Consider partnerships to improve
access and/or improve compliance,
patient management
FigureFigureFigureFigure 9999:::: New Ways of Engaging StakeholdersNew Ways of Engaging StakeholdersNew Ways of Engaging StakeholdersNew Ways of Engaging Stakeholders

Healthcare by 2020
About Clearstate
Clearstate (www.clearstate.com), a business of the Economist Intelligence UnitEconomist Intelligence UnitEconomist Intelligence UnitEconomist Intelligence Unit, is a researchresearchresearchresearch
consultancy, specialized in Healthcare & Life Sciences domains, advising on growth strategies in emergingconsultancy, specialized in Healthcare & Life Sciences domains, advising on growth strategies in emergingconsultancy, specialized in Healthcare & Life Sciences domains, advising on growth strategies in emergingconsultancy, specialized in Healthcare & Life Sciences domains, advising on growth strategies in emerging
economies.economies.economies.economies.
Clearstate is the go-to research consulting partner for our clients seeking greenfield growth
opportunities in fast-growing Emerging Economies. By leveraging on the Economist Intelligence Unit’s
depth of country expertise, we offer visibility and realistic forecast on the direction of Emerging Economies’
opaque healthcare environments.
We have a strong reputation among our clients for our depth of industry knowledge, our collaborative
approach and our innovative solutioning. We are recognized for consistently listening and working in
partnership with our clients to deliver comprehensive and granular answers beyond the obvious.
About the Authors
Chee Hew is the Head of Greater China at Clearstate, and is an experienced consultant in the Healthcare
and Life Sciences sector in North America and Asia Pacific, with more than 15 years of experience in
business and operational strategy consulting, leveraging strong market research capabilities. She has more
than 15 years of healthcare consulting experience, specifically in China.
Lesley Shao Ying is an analyst at Clearstate Greater China, based in Shanghai. She has more than four years
of experience in conducting market research in the education and healthcare sectors.
The development of this whitepaper benefited significantly from the support provided by:
Cynthia Chen, Analyst, Clearstate Greater China
Chen Chen, Economist, Economist Intelligence Unit
Contact:
Chee Hew, Head of Greater China
chee.hew@clearstate.com
Tel: +65 6715 9211 / +86 21 6473 7128 ext 38

Clearstate_China Healthcare by 2020 (LS)

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