The Biz View from Peking U | What Chinese hospitals can learn from the beer industry

While the rest of China has modernised, the hospital sector has not. In spite of powerful urbanisation and consumer wealth trends that should be transforming Chinese health care, most hospitals are not dissimilar to 15 years ago. In service, cost and quality, little has changed. The problem for China’s hospitals is modernisation.

The key is to start at the end. Decide what a modern Chinese hospital system would look like and work back from there. I argue that the real goal is the creation of several large Chinese hospital chains. Each chain with 100-200 hospitals and 15,000-20,000 beds. At that scale, each chain would have the management depth and operational scale necessary to modernise. You would see system-wide improvements and upgrades in services, facilities and technology.

Such large modern hospital chains are what you see in India and the US today. Fortis in India has 75 hospitals and 12,000 beds. HCA in the US has 165 hospitals. IHH out of Malaysia has 5,000 beds in 33 hospitals. Ideally, China wants 5-10 of these large hospital chains. Such chains would also break you out of the current system which is mostly small, stand-alone hospitals.

The key to creating chains with 100-200 hospitals is following the path of least resistance. Don’t fight or try to transform the entire system. Take the easiest path from here to there. And I argue that the path of least resistance is merging 200 existing public hospitals under a large and particularly well-run SOE. And interestingly, this approach is exactly what was successful in the beer industry. More on that later. But here’s the rationale for why this is the path to take.

The hospital assets already exist - and they are overwhelmingly public.

You already have hospitals in every city in China. They blanket the country. There are about 24,000 of them and they already handle 192M inpatient admissions per year. To replicate such assets would take decades. And to launch a new private hospital chain you would also have to compete with this existing, and low price, system (not easy). This existing public system is politically strong and able to price aggressively. Building a private business against this is very difficult. Use what already exists.

The doctors and nurses are in the public hospital system.