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



Ivy Teh, Managing Director at Clearstate, an Economist Ivy Teh, Managing Director at Clearstate, an Economist Ivy Teh, Managing Director at Clearstate, an Economist Ivy 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



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.



Executive SummaryExecutive SummaryExecutive SummaryExecutive Summary

hina is entering a new era of economic development. The decades of rapid, double digit growth that hina is entering a new era of economic development. The decades of rapid, double digit growth that hina is entering a new era of economic development. The decades of rapid, double digit growth that hina 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.

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we highlight the key macroeconomic factors at play that will drive continual and solid demand for healthcare we highlight the key macroeconomic factors at play that will drive continual and solid demand for healthcare we highlight the key macroeconomic factors at play that will drive continual and solid demand for healthcare we highlight the key macroeconomic factors at play that will drive continual and solid demand for healthcare

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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



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 being implemented, China’s

economy is expected to slow as it re-balances for “healthier” growth (see figure 1).

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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: Slowing Slowing Slowing Slowing

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)



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)

2020202022220000 2010201020102010



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

Figure Figure Figure Figure 3333: : : : CCCChina’s hina’s hina’s hina’s burden of diseases profileburden of diseases profileburden of diseases profileburden of diseases profile



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



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.



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 2020 5 Key Trends in China’s Healthcare Market by 2020 5 Key Trends in China’s Healthcare Market by 2020 5 Key Trends in China’s Healthcare Market 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

Figure Figure Figure Figure 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



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 • Health Health Health Health screening screening screening screening centers centers centers centers

• 3rd party 3rd party 3rd party 3rd party diagnostic diagnostic diagnostic diagnostic labslabslabslabs

• Surgery Surgery Surgery Surgery centers centers centers centers

• Specialized Specialized Specialized Specialized centers e.g. centers e.g. centers e.g. centers e.g. dialysis, dialysis, dialysis, dialysis, cardiaccardiaccardiaccardiac

• PostPostPostPost----Discharge Discharge Discharge Discharge Clinic Clinic Clinic Clinic

• Surgery Surgery Surgery Surgery centers centers centers centers

• Confinement Confinement Confinement Confinement centers centers centers centers

• Rehab Rehab Rehab Rehab CenterCenterCenterCenter

• GP Clinics GP Clinics GP Clinics GP Clinics

• Nursing Nursing Nursing Nursing Homes Homes Homes Homes

• High end High end High end High end retirement retirement retirement retirement centerscenterscenterscenters

Figure Figure Figure Figure 5555: : : : Change in Service LandscapeChange in Service LandscapeChange in Service LandscapeChange in Service Landscape

To

da

y

PreventionPreventionPreventionPrevention DiagnosisDiagnosisDiagnosisDiagnosisTreatment Treatment Treatment Treatment

(e.g. surgery)(e.g. surgery)(e.g. surgery)(e.g. surgery)PostPostPostPost----Op Op Op Op

CareCareCareCareRehabRehabRehabRehab

Management Management Management Management & Monitoring& Monitoring& Monitoring& Monitoring

HospitalsHospitalsHospitalsHospitals

Source: EIU – Clearstate analysis

Fu

ture

HospitalsHospitalsHospitalsHospitals

CHCsCHCsCHCsCHCs

CHCsCHCsCHCsCHCs CHCsCHCsCHCsCHCs

CHCsCHCsCHCsCHCs



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



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

Figure Figure Figure Figure 6666: : : : Support and StreSupport and StreSupport and StreSupport and Strengthening of Local Stars ngthening of Local Stars ngthening of Local Stars ngthening of Local Stars ---- United Imaging United Imaging United Imaging United 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

Product Product Product Product development development development development

- 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 Access Market Access Market Access Market 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 Awareness Brand Awareness Brand Awareness Brand Awareness

Source: United Imaging Website, EIU – Clearstate analysis



#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.



Clearstate anticipates that consumers and patients will be open to more lifestyle and health-wellness

products, spurring demand for higher-end products and services.

Figure Figure Figure Figure 7777: : : : Extended View of Health Extended View of Health Extended View of Health Extended 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 form In September 2014, Philips combined its healthcare and consumer lifestyle business to form In September 2014, Philips combined its healthcare and consumer lifestyle business to form In 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 hospitals Benefits to hospitals Benefits to hospitals Benefits 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



#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



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.

Figure Figure Figure Figure 8888: : : : Rise of mRise of mRise of mRise of m----Health Health Health Health

• 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




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: Are Getting ready for 2020: Are Getting ready for 2020: Are Getting ready for 2020: Are you preparedyou preparedyou preparedyou prepared



Are you

prepared?

Industry players Industry players Industry players Industry players Partner to provide more

Government Government Government Government Improve government relationships by providing value in products/services and support with key priorities

Service providers Service providers Service providers Service 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


Figure Figure Figure Figure 9999: : : : New Ways of Engaging StakeholdersNew Ways of Engaging StakeholdersNew Ways of Engaging StakeholdersNew Ways of Engaging Stakeholders



About Clearstate

Clearstate (www.clearstate.com), a business of the Economist Intelligence UnitEconomist Intelligence UnitEconomist Intelligence UnitEconomist Intelligence Unit, is a research research research research

consultancy, specialized in Healthcare & Life Sciences domains, advising on growth strategies in emerging consultancy, specialized in Healthcare & Life Sciences domains, advising on growth strategies in emerging consultancy, specialized in Healthcare & Life Sciences domains, advising on growth strategies in emerging consultancy, 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

[email protected]

Tel: +65 6715 9211 / +86 21 6473 7128 ext 38

Documents

Clearstate_China Healthcare by 2020 (LS)