Proactive Medicare Enterprise HK: China Healthcare Strategy

Introduction and Overview

For Proactive Medicare Enterprise (HK) Limited, the opportunities at first glance appear unlimited and very promising, given the company's initial success both from a partnership standpoint with Johns Hopkins International and from the execution of its initial strategy in Shanghai. Taken at face value, the case study implies the need for analysis of two emerging growth opportunities — both initially financially and strategically attractive — with little if any downside to either expansion strategy.

What is in fact missing is a more realistic assessment of healthcare throughout China, which is one of the most impoverished and under-funded healthcare systems in the world. In addition, birth quotas in China and the One Child Policy make growth prospects considerably less promising than the case study indicates. It is the intent of this analysis to show the realities of healthcare growth opportunities for the companies involved, with attention paid to the ethical dilemma of operating a business that could easily become influenced by the One Child Policy and the sex selection practices for which China has become globally known.

Nonetheless, there is a huge gulf in the earning power of China's top 15% of the population and the remaining 85%. This disparity only exacerbates the fact that in many rural areas, healthcare quality ranks among the worst globally.

Johns Hopkins International (JHI) also needs to recognize that any ethical lapse in judgment by anyone associated with these facilities — particularly regarding premature abortions of female fetuses, a common practice in rural areas of China, or the efforts of wealthy couples to use artificial insemination techniques to guarantee a male child — could be extremely damaging to JHI's global reputation.

These two factors alone demonstrate that the future is far less certain and worry-free than the case study suggests. Paradoxically, the larger this operation becomes, the greater the pressure from the Chinese government to support state-defined birthing practices and policies. The least risky path for this consortium of companies is to pursue an elite, high-end strategy of care for the nation's top 15% of the population, who have the incomes to support such an approach. What is critical, however, is that ethical guidelines and programs must be put in place to ensure the clinics remain free from involvement in late-term abortions of female fetuses or the various techniques Chinese obstetricians use for selecting a child's sex before birth. If an ethical failure occurs and this consortium is implicated in any state-run programs policing birth control, all parties involved will face severe reputational consequences from which recovery would be extremely difficult.

Strikingly, the case study makes no mention of China's dramatically declining birth rate or the government's policies specifically targeting this area. Data on population growth trends by fertility rate illustrates why the fundamental growth assumptions in the case must be evaluated far more critically, and why growth prospects — while promising — require a much greater level of analytical granularity.

Market Dynamics in China

Secondly, the revenue dynamics of the Chinese healthcare market are shifting. Data from Chow (2006) shows that revenue from medical examinations — as opposed to medicine — has experienced meteoric growth for both inpatient and outpatient categories. Factoring in the core competencies of Proactive Medical Care (HK) Enterprise Ltd. into this mix of revenue streams illustrates why broadening services beyond obstetrics is necessary. The key issue for Proactive is to define which areas of medical practice to concentrate on.

The final major market dynamic to consider is the growth of incomes in coastal areas alongside the relatively low level of income growth in more rural parts of the country. Per capita income distributions by province make clear that Proactive's future is best planned around the higher-income coastal provinces.

The following SWOT analysis provides the framework by which Proactive Medical Care (HK) Enterprise Ltd. should evaluate the growth opportunities before it. This analysis includes both internal and external factors.

Proactive has sustainable credibility with JHI, which needs to be carefully nurtured and drawn upon only when strategies with high probabilities of success have been selected.

SWOT Analysis

The company has excellent connections within the Chinese government agencies critical to the joint ventures' success, including Dr. Cheng, one of China's foremost obstetricians. Her willingness to allow use of a single bed as the basis of a tour to American medical centers to enlist JHI's support proved successful. However, this alliance requires careful attention, as Dr. Cheng is most likely also tasked with ensuring birth quotas are met.

Proactive also demonstrates exceptional abilities in fundraising and the development of bond initiatives to debt-finance expansion throughout China. Its highly experienced and talented management team from the healthcare field will be well-positioned to recruit the best possible mix of physicians, nurses, and support staff. High levels of per capita income growth in coastal provinces, combined with the established Shanghai clinic, form an excellent foundation for expansion.

The fundamental assumption that medical insurance in China will serve as a catalyst for growth is erroneous and fraught with risk. While the Chinese government has stated that its explicit goal is to provide broad insurance coverage for basic services through individual savings accounts, Chinese citizens are among the most poorly insured populations globally. The Communist Party's approach to social pooling of spending accounts has largely failed.

The voluntary New Cooperative Medical Scheme (NCMS), in place since 2003, has had low opt-in rates. The less generous urban scheme — providing 700 RMB with large co-payments and out-of-pocket costs for uncovered care — is also underutilized. These weaknesses significantly constrain the addressable insured market.

The growth of per capita incomes driven by Foreign Direct Investment in coastal provinces presents a fertile area for clinic development, with the need to branch into medical coverage areas beyond obstetrics and pediatrics. The top 15% of families by per capita income consistently pay out of pocket for medical care and childbirth. Proactive Medical Care (HK) Enterprise Ltd. can capitalize on this trend by catering exclusively to the highest-income clientele. Critically, however, it will need to keep Chinese government directives out of its approaches to delivery and pregnancy counseling.

Dr. Cheng, as one of the lead physicians affiliated with state-run services in China, may seek to enforce birth quotas and forced family planning through any locations affiliated with Proactive Medical Care (HK) Enterprise Ltd. Her historical reluctance to work with American hospitals can be interpreted as reflecting a potential future strategy of using these clinics to achieve higher levels of birth quota compliance. This represents a major risk to the entire venture.

The broader initiative of birth control and child quotas is also a significant threat, as the ethics of this policy continue to be universally questioned as a human rights violation. Regulations from China's 1.5 Child Policy regions, such as Fujian Province, illustrate the coercive nature of these policies and the ethical exposure they create for any healthcare provider operating in those areas.