Getting into an industry new to foreigners in China will have its own special pitfalls.
Getting into an industry new to foreigners in China will have its own special pitfalls.

This is the second part of Ben Shobert’s post on China’s senior care and healthcare. Go here for part I.  Ben has assisted countless companies in these industries get into China and I thought it would be helpful to our readers to have him talk about the issues his senior and healthcare clients are facing in China. This sort of analysis is critical for anyone in those industries, but also helpful for anyone looking to go into China, especially if they too are in an industry newly opening to foreigners.

 

As readers of China Law Blog might guess, China’s regulatory scheme for senior care is dynamically changing. This can make it difficult for both overseas investors and local government officials to keep constant track of the changes, leading to disconnects that impact investment and operating plans.   Many parts of the legislation governing the senior care industry are unclear, leaving “gray” areas. An essential part of a foreign operator’s go-to-market strategy is an understanding of what parts within its planned services fall within the “gray” areas. Estimating and devising a way to manage the risks are essential to avoid jeopardizing the entire business in China, or breaking a contractual arrangement with a Chinese partner. Many western companies we talked to were in such a rush to get an initial MOU or LOI in place with a Chinese partner that they cut corners. Inevitably this created a problem as they ended up having to go back and start over, many times not only because they had been in too much of a rush in getting a license, but more importantly, because they had not taken the time to complete even the most basic due diligence on their Chinese partner.

The most painful lesson our research brought forward was what happens when this licensing process is not taken seriously. Licensing a new foreign owned and operated senior care or healthcare entity in China is more than a mere formality. In fact, the scope of services explicitly called out during the registration process is determinative to a number of core commercial issues. During the WFOE formation process, the most important variable a senior care operator will need to think through is the business scope of their license. In the case of home healthcare as just one example, most foreign operators want a business scope that will allow broad nurse-led interactions in the home. These interactions tend to reflect what a foreign home healthcare provider has found are most commercially and clinically valuable to both families and payers in developed markets. Examples of these higher acuity services include maintenance of IV-administered fluids and medications, enteral feeding, PICC lines, respiratory therapy, broad rehabilitation services, delivery of opiates as part of hospice care, and ventilator management,. The issue is how relevant Chinese authorities view and regulate new foreign businesses that aspire to deliver western, nurse-led care within Chinese homes.

If your company is forward thinking enough to be considering taking your senior care, home healthcare or healthcare business to China, you are likely the type of organization that is comfortable taking risks. That’s good and necessary to be successful in China. However, it isn’t enough. Taking the time, being patient and willing to spend money vetting potential partners, talking and building relationships with government stakeholders and thinking proactively about how you are going to find customers are all critical to being successful in China. The pressure to get “something” done in China can lead many healthcare organizations to under-estimate the amount of time they need to spend conducting due diligence and filling the pipeline with multiple potential suitors. In China, especially in sectors as hot as senior care and hospitals, the amount of interest from possible Chinese partners can make it difficult to maintain a disciplined strategy. Many organizations end up choosing a partner based on intangibles, things like the always thrown-about guanxi, and assume their Chinese partner can wave a magic wand and make all potential licensing, marketing and patient acquisition issues disappear. Our research over the last six months, and our in-country work over the last four years, shows these are dangerous assumptions to make. Western healthcare providers that are successful take a focused, patient approach to China, in particular around questions of how to license their healthcare business. This may slow things down in the short term, but it goes a long way to ensuring your business has longevity and is protected from China’s various ill-tempered moods towards FDI in sensitive parts of its economy, of which healthcare will remain one for the next several decades.

More information on our 200+ page report on China’s senior care and home healthcare industry is available here.