For a company to be successful in China’s health care sector, it’s not just about being at the right place at the right time. Just ask Roberta Lipson, CEO and president of Chindex International, a US$171 million, Nasdaq-listed company. Tenacity, patience and a large dose of entrepreneurial flexibility have also helped the American executive’s business ventures in China, which began some 30 years ago as an importer of high-end medical equipment in Beijing. The company has since expanded with its United Family Hospital (UFH) network to private, premium Western health care in a number of major Chinese cities.
Today, the company is at a critical juncture. With China’s government launching a sweeping 10-year reform program enabling universal health care, it is also increasingly open to helping private initiatives, such as Chindex’s. Combined with a new strategic relationship with a major private Chinese investor, Chindex is embarking on an ambitious course of growth.
In this interview with China Knowledge at Wharton, Lipson talks about how she turned her deep interest in China, which began at a summer camp when she was a young girl growing up in the U.S., into an entrepreneurial adventure that is far from over.
The following are edited extracts of the conversation, which has been translated from Chinese.
China Knowledge at Wharton: You first came to China in 1979, a time when the country was effectively closed to the outside world. What sparked your interest in the country?
Roberta Lipson: My interest was sparked as a child when I met a second-generation Chinese girl, who stayed in the same dormitory as I did during summer camp. My parents are second-generation Jewish immigrants from Eastern Europe. I saw many cultural similarities between the Chinese and Jewish immigrant communities. Both place great importance on education and family, have strong community ties, and can quickly adapt to different environments. I later studied sociology, and conducted cross-cultural [research] between the Chinese and Jewish communities.
In 1972, the same year Richard Nixon visited China, newspaper headlines carried stories about the gradual awakening of what they called the “sleeping dragon.” I was at university then, and this only made my interest in China grow stronger. After I graduated in 1976, I took a job with Schering, a large American pharmaceutical company. At the time, U.S. companies were not familiar with China and were hesitant to establish ties there. If you suggested trading with China, people would have said you were crazy. In 1979, I finally found an opportunity to come here.
China Knowledge at Wharton: What has kept you here for 30 years?
Lipson: I didn’t expect to stay for such a long time when I first arrived. But the massive gap between China and the outside world inspired me to make some changes. In the 1970s, China had few hospitals and lacked modern medical equipment. A doctor at one of the best hospitals in the country would be armed only with a stethoscope, and would probably have not even heard of a ultrasounds, cat scans or magnetic resonance imaging. Even though I could never have predicted my future success, I did see that China would move forward. The urgent need for medical technology and equipment allowed me to build a bridge, which helped narrow the gap between China and the outside world. It gave me a sense of accomplishment to have been able to participate in the growth of the nation’s medical care industry.
The lifestyle and ideology in China were totally different from anything I had encountered previously, and provided me with a new way of looking at things. If I had stayed in the U.S., my life would have been rather ordinary.
China Knowledge at Wharton: What has left the deepest impression on you over the past 30 years?
Lipson: The amazing growth. Thirty years is a long time, but it’s still difficult to comprehend the scale and speed of change in China. It is so dramatic and so fast. The country reinvents itself every decade. This is an incredible accomplishment.
To be honest, the health care sector has been relatively slow to change. However, recently health care reform has picked up speed. The government has committed to health care stimulus spending, and officials are moving toward a consensus. They recognize that the public health care system can take care of the country’s basic health care needs, and that foreign and private institutions can compliment the public system by providing premium quality care to those who can afford it.
China Knowledge at Wharton: In 1981, you started your own business. What did that involve?
Lipson: I met my business partner, Elyse Beth Silverberg, in China. It was strange that we had never met before. She’s a third-generation American Jew, who had lived in a house not far from mine in the U.S. She married a Chinese-restaurant manager from Hong Kong, whom she met while working part-time in his restaurant when she was in high school. In the early 1980s, she was studying at Peking University. After we met, we rented a small place, bought two typewriters, and started our own business importing medical and health care technology to China. We called it Chindex.
At that time, four officials in the foreign trade department controlled all medical equipment imports. If a hospital needed something, it had to apply to the trade department for it. Even when officials did try to do something, they had to rely on outdated information, such as old academic records, on which to base decisions about what to import.
In 1979, I invited ultrasound experts from the U.S. to give a lecture on the equipment to an audience of over 600 doctors in China. Most had never even heard of the instrument, which was already widely used in the States.
Our job was to research what equipment was necessary with these officials, then look for the right supplier at the right price, and handle after-sale service arrangements. Finally, after all of this, we would purchase and import [equipment]. Later, we became the sole agents importing this equipment. At first, the trade department was overly cautious, allowing us to meet with Chinese doctors only if we didn’t know what hospital they came from. They wanted us to give them information on the technology only, until they could see that we were reliable and trust us. Then they allowed us to work directly with the hospitals.
In the beginning, we mainly imported ultrasound sets. Later, we expanded to laser surgery and therapeutic equipment.
China Knowledge at Wharton: Why did you decide to move into health care services in 1994?
Lipson: Though hospital equipment in China was improving throughout the early 1990s, what was happening with service and patient care left a lot to be desired. I remember seeing a friend of mine give birth, and although she was in one of the top hospitals in the country, the entire procedure looked tortuous to me.
Elyse and I also travelled with Ministry of Health officials and local health administrators to the U.S. When the delegation saw how health care was handled in the U.S., they commented on the efficiency but in the same breath said American methods were not feasible in China. I wanted to set up a new model for Chinese hospitals. I saw it as more of an experiment. I never imagined what a profitable business it would turn out to be. I even thought it was potentially somewhat of a risky investment, as only a handful of wealthy Chinese and foreigners were interested in such services.
China Knowledge at Wharton: As a foreigner did you find it difficult to set up a new model for hospital care in China?
Lipson: The opening of the medical field has always lagged other areas. However two years ago, the administrators recognized that foreign and private capital could be a benefit to the development of high-end medical care in that it would help meet the demands of different economic classes. In the beginning, no one thought this field would make any money. The government also restricted foreign investment in health care. When we initially approached officials with our plan, they couldn’t see how it would possibly work. It took a lot of time to convince them.
Even if the government had approved of our plan in principle, it still took 185 official stamps from a variety of offices across the health, economic and trade departments before we could get started. Today, roughly the same number of stamps is still required, but many officials are beginning to accept what we want to do, and the brand is increasingly recognized. Our early funding to build the first hospital mainly came from our initial public offering on Nasdaq, which gave U.S. around US$10 million.
Employing professional doctors presented another challenge. Foreign doctors found it difficult to break away from their established practices in their home countries to start anew in China, and convincing Chinese doctors to leave their “iron rice bowl” jobs [the state’s system of guaranteed lifetime work] while government policy in this area was still unclear was a difficult task. Only the truly courageous on either side were willing to take the risk.
China Knowledge at Wharton: How do domestic hospitals compare with UFH?
Lipson: A large number of patients and limited resources have placed a great amount of pressure on the public health care system in China. Doctors are not earning enough or have enough time to care for patients properly. At UFH, we use an appointment system that places a patient with his or her own general practitioner. This way, the GP can get to know the patient’s medical history. In public hospitals, patients are randomly matched with whichever doctor is available at the time. Public hospitals also segregate doctors according to medical specialty, and restrict them to that specialty. For example, surgeons are only allowed to provide surgical services. At UFH, we first provide general services, then organize a relevant medical team to care for the patient.
We have also worked toward providing our patients with a comfortable environment for treatment, and this leaves them with a good impression of our services. We also pay careful attention to infection control.
But the most significant difference is in the assurance of medical quality. In public hospitals, the emphasis is on the number of sickbeds and pieces of equipment as a way of determining the level of care and quality provided. We are more concerned about standardizing procedures for everything from nurse and doctor duties to guards and janitorial activities. Through standardization, we not only offer our patients the best service possible, but also the respect they deserve.
China Knowledge at Wharton: How large is the UFH network, and what are your expansion plans?
Lipson: We opened the first UFH in Beijing in the late 1990s. Because of the market’s immaturity and uncertainty about policies, we were hesitant to expand right away. But after accumulating years of experience, and in light of the improving climate for health care reform, we are ready to support local branches outside of Beijing and Shanghai.
UFH in Beijing has increased the number of beds from 50 to 120, and in Guangzhou we are designing a much larger hospital, which we expect to complete by 2012. Our Shanghai hospitals have dozens of beds, and we also have clinics in some cities outside Beijing and Shanghai. We are currently considering projects in second-tier cities, such as Tianjin, Nanjing, Qingdao and Chengdu, and along China’s southeast coast there are dozens of cities whose populations have strong enough purchasing power that can support UFH branches.
China Knowledge at Wharton: Who is your current patient base?
Lipson: In the beginning, most of our patients were foreigners. But now, Chinese patients comprise nearly 40% of our patient base. This number includes celebrities, those working in high-end finance, entrepreneurs, senior managers and many repatriated Chinese.
Outside Beijing and Shanghai, UFH facilities aim to serve the local upper class. Although they have access to the best service in other areas, they have yet to have access to quality health care. They are forced to line up at public hospitals, and often have to call in favors from connections to get the care they need….
China Knowledge at Wharton: As a foreign entity in China, does UFH face limitations?
Lipson: The most pertinent change that affects UFH is the rising awareness and acceptance of policy makers. We have, however, directly benefitted from some policy changes, such being permanently exempt from a turnover tax, which represents 5% of our income. The income tax rate for UFH is still 25%, however, and I hope we can see a decrease more reflective of the 12.5% that high-tech companies now pay…. The market will continue to be more open.
There are also rumors that other key reforms are in the works. A doctor’s license is currently tied to just one hospital, and the Ministry of Health is set to issue a new regulation to allow a licensed doctor to work at two hospitals. This would improve our human resources management. Medical insurance will also be reformed so hospitals can offer insurance regardless of whether they institute government-regulated prices. Currently, we can’t match the prices the government has set, but our patients are often the largest contributors to health insurance policies. Beijing officials have in principle agreed to a partial insurance plan, which would see our patients covered for the amount of the government-mandated price, while making up the rest of the cost themselves. For example, if the government sets the price of a service at RMB 10 [US$1.49] but we charge RMB 30, our patients’ insurance covers RMB 10 and the patients pay the remaining RMB 20.
China Knowledge at Wharton: Last year, Fosun Group, one of China’s largest private investment groups, entered into a relationship with UFH. What have the benefits of the relationship been for UFH? What do you think of these emerging entrepreneurs?
Lipson: I have a lot of respect for them. Fosun has grown dramatically over the past two decades and is tremendously successful. I was very impressed with the founder’s vision when they contacted us last year. Fosun wasn’t the only investor interested in us, but their professionalism, humility and work ethic convinced us [to work with them]. Our corporate cultures have a lot in common.
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