By Melanie Evans
ProMedica, a nonprofit operating more than a dozen hospitals
across Rust Belt communities in Ohio and Michigan, is looking to a
new market to bolster its anemic growth: China.
Executives and staff from the Toledo-based nonprofit have been
touring hospitals in Shanghai, Shenzhen and Chengdu, exploring
possible deals in the world's second-largest economy that they hope
will help offset weak revenue growth at home.
"We have to look outside our traditional world if we're going to
survive, " said Randy Oostra, president and chief executive of the
hospital group. "The economic model is tough" in ProMedica's
domestic markets, where populations are stagnant or declining and
where cost pressures and competition are shifting medical care
outside of hospitals, he said.
The hospital industry has been slower to globalize than many
other U.S. sectors, daunted by the investment required and content
with what was for many years a robust domestic market. Some
prestigious U.S. medical centers and HCA Healthcare Corp. entered
overseas markets years ago, but most American hospital systems have
stayed home.
Now, more are seeking cross-border deals for the first time,
while others are expanding their overseas reach. Deals range from
consulting and management contracts to acquisitions. Markets
attracting U.S. interest are diverse: from posh London
neighborhoods to booming Chinese cities and other investments
scattered across Europe and Latin America.
The push is an effort to diversify revenue as pressure
intensifies from U.S. consumers and policy makers to cut medical
spending, some executives said. Others said new markets abroad
offer more attractive margins or more favorable payment models. A
more global reach can also help in the development of ties with
international researchers, a potential benefit to U.S. academic
medical centers, officials said.
Boston-based Steward Health Care System reached a deal in
February to run Malta's two public hospitals and open a third.
UPMC, which is affiliated with the University of Pittsburgh, has
long provided consulting and management services in several
countries and is now looking to buy hospitals, cancer centers and
primary-care networks in Italy, Ireland, Kazakhstan and China, a
company executive said. Other U.S. hospital corporations have
struck deals in the U.K., Colombia and France in recent years.
The efforts have gained momentum with a health-care overhaul in
China, where rising rates of chronic disease and an aging
population have increased health spending. China in recent years
has said it would allow foreign ownership of some hospitals as part
of the overhaul.
"The sheer demand is just massive" in China, attracting
investment from insurance companies, entrepreneurs and public and
private infrastructure developers, said Axel Baur, a senior partner
for McKinsey & Co. who is based in Hong Kong. Developers in
China are looking to U.S. hospitals for brand recognition and
expertise training staff and setting medical protocols, Dr. Baur
said.
Boston-based Brigham Health and Massachusetts General Hospital
are helping Chinese partners open new hospitals, while Ohio's
Cleveland Clinic disclosed to investors last year that it would
consult for a Chinese developer. "The project is in the very early
stages," said Cleveland Clinic spokeswoman Angela Kiska.
Dealogic data show overseas acquisitions by U.S. hospital and
health-service corporations are on the rise, though the numbers
remain small compared with the consumer-product, technology and
pharmaceutical sectors.
There are potential pitfalls to that expansion. U.S. hospitals
risk their brands' reputations by lending their names to facilities
they don't own or manage. And acquiring a hospital in a foreign
country leaves buyers vulnerable to changes in local markets or
regulations.
Such deals typically don't generate significant revenue, said
Lisa Goldstein, an analyst with Moody's Investors Service. But
private-pay hospitals abroad could be more profitable with more
scheduled and elective procedures than typical U.S. hospitals, she
said. Hospitals overseas could also see fewer uninsured patients in
countries with national health systems.
ProMedica took a number of steps at home to try to boost growth,
including acquiring a dental health-insurance plan and opening
free-standing urgent-care centers. But with operations in shrinking
markets, ProMedica must also look elsewhere for new business, said
Mr. Oostra, the system's CEO.
ProMedica is considering a dozen deals in China, where some
fast-growing cities are home to more people than ProMedica's home
state of Ohio, Mr. Oostra said. ProMedica would potentially run
hospitals or provide consulting services to developers of
hospitals, outpatient care and community health initiatives, he
said.
ProMedica staff have made seven trips to China since December
2015. Mr. Oostra has traveled there twice and plans to return this
year. Between visits, he uses the Chinese messaging app WeChat to
keep in touch with potential partners.
Brigham Health, a subsidiary of Boston-based Partners
HealthCare, is under contract to help Evergrande Health Industry
Group Ltd., based in Guangzhou, design new hospitals. The first,
which opened in recent weeks, is a cancer hospital on China's
tropical island province of Hainan, near Vietnam.
The hospital is expected to draw patients from around the
region, said Mark Davis, executive director of strategic
initiatives and business development for Brigham Health. An
Evergrande spokeswoman called the hospital "a good start" to the
partnership. Partners HealthCare's Massachusetts General Hospital
also holds a consulting contract with another developer that opened
a Chinese hospital in October.
In the U.K., Cleveland Clinic is leasing a six-story building in
central London, which it is renovating into a 200-bed hospital
expected to open in 2020. The private-pay hospital, near Buckingham
Palace, won't be part of Britain's taxpayer-funded National Health
Service.
UPMC has for years held management and consulting contracts in
more than a dozen countries. The nonprofit is now attempting to
acquire hospitals and clinics overseas, beginning in Italy and
Ireland, said Chuck Bogosta, president of UPMC International. In
September, UPMC acquired a 50% stake in a private hospital in
Rome.
Ownership will give UPMC more control as it tries to build its
international brand, recruit global talent and diversify its
revenue, Mr. Bogosta said. Managing and consulting is "not as
sustainable as ownership," he said.
(END) Dow Jones Newswires
April 22, 2018 07:14 ET (11:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.