Facing headwinds at home, Genesis Healthcare (NYSE: GEN) has embarked on a plan to tap into the nascent post-acute care market in China — with an eye on capturing just a small fraction of the country’s favorable demographic profile.
The Kennett Square, Pa.-based skilled nursing provider has been active in China since 2015, when it opened a “Vitality Center” in Zengcheng. Since that time, Genesis has expanded its China roster to include 12 care sites, but the company accelerated its Asia plans last month when it sold 51% of GRS-HS, its Chinese subsidiary, to Riswein Health Industry Investment for $30 million.
“It’s a very different health care dynamic in China versus the U.S., so it helps us navigate in the country much more effectively,” Genesis CEO George Hager told SNN earlier this month. “Having a partner, both strategic and capital, was always part of the plan.”
Under the terms of the deal, Riswein will pump $30 million into the newfound joint venture to develop what the Chinese operator terms “ecosystems” — a consortium of acute care rehab hospitals that partner with community-based clinics and home care providers to offer a more comprehensive elder-care model than currently exists in the country.
Acute care remains king in China, Hager said, with 1,000- to 2,000-bed hospitals that house patients for weeks at a time.
“There’s very little rehab infrastructure in the country itself, so we’d like to take that first-in advantage in China with Riswein as our partner,” he said.
The preliminary plan will see the joint venture attempt to establish two of these “ecosystems” in Beijing and Shanghai, with a goal of being able to serve a total of 1 million people across the two metropolitan areas. Riswein and GRS-HS would only own the acute care rehab hospital, with strategic partners making up the remainder of each “ecosystem.”
“Today we’re looking at developing proof of concept around those two ecosystems, and that will be the basis for generating or procuring the capital we will need to more aggressively expand the model,” Hager said.
The demographics are tantalizing for Genesis and other foreign operators alike. While the proportion of the Chinese population aged 65 and older is actually smaller than in the United States — 10.8% versus 15.6%, according to the most recent data from the CIA World Factbook — China’s sizable population still makes the math work: There were 149 million Chinese aged 65 and older in 2017, compared to 51 million Americans in that age bracket.
“Even a small percentage of that, [with] a growing middle class, is a significant opportunity, supplemented with a developing private health insurance market that supplements the government system,” Hager said.
Amid well-publicized issues with major landlords such as Omega Health Care Investors (NYSE: OHI) and Sabra Health Care REIT (Nasdaq: SBRA) — the latter of which is putting the finishing touches on its “Genesis Exodus” plan to divest the vast majority of its Genesis assets — China represents something of a new frontier for the provider. But of course, it’s not as simple as dropping a U.S.-style model into cities and towns thousands of miles away and expecting to make things work.
Several other foreign providers have faced issues when trying to break into the Chinese market. In 2016, a year after the Japan-based Nichii Gakkan Co. made its first foray into China, the operator still remained unprofitable, according to a report in the South China Morning Post.
It similarly took the U.S.-based Cascade Healthcare four years to achieve profitability, the outlet reported, with foreign operators stymied by some basic lost-in-translation issues — a buffet-style dining facility confused residents, who were more accustomed to ordering off a menu — as well as spotty insurance coverage.
But Hager was bullish on the development of new insurance programs targeted at China’s burgeoning middle class, and the notably restrictive government has played an active role in attempting to attract overseas investment in aging care. Foreign operators can receive some of the same treatment as domestic companies under a new push from Beijing, China Daily reported last year, and the government projects that private operators will control half of all senior-care beds in the country by 2020.
To avoid culture shock, Hager said the care plan for the “ecosystems” would combine both Western medicine and more traditional Eastern practices — and he also emphasized that the Genesis name still carries some cachet among China-based operators looking to expand in the space.
“We’re learning to blend the two [styles], but it’s a leveraging of intellectual property,” he said. “Quite frankly, [Riswein] is most interested in accessing that intellectual property and developing the infrastructure in China that we have here in the States.”
Written by Alex Spanko