Why Genesis Sees Opportunity in China’s Post-Acute Care Vacuum

The massive purchasing power of China’s population draws businesses from across the world, and one major post-acute player sees opportunity to thrive by introducing rehabilitation services to the country’s health care system.

But to do that, Genesis HealthCare (NYSE: GEN) had to overcome the challenges of breaking into the notoriously challenging market, and learned some lessons along the way.

“If you think about going to China, partnership is critically important,” Genesis CEO George Hager said during a Monday presentation at the American Health Care Association’s annual convention and expo in Orlando, Fla. “One of the things, if we could do over again, would be: We went into the country [for] three or four years trying to build our practice by ourselves. It is extraordinarily challenging.”

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The learning curve of collaboration

The Kennett Square, Pa.-based Genesis opened its first “Vitality Center” in Zengcheng in November 2014 — nine months after the board approved the initial commitment to enter that market — and now provides services at 12 sites in the country. But one key step, Hager noted, was selling 51% of its Chinese subsidiary, GRS-HS, to Riswein Health Industry Investment for $30 million.

That $30 million was “desperately needed to continue to fuel the growth,” according to Hager. And that makes finding the right partner for operations essential.

One of the other major differences between the U.S. and Chinese markets is the expectations around health care. In China, the focus is primarily on acute care, and typically begins and ends with patients going to the hospital for life-saving treatments. Rehabilitation and preventive services are much harder to access, according to Ian Hau, the president of GRS-HS Asia Limited.

In fact, the general lack of post-acute infrastructure in China was a crucial gap that presented opportunity for Genesis, Hager said.

The investment from Riswein went to fund a joint venture aimed at developing what the Chinese operator called “ecosystems,” or a consortium of acute-care rehab hospitals that partner with community-based clinics and home care providers. The goal is to help develop a more comprehensive eldercare model, according to the company.

“Once discharged, patients are discharged back into the community, home with virtually no supporting community-based post-acute infrastructure,” Hager noted. “I think that really is the opportunity we saw.”

To that end, Genesis has entered into technical collaborations with hospitals, helping design gyms and create standards for equipment based on resident diagnoses —and then installing that equipment.

The company has partnership agreements and joint ventures with eight partners across three product lines: collaborations/nursing homes, rehab hospitals, and community-based rehab centers. And the operating model is scalable, with Genesis able to draw from its experience in the U.S, according to Dean Feick, senior vice president of international operations at Genesis Rehabilitation Services and moderator of Monday’s discussion.

Rehab a priority for China’s government

The Chinese government has noticed the lack of rehab care as well. In fact, the Chinese premier said in both 2001 and in 2013 that “rehabilitation is an area for focused development for China,” according to Feick.

One other interesting wrinkle for bringing rehab and post-acute care to China lies in the fact that medical care falls under the purview of the Ministry of Health, while senior care is under the Ministry of Civil Affairs, he added. There’s been some debate about integrating the two, though at the moment, it’s still in the “buzzword” status. In addition, while the government insurance plan covers most of the Chinese population, the reimbursement for rehab care has always been traditionally low.

Still, the operator sees continued opportunities for growth in the country. For one thing, Genesis is the first mover in the Chinese rehab care space, and the early brand recognition — combined with an evidence-based approach — distinguishes GRS-HS from its peers, Feick argued in his presentation.

For one thing, the demographics in China are even more compelling than those of the U.S. The 60=and-older population in China was 247 million in 2017, and is projected to hit 487 million by 2050 — larger than the entire American population at that time, according to some estimates — with chronic disease currently accounting for 70% of health care costs. Most at-risk patients don’t receive any rehab to prevent falls, while acute-care patients don’t get enough rehab for a full recovery, Feick said.

And though cultural expectations around care are extremely powerful, the numbers are just too weighty to ignore — especially given the government’s decades-long one-child policy for population control.

“Traditionally, family culture is very strong, [but in] coming decades, one child will be taking care of two parents and four grandparents,” Hau observed. “It’s impractical. You just can’t do it.”

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