NAVIGATION

Teething Problems in Senior Care Industry

Filial piety maybe the first among 100 virtues, but that doesn’t mean China’s senior citizens can enjoy their twilight years comfortably. That the government felt the need to enshrine the proverb into law, with the Elderly Rights Law that came into effect in July, reflects the looming crisis that facing an increasingly aging population often cut off from the children they are supposed to be relying on.

Last year, around 14 percent of China’s population was 60 or older. According to a recent Xinhua report this percentage is likely to rise to 30 percent by 2050, equivalent to more than 430 million people. While the numbers are staggering, many countries already have substantial elderly populations, and it is the pace of change that is creating problems in China. Whereas it took around 60 years for the elderly population to increase from 10 percent to 20 percent in countries such as the US, China will make the transition in less than 20 year.

And China simply isn’t ready for it.

“The public healthcare system isn’t equipped in terms of capacity or structure to deal with a rapidly aging population,” says Joshua Kurtzig, general manager at United Family Home Health. Kurtzig says that not only is there a lack of geriatric specialists, but those that do exist are too busy to properly plan out care for their patients. The result is that elderly patients who might be suffering from a range of ailments still need to visit specialists independently who don’t communicate with each other, providing very little structure to the care provided. Moreover, because Chinese aren’t used to receiving medical services at home, as Americans and Europeans are, this puts extra pressure on hospitals.

“The government is looking into these issues, but this really needed to have been dealt with 20 years ago,” he says.

Another challenge is societal. Despite the espousals of filial piety, the reality is that investment is more likely to be made in the next generation than the previous one. The one-child policy, which has created the 4:2:1 phenomenon of an ever increasing dependence on a smaller number of offspring, has perversely created a situation where parents feel the need to indulge in their single children. Not only that, but they are increasingly mobile as they look for the best career opportunities, often far away from their parents.

Hence the need for someone else to take on responsibility for taking care of the elderly. But no one has stepped up to the plate yet, according to the Xinhua report, which noted that for the 194 million senior citizens in 2012, there were just 3.9 million places in nursing facilities for them.

NEW CONCEPT

Senior care is a concept that has had any meaning in China only in the past few years, and the sector has been dominated by model based on real estate.

“It’s mainly an asset business in China at the moment, but senior living is really a service,” says
Bromme Cole, president of Hampton Hoerter Healthcare. “The concept of senior living services is very poorly understood. Chinese people want something that’s tangible, so most developers focused on the real estate side of the business.”

With land prices in cities rising strongly across the country over the past few years, this has result in senior care facilities targeting the very high-end with Western-style service. However, this market is small, and operators have struggled.

There is no successful Western-operated senior living project in China,” Cole says. “They believed in the myth of high end, which doesn’t really exist. They are trying to sell services to a generation from Mao’s era, but they don’t want to live away from their families.”

RISING PRIORITY

In many countries, the government takes the lead in providing for the elderly, with the private sector filling in the gaps. But in China the government is struggling to keep up—it doesn’t provide any subsidies for people to live in senior care facilities, for example, and most of those in nursing homes pay for it out of their pension and support from families. Moreover, responsibility for the care of seniors is split between the Ministry of Civil Affairs, which provides nursing facilities, and the Ministry of Health, which provides medical services. Because it’s so difficult for nursing homes to get the kind of medical licensing needed to provide even basic medical attention such as injections, they need to have affiliation with a hospital.

In the US, nurses have their own certification that allows them to provide basic medical services even in people’s homes. China may one day adopt something similar, albeit not anytime soon, according to Helen Chen, marketing and public relations manager at Right at Home, a homecare service provider from the US present in seven cities in China. “There is huge demand for skilled nursing at home for seniors,” she says, “but this kind of reform needs to come from the government, and we need to find a way to do this.”

Even so, the situation is improving for private players who sense opportunity in the market. For a long time the government didn’t see a place for private healthcare in the system, and in fact investment in healthcare by foreign entities was prohibited. Now investments are permitted and are even seen by some authorities as a valuable source of revenue, but a lot of red tape remains.

“The many layers of bureaucracy are confusing and deter investment here,” Kurtzig says. “You’ve got national, provincial and local governments, and while they are very keen to get into their district high-end healthcare facilities by offering preferential policies on land and so on, but they can’t grant medical licenses, which are all done by Ministry of Health. Applications can sit there for a very long time.”

He nevertheless sees hope in recent pronouncements by senior leaders on expanding the provision of senior care services, including in partnership with the private sectors. In August, for example, Premier Li Keqiang said that the government would build a diversified nationwide elderly care service system by 2020 through reform and innovation. Moreover, the State Council released a circular in September that encouraged investment by private and foreign entities in senior care services, a significant turnaround from the previous attitude toward non-government involvement.

KEYS TO SUCCESS

So how can US companies successfully enter the market for senior care in China? Almost unanimously, observers say that localizing is key to success. Right at Home, for example, offers a service unique to China whereby their caregivers help patients visit doctors, because of the complicated procedures in China and the tight timetables of their busy children.

Cole forecasts that for facility-based care, localization can take up to five years, if the company is around for that long. He also estimates there is a market of around 100 million right now in what he describes as the “fat middle”—senior care delivered in a facility at a cost of between RMB 4,000 and RMB 8,000 per month.

And that is the segment that Ryan Jing, a US entrepreneur, is targeting with a facility in Tianjin catering to Alzheimer’s patients. Priced at RMB 5,000 per person, the facility will be able to house 120 people with the most common form of dementia. He estimates that about 2 million elderly people in Tianjin, of which 6-10 percent have dementia. Of those, about 30 percent would be willing to move to senior housing because their families can’t provide adequate care, making for
a market size of about 10,000.

Jing, who has been consulting on senior care provision in Beijing for the past few years, says that there are only a handful of facilities in Tianjin catering to Alzheimer’s patients, but they aren’t doing well because they are priced too high. He agrees with Cole that a key consideration is keeping the environment familiar. “We interviewed a lot of families when working on the furnishings and decorations, and got some of them to be involved with the project,” Jing says. “They were happy to do that because there’s nothing on the market that meets their needs.”

While the market for out-of-home senior healthcare remains small and undeveloped, it is just a matter of timing. In the West, around 7-8 percent of seniors live in nursing homes, compared with 10 percent in Taiwan and 13 percent in Japan. In China, the figure is just 2 percent.

“There are enormous opportunities here for foreign companies in senior living,” Cole says. “But
companies need to avoid the idea that their brand in China is a much sought-after thing. They should let the brand sell itself, but sell a local product or service to be successful.”

Graham Norris is the communications director at AmCham China.