Business

A dose of capitalism

Canadians plan to open China's first private hospital

JOANNA SLATER January 12 1998
Business

A dose of capitalism

Canadians plan to open China's first private hospital

JOANNA SLATER January 12 1998

A dose of capitalism

Canadians plan to open China's first private hospital

JOANNA SLATER

Business

Two years ago, Peter Bruijns was working as a consultant at a hospital in Cambridge, Ont., trying— like many others across Canada—to cut staff and reduce costs. These days, as president of InterHealth Canada (China) Inc., he’s more likely to be chomping into a goat leg with his Chinese business partner and spending all night in meetings at the Chinese ministry of health. “It’s not work, it’s fun,” says Bruijns of his current project, a pioneering effort to build and operate China’s first foreign-run, full-service private hospital. “Of course,” he adds with a laugh, “my hair was brown when we started.”

Several grey hairs later, Bruijns’s labors are starting to pay off. His company, owned by Toronto-based InterHealth Canada Ltd. and four other shareholders, beat out 30 firms from around the globe in May, 1996, to obtain China’s first-ever private hospital licence. To be called the Beijing Toronto International Hospital, the 250-bed facility will be staffed by equal numbers of Canadian and Chinese doctors and will eventually offer a full range of services, all governed by the same standards as any hospital in Canada.

Canadian medicine has a distinguished history in China, where every schoolchild hears the story of how “Bai Qiuen”—Dr. Norman Bethune—brought his training and expertise to the country 60 years ago, after the Communist Long March. But the BTIH will break new ground in a number of areas, not least its orientation towards profit. The proposed hospital represents a partnership among InterHealth China—which owns 51 per cent of the venture—the China National Medical Equipment Import Export Co., and the Beijing Comprehensive Investment Co., a state-owned enterprise with holdings in real estate and transportation.

The hospital’s first stage, scheduled to open in late 1998, will include all medical services except major cardiac and neurosurgery and is budgeted at $40 million—an investment that InterHealth China and its partners expect to recoup after three to four years of operation. “Our data are pretty clear,” says Bruijns. “If the market reacts slowly, we would be shocked.” Projections like that help to explain why the Dutch giant Rabobank NV, one of the world’s 50 largest banks, agreed to finance the project—with a loan that required no guarantees, an unusual risk for a joint venture in China. According to Bruijns, InterHealth China first approached several large Canadian banks with its proposal, but none had the stomach for such an unusual leap of faith.

Granted, the task of setting up a Western-style hospital in the capital of the world’s remaining Communist superpower is a hugely complex undertaking. Thanks to a high-bandwidth satellite link, doctors at the BTIH will be able to consult with their peers at the Hamilton Health Sciences Corp.—a group of four Hamilton-area hospitals—24 hours a day. But before it can implement such hightech solutions, InterHealth China will have to overcome a much more basic obstacle: how to duplicate Canadian standards for everything from administration and treatment, to procedures and supplies, in a developing city such as Beijing. ‘To think you can come into China and just set up a hospital is folly,” says David Hofmann, a spokesman for the U.S.-China Industrial Exchange, a company that has imported medical equipment to China for 20 years, yet spent four years setting up a small primary-care facility called the Beijing United Family Health Centre.

One encouraging sign is a unique concession from the ministry of health that will allow the new hospital’s pharmacy to import and dispense drugs that may not be licensed for use in China. Still, the main burden of making sure the transplant succeeds will fall on the shoulders of a core staff of 60 Canadians. “It’s going to be taxing on our staff,” acknowledges Bruijns.

Despite the obstacles, there has been no shortage of people ready for the challenge. The hospital’s chief administrator, John Tegenfeldt, was lured away from his post as CEO of the Vancouver-Richmond Health Board, one of the country’s largest hospital authorities. Also in the running for his position were the heads of several of Canada’s top teaching hospitals. The recently selected director of patient services is Anne Sutherland-Boal, now the vice-president of programs and services at British Columbia Children’s Hospital in Vancouver.

This miniature brain drain to Beijing is not as unlikely as it first seems. “People are tired of taking things apart,” says Bruijns, referring to recent rollbacks in publicly funded health care in Canada. “They want to build something instead.” It is a sentiment echoed by the president of Hamilton Health Sciences Corp., Scott Rowand, who adds that in Canada “we constantly seem to be managing downsizing. It’s nice to have a different preoccupation.” Others cite more personal reasons for heading to China. “This is exciting, new, creative, risky,” says Helen Ziegler, head of Toronto-based Helen Ziegler and Associates, Inc., the recruiter for the hospital and an InterHealth shareholder. “It’s those kind of people we’re talking to.”

InterHealth Canada began three years ago with the idea of exporting Canadian expertise around the world. Its approximately 75 shareholders represent the full spectrum of the Canadian health-care system—among them the governments of Ontario and British Columbia, McMaster University, diagnostic services firm MDS Inc., the Registered Nurses Association of Ontario, the Ottawa Heart Institute and Toronto’s Mount Sinai Hospital Foundation. So far, InterHealth has participated in projects in Thailand, Hungary and India, but the Beijing hospital is its first “real home run,” says Bruijns. Adds Skip Schwartz, InterHealth Canada’s president: “We’re here to make money but we’re also here to do good. That attitude is sometimes seen to be less competitive, but it’s a very Canadian way of doing things.”

In the case of the BTIH, competition is unlikely to be an issue. In August, the Chinese government passed new regulations designed to make potential joint-venture partners think twice about entering the market. The rules limit the stake foreign partners can hold in institutional health-care ventures to less than 50 per cent, and cap the lifespan of such projects at 20 years—compared with the 30-year licence obtained by the BTIH. If InterHealth China had been subjected to the same requirements, “we would have reconsidered our position,” Bruijns says. Erick Chai, the hospital’s vice-president for development, adds that the Chinese authorities want to see the first such facility up and running before deciding whether to allow similar projects. “It’s not like it’s real estate—health care is a very special, sensitive area,” Chai says.

Meantime, the announcement of the hospital deal is good news for Beijing’s 150,000-strong expatriate community, ror wnom mu-service western health care typically necessitates a flight to Tokyo or Hong Kong. The Chinese capital is home to several joint-venture international clinics, but most offer only basic services, and the specially designated foreign wings of local hospitals do not provide the level of comfort to which expatriates are accustomed.

Expatriates, however, are only part of the equation: the hospital expects that half its future patients will be Chinese, members of a growing urban elite that is starting to demand high-quality health care. ‘They’re able to buy other services,” explains Roberta Lipson, the president of U.S.-China Industrial Exchange. “But there wasn’t the option of paying more money for more or different health-care services.”

Lipson, an American who has spent 20 years in Beijing, recently conducted an informal survey in which she asked Chinese acquaintances if they would be willing to spend several thousand dollars to have a baby in a state-of-the-art facility. “They said, We spend that much on a big dinner party in one night,’ ” she recounts. One of the services slated for BTIH’s first stage is an obstetrics unit.

Already, one of the main concerns of the hospital’s administrators is to control demand for its services. The most obvious mechanism is price: at the outset the hospital will sell memberships to 7,000 families, charging expatriates $1,400 per year and $700 for each additional family member. Chinese clients will have to buy an $8,400 lifetime membership, with $2,800 for each additional relative. Members will then pay extra for any treatment, based on a fee-for-service structure roughly equivalent to about 70 per cent of the prices charged by U.S. hospitals.

Put it that way and the hospital sounds distinctly un-Canadian. But Bruijns dismisses such concerns. “Canada should export its strengths,” he says, “and exporting health care can be the source of a lot of jobs back home.” He cites the fact that Hamilton Health Sciences Corp. will benefit from its deal to consult via satellite with the BTIH, and that the satellite link itself will create technical jobs. Adds Ziegler, whose company is North America’s largest recruiter for hospitals abroad: “There’s room for a commitment to top-notch health care, to teaching and to making money.”

Ultimately, the hospital will be a Chinese resource. When the BTIH licence expires in 2026, China will take possession of “an infrastructure of top-end Western health care,” says Bruijns. Whether the authorities decide to keep the Canadian contingent, use the hospital as a teaching facility, or simply continue to reap the rewards of their investment will be entirely up to them. “This is the first step of the long march,” says Chai. And a revolutionary deal, at that.