Private healthcare seen as growth sector amid broader recovery

Despite headwinds from the COVID-19 pandemic, China's private healthcare sector is set for a growth spurt along with China's economic recovery, with more efforts expected for private hospitals to refine services, talent acquisition, financial management and leverage acquisitions to position themselves for a revival, experts said.

"Private hospitals need to build differentiated service capabilities, establish quality healthcare teams, strengthen financial analysis and cost control, and increase asset utilization to achieve profitability," said Gao Huan, managing director of Alvarez & Marsal Holdings, a global consulting firm. "Stronger private hospitals and investor groups should consolidate high-quality assets through mergers or acquisitions to position themselves to reap the dividends of the coming economic recovery."

According to Alvarez & Marsal, China's private healthcare industry once experienced a boom in development; however this was impacted by COVID-19. Overall, the number of private specialty hospitals going bankrupt or reorganizing each year has grown from 316 (3.7 percent of total) in 2019 before the pandemic to 681 (6.2 percent of total) in 2022, a compound annual growth rate of 20 percent according to Qichacha, a corporate information provider.

Against this backdrop, investment, financing, and M&A within the private healthcare market have been active over the past few years. The size of transactions has increased year-on-year, and control acquisitions have become a principal investment theme.

Data from the National Bureau of Statistics showed the number of private hospitals totaled around 25,000 as of the end of 2022, while the number of public hospitals was about 12,000.

According to Gao, private hospitals in China currently have two big areas for opportunity.

"The first is to fill gaps in the public healthcare system by doing business where public hospitals are not as strong. This includes areas like ophthalmology, rehabilitation, orthopedics, cosmetics, pediatrics, dental and other specialties. Many of these specialties are also more aligned with private pay customers and commercial insurance. The challenge in this area is how to compete for customers and medical talent," she said.

Gao said the second area of opportunity is innovation. "Globally, medical care is moving away from hospitals and toward home and online care. This trend is slower in China than elsewhere, but China will leap ahead as it has in many other industries. China's aging population will spur innovation, and private healthcare providers will lead that charge."

Joshua Kurtzig, senior director with Alvarez & Marsal, said the potential of development in China's private hospital sector is also attracting foreign players.

"Whether it's pharmaceuticals, medical devices, or new models of healthcare service, foreign investment certainly has a role to play. Volume-based procurement and other policies may have caused some foreign investors to adjust their current investment strategy for China. But we believe this is a short-term effect. Over the medium and long terms, foreign investors will continue to find opportunities to add value to China's healthcare system."