Beyond licensing issues, the second biggest strategic concern a home healthcare business in China has is referral source cultivation. Earlier in this series I offered up some introductory thoughts about marketing, which is certainly a related topic; however, referral source cultivation is a broader, and more strategic issue.
Here’s why: globally, home healthcare has evolved in concert with more sophisticated payment schemes from central reimbursement programs, almost all of which are government-run. Home healthcare is a response to insurance (whether public or private) that recognizes the most expensive care is in the hospital, in particular for frequent flyers that are re-admitted in situations a nurse-led home healthcare provider could prevent. Yes, there are small private pay home healthcare companies, but having recently completed a client-directed home healthcare research project across five ASEAN countries, I can tell you that even very well-run home healthcare providers hit a wall relative to how big they can get as long as their census is private pay. Markets like those in most – if not all ASEAN countries – that have low-priced immigrant / migrant labor – suffer from supplementary workers that can often defray the ability of a commercial enterprise to offer lower-acuity companionship or similar services.
In addition, home healthcare operators in private pay markets struggle with respect to capacity utilization – which obviously causes operating problems and issues around how to absorb high cost variable labor expenses in the form of caregivers, nurses and for some operators, doctors as well. This means small to mid-sized home healthcare operators in private-pay only markets tend to be under-capitalized, with limits to how big they can get. Bear with me here, because this all goes back to referral source strategies: the other issue in private pay markets is they tend to be highly episodic and geographically dispersed throughout a city. This all matters because absent 24/7 care packages (of which there are precious few, even in more developed economies or cities in the ASEAN region), you quickly determine that too much time is spent in-transit, which drives per-visit prices up, all in a market where the home health concept is new, which means consumers highly rationalize the service to begin with.
What does this all mean? One answer, which a number of people I have talked to this week in China have said, is that home healthcare is simply not ready to commercially scale here yet. Without a doubt, timing on a service model like this is everything. And we all recognize the market for senior care services in general is in its earliest stages in China especially, but the region more generally. To the extent home healthcare at the scale we see it deployed in developed US, UK, and EU markets requires an organized national insurance plan with home health as a reimbursed service around overall population health management, then China is absolutely, without question, not ready for home healthcare.
But let me push back on this by alluding to what I think three options are that would allow a private pay home healthcare company to be successful in China, all of which revolve around referral source cultivation (ambiguities that follow are – for obvious reasons – intentional). First up, you could throw the idea of home healthcare as a branding and operating strategy out the window. What do I mean by that? Come at this market with as open a mind as you can, and put yourself in the shoes of your potential clients. Stop asking health questions, and think about wellness questions. In what ways is home health a follow-on service to something else that you know the Chinese consumer already has expressed an appetite to pay for in the health and wellness area? What sort of conditions are Chinese families least equipped to deal with based on what you know about their unique dynamics and the status of senior care here? Some of the answer will be clinical and health-driven, but you will also – if properly guided – start to see specific extremely niche-driven specialties that are going to be easier to market and, as such, to find referral sources.
A second option is to follow the same sort of mapping activities that pharmaceutical and medical device companies have done for years in developed and emerging economies: key opinion leader (KOL) mapping. If you are a cardiovascular surgical device company and you want to introduce a new device and procedure in China, you map out where your KOLs are and you figure out ways to interact, engage and influence them – all within the law of course. The challenge for home healthcare is not necessarily being able to find KOLs in your particular area of specialization, it is that KOLs may not have the interest or bandwidth to engage with you given their view of home healthcare as service – especially given the amount of patients they have to see and the limited amount of time they have to engage with service providers. Keep in mind these KOLs are getting hit up by pharma, device and diagnostic companies, so you have to be realistic about how much of their time and attention they will have. One permutation on this is to think about the discharge process – to the extent your service is follow-on to an actual healthcare event – and to identify someone in that process other than the doctor. But, that is easier said than done in a strained healthcare system with too few administrators, doctors and nurses.
What other referral source option might be worth pursuing? Well, this is where I think we’ve cracked something important, but let’s just say that you should be thinking about how to identify referral sources that are going to view your home healthcare company as a captive vendor, and who will be motivated to view your services as something that augments a completely un-related product they want to sell. There are several permutations on what this sort of captive referral source relationship can look like, but the point here is to find a geographically dense cohort where you can negotiate in bulk for services rendered as opposed to other options that have high customer acquisition costs and are inherently episodic.
In our last section, the most practical set of services our firm offers, Back-Office Infrastructure – what are the basic “X’s” and “O’s” that you need to get up and running as a China home healthcare provider? Items such as disposable medical supplies, “bent metal” and other durable goods, establishing and kitting out the first office, identifying the right company insurance needs given home healthcare’s unique operating footprint, and building the human resource systems to reflect China’s HR-specific legal and operational concerns.