by Stephanie Hsi, MBA ‘14 (3/19/14)
The US and China, despite their differences, face very similar problems when it comes to geriatric care – their civilians are aging fast with both governments trying to find solutions. By 2050, the median age of China will approach 50 and one in four Chinese will be sixty-five or older1,2 while in the US, the median age will be between 37 to 41 with one in five Americans at sixty-five or older3. Unsurprisingly, given each country’s history and value systems, the existing landscape of geriatric care options differs widely. The US market has a much longer history of encouraging private businesses to create new business models for this industry while in China, low regulation and government incentives in this nascent industry are setting the stage for rapid growth. By identifying business models that exist in the US, and extrapolating trends predicted by US thought leaders, there are (3) major takeaways that could apply to the Chinese market:
(1) Existence of a highly underserved market opportunity in the middle-market range for quality elderly institutional care.
(2) Continued lack of players and dominance in private business models for both home-care and community-based elderly care services.
(3) Importance of brand recognition and reputation for quality to counteract former stigma associated with elderly care services, facilities, and institutions.
However, risks that should be considered before adapting US learnings to the Chinese market include acknowledging cultural nuances, availability of a qualified geriatric care workforce, regulatory challenges, and policy changes.
US: Existing Business Models
In 2014, the spectrum of industries that specializing in geriatric care generated $304.9bn4-9 and can be broadly categorized as follows (% revenue, USD):
(1) Institutional care: Nursing Care4 (42%), Retirement Communities6 (20%), Hospice & Palliative Care8 (7%)
(2) Home-based care: Home Care Providers5 (20%)
(3) Community-based services: Elderly & Disability Services7 (9%), Adult Day Care9 (2%)
US Trends in Geriatric Care
Changing attitudes towards retirement living
The lifestyle expectations of today’s retirees are placing new demands on retirement facilities. As healthcare improvements have helped retirees maintain vitality well beyond 65, themes around independence, mental stimulation, and community integration have gained in importance. Retirement facilities look toward innovative amenities to help drive growth, ranging from communication technology integration to incorporation of geriatric-friendly design elements6.
China: Existing Business Models
The China National Committee on Aging has outlined the planned long-term expansion of geriatric care with the following structure.
(1) Primary: Home-based care
(2) Secondary: Community-based services
(3) Support: Institutional care
The most popular model for home-based care is Virtual Elder Care Home or Elder Care home without Walls, where the government maintains a hotline for seniors to request a range of services (personal care to home making services) from pre-approved providers.
Community-based services have struggled since 2004. Once heavily subsidized by a 13.4 billion RMB (approximately 1.62 billion USD at 8.2765 RMB to USD in 2004) government investment called the Starlight Program1, only urban centers have been able to establish operations that are financially self-sustaining.
Majority of current elder care institutions are state-run, particularly in rural areas where state-owned institutions are required to admit the elderly with the “Three No’s” – no children, no income, and no relatives. In 2010, it was estimated that China had only 3.15 million beds for the elderly in the 40,000 facilities nationwide1. However, according to the China National Committee on Aging the demand for beds reached nearly 12 million in 20122. Therefore, the government is now encouraging private sector development of elder care institutions in order to shift roles from “provider” to “regulator”. Unlike the US, where a majority of nursing care is paid for by public insurance such as Medicare and Medicaid2, nursing homes in China generate most of their revenues from out-of-pocket payments from residents2.
China Trends in Geriatric Care
Aging population - China
The Confucian value of “filial piety” explains the long-standing tradition of entrusting elderly care exclusively to adult children and relatives2. However, due to the one-child policy, the “4-2-1” family structure has emerged with four elderly grandparents and two aging parents becoming the responsibility of one child. In fact, it’s estimated that by 2050, the median age of the Chinese population will approach 50, where one in four Chinese will be sixty-five or older1,2. In rural areas, this trend is exacerbated by the migration of young adults who seek employment in big cities2. As a result, the Chinese government acknowledges that the current system does not have the capacity to support adult children who will most likely be seeking elderly care support.
In supporting private sector development of elder care institutions, government incentives have ranged from subsidies to complete execution of state-built facilities for private operation. Subsidies range depending on local governments, but can include tax exemptions, land allotment for new construction, and reduced utility rates.
Takeaway 1 – Middle-market institutions
Even in the developed US market, the number of institutions serving the middle-market lacks dominant players while both the low and high ends of the market have seen more activity. In China, the majority of new private sector companies have entered in at the luxury resort-style “Western” facility2 while welfare beneficiaries overflow government institutions. There is a vast underserved middle-market, which could be a profitable space to operate in for a private institution player who commits to properly conduct market research on this demographic and cater to their customer’s needs. In particular, the growing middle class in China should bolster growth of this customer segment. A large need also exists for a player who can successfully find a solution to the dearth of middle-quality facilities in rural areas.
Takeaway 2 – Developing the home-care and community-based services industries in China
Currently, the private sector investment in home-care and community-based services is both minimal and fragmented. However, given strong future support from the government, the industry should be ripe for a dominant player to emerge. The Chinese government can play a significant role in incentivizing private sector investment in the “foundational” levels of their national elder care strategy – home-care and community-based services. Given the Chinese cultural alignment of filial piety with “aging in place”, the government will likely have higher demand for these services than for institutional care. Short-term government solutions include subsidies, tax exemptions, and political support. This would help entrepreneurs overcome initial barriers to entry, in an industry that already faces a number of challenges including high turn-over rates, retaining qualified human capital, and integration into communities.
Takeaway 3 – Brand recognition and quality
In both the US and China, elderly care facilities and their residents continue to be stigmatized by society6. Both countries share their horror stories of corruption, maltreatment, and elderly abuse2. This provides an opportunity for private companies to set themselves apart by setting a higher standard of quality and building aggressive marketing campaigns around their brand’s reputation. Given that the limited supply of qualified staff in China2, a private institution could potentially build an industry-leading in-house training program and set the standard for quality geriatric care.
The range of services and products developing around geriatric care are rapidly increasing in both the US and China. Given that private sector business models have had more time to develop in the US, there are already a number of ideas for the Chinese to draw from in developing its own market.
There is one common risk that should be considered in both markets – the lack of a skilled workforce. Insufficient supply of trained workers is a problem that exists both in the US and in China, but to different degrees. While in the US certification and licensure requirements are already mandated of most geriatric caretakers, these formalities are pragmatically ignored in China today due to the sheer demand for caretakers and lack of proper training programs. This will be an issue for both the US and China, but gravity of the problem is felt more in China than in the US.
1. Feng Z, Liu C, Guan X, Mor V. China's rapidly aging population creates policy challenges in shaping a viable long-term care system. Health Aff (Millwood). 2012;31(12):2764-2773.
2. Zhang NJ, Guo M, Zheng X. China: Awakening giant developing solutions to population aging. Gerontologist. 2012;52(5):589-596.
3. Kochhar R. 10 projections for the global population in 2050. http://www.pewresearch.org/fact-tank/2014/02/03/10-projections-for-the-global-population-in-2050/. Updated 2014. Accessed March 13, 2014.
4. Diment D. IBISWorld industry report 62311. nursing care facilities in the US. Updated 2014. Accessed February 20, 2014.
5. Phillips J. IBISWorld industry report 62161. Home care providers in the US. Updated 2013. Accessed February 20, 2014.
6. Diment D. IBISWorld industry report 62331. Retirement communities in the US. Updated 2014. Accessed February 20, 2014.
7. Son A. IBISWorld industry report 62412. Elderly & disabled services in the US. Updated 2013. Accessed February 20, 2014.
8. Phillips J. IBISWorld industry report OD4952. Hospices & palliative care centers. Updated 2014. Accessed February 20, 2014.
9. Yang D. IBISWorld industry report OD5942. Adult day care. Updated 2014. Accessed February 20, 2014.