Update | China's first psychiatric hospital has winning formula for success: invest in training its own doctors

Training medical professionals and having both junior and senior doctors in a team are essential for the success of private hospitals in China, according to the founder of newly listed Wenzhou Kangning Hospital. Doctor-turned-entrepreneur Guan Weili said that when he established the hospital 20 years ago, he never imagined it would lead to a Hong Kong listing. It was just a cause that he planned to give his life to. Kangning, the mainland’s biggest private psychiatric hospital by revenue, is the latest in a string of domestic health institutions pursued by the capital market over the past few years. Its debut on November 20 gained attention because it was China’s first psychiatric hospital to list in any major market. Observers were also stunned by its fast growth and extremely high profits. According to its prospectus, Kangning’s revenue has grown by 31.7 per cent annually over the past three years while its profits have almost doubled each year during the same period. Guan attributes the performance to more white-collar patients seeking treatment for problems like depression, anxiety and insomnia. READ MORE: China’s first listed psychiatric hospital set to break mental health taboo, and raise HK$681 million in the process “These illnesses were ignored by the public many years ago,” he said. “So with an increase of these kind of patients who are generally better off than patients with serious psychiatric diseases, we have a nice-looking balance sheet.” Wang Jian, secretary of the hospital’s board, said capital injections by Chinese private equity firms GL Capital Group and CDH Investments in 2013 brought major changes to the company. “The capital injections saved us a tremendous amount of financial costs,” he said. “We are a hospital and not allowed to use our facility as collateral to borrow money from banks, under to mainland law. So we had to turn to underground banks that are rampant in Wenzhou.” In 2012 alone, the hospital’s was paying 10 million yuan in interest to the underground lenders, Wang said. “Our profits have grown vastly in the last three years because they were so small before that.” Kangning’s network includes five hospitals that it owns in Zhejiang, and four health centres that it manages in Beijing, Hebei, Zhejiang and Sichuan. The company has 2,210 beds in total, putting it on the smaller side compared with the country’s top psychiatric treatment centre, the Shanghai Mental Health Centre, which has 2,149 beds. Guan said one his big concerns since setting up in the late 1990s was training in-house medical staff. He has tried various ways to retain staff, including offering packages on par with those at public hospitals and giving senior staff the chance to do medical research. “Competition among hospitals, whether they’re public or private, hinges on the quality of medical staff. It’s not about the buildings or medical equipment,” Guan said. “Private hospitals don’t lack money … They are lack a stable team of experienced doctors.” Competition among hospitals, whether they’re public or private, hinges on the quality of medical staff Guan Weili According to a medical service industry report released by Deloitte in June, capital injection by private equity firms into domestic private hospitals during the 18 months from January 2013 to July 2014 totalled US$250 million, about 40 per cent of all of the private equity investment in mainland private hospitals during the 10 years up to July 2014. Numerous mainland hospitals were waiting to go public and many were keen to do so in Hong Kong because of the bourse’s greater efficiency, Guan said. Among those already trading in Hong Kong are Phoenix Healthcare Group, which has dozens of hospitals in Beijing, and Harmonicare Medical, with 11 hospitals in big cities. China’s health care sector is dominated by the public health institutions. Although half of the roughly 26,500 hospitals across the country are privately owned, they dealt with only 130 million patients in the first five months, a far cry from the 1.08 billion handled by their public counterparts, according the National Health and Family Planning Commission. Hanson Li, co-founder and managing director of Beijing-based Huatone China Strategic Investment Solutions, said that to avoid direct competition with public hospitals, private hospitals usually focused on cosmetology, gynaecology, obstetrics, orthopaedics, ophthalmology and dentistry. Very few private investment firms were interested in psychiatric institutions, he added. READ MORE: Mainland Chinese companies race to list publicly on Hong Kong’s stock market, giving the locals a shake up “The rush to buy domestic private hospitals shows the positive outlook on China’s healthcare industry. Investors believe that these private health groups will become strong and reverse some of the dominance of public hospitals,” Li said. Chen Shaofu, a public health professor from Dalian Medical University, said recruitment of seasoned doctors was still an obstacle for private hospitals, despite a concerted push by the central authorities to encourage doctors to practice at multiple sites. “Elite doctors will not leave public hospitals because they are concerned that private hospitals won’t get so many patients and their business is not so stable,” Chen said. “Kangning has been training its medical staff for a long time and it’s a harvest season now. But I doubt there are many private hospitals have the same patience in this area.”

Update | China's first psychiatric hospital has winning formula for success: invest in training its own doctors

Wenzhou Kangning is mainland’s biggest private psychiatric hospital by revenue