On Thursday, Mark Spitalnik opened the Ageing Asia Investment Forum by sharing his experience as CEO of China Senior Care. Mark was quick to point out his view that conferences and exchanges like those this week are integral to an industry as new as China’s eldercare market. As Mark shared, “This week helps us build friendships that help us help others. In China, the numbers are so staggering in terms of the future demand for senior housing that everyone who is interested in entering the China market who is capable of executing is going to succeed. We don’t look at competitors who might succeed as causing us problems; the more who succeed the better it is for everyone. The key [will be] products that actually improve people’s quality of life.” Mark reiterated what he had shared with me during our previous interview, namely the role of China’s hospitals in shaping the contours of how elderly patients view senior care.
Mark wrote his business plan for CSC in 2007, raised money in 2009, and as he said this morning, “the change since then in the Chinese market has been amazing.” CSC is slated to open their Hangzhou operation in 2013, almost 4 years since they raised capital. What took so long? I think it would be fair to summarize Mark’s comments this morning by saying “everything.” Mark shared that CSC has had to develop their own geriatric training institution. Why? The skill sets within either the assisted living or skilled nursing market in China simply does not exist; consequently, Mark and CSC have had to build this out organically. Let me also point out that what Mark’s timeline also illuminates is the role of mature, patient capital in allowing successful developers and operators to build the sort of infrastructure necessary to get to scale without sacrificing quality. It takes time to develop the portions of CSC’s operating model that are not as sexy as beautiful buildings and state-of-the-art equipment. This message – one of patience and discipline – is one that desperately needs to be internalized as the Chinese senior care market explodes. The parallels between this investment discipline and time to scale holds equally as China’s hospital space opens to foreign ownership. Mark’s opening address also pointed out that the biggest opportunity in China is to develop a solution for the middle class, which he admitted is not what CSC is primed to do. Before this segment of the market can evolve, it will need further skilled human resources, a realization that impacts CSC’s plans.
Dave Carlson, the Administrator and CEO of Galeon in Minnesota (a community owned 501C), indirectly brought to my mind the role of NGOs and non-profits in addressing Asia’s growing issues scaling up to meet the demographic challenges in the senior care space. Partially this is because I just finished reading T. R. Reid’s The Healing of America: A Global Quest for Better, Cheaper and Fairer Health Care. Reid does not attack the profit motive, or the role of the private sector in providing healthcare; but what he does point out is the place for pursuit of profit in the healthcare channel. The analog in the senior care space, for China in particular, is worth considering. NGOs may prove an interesting option for China’s senior care developments, in particular for the low-to-middle income segment of the market. This point was echoed by Mr. Hitoshi Fukumoto, the Executive Director of Kinoshita Care Co., who put forward a comparison between Swedish, American and Japanese models for senior care. Specifically, Mr. Fukumoto showed the role of community based not-for-profits in addressing the scope of the aging problem in China. Given Japan is the country with the worst aging problem in the world, their need to have dual tracks between for and not-for profit solutions is worth considering.
Mr. Stones Tse, Chairman of Eastern Flair Investment & Development, spoke about his company’s China senior housing strategy. Their first group of projects will take place in Shanghai and the broader Yangtze River Delta area. 5 of the top 10 wealthiest cities in China are in this area. As Mr. Tse shared “the concentration of government subsidy at lower income products is creating a gap in the upper middle and higher end offerings.” He sees what he calls a “mismatch of capital with products”, in particular because outside investors are not yet sure what their exit strategy will be in this sector, something his company is attempting to address. He wants to target large institutional investors with a mix of what he described as “core real estate offerings” of which senior care facilities would be a part. They are planning to focus on rehabilitation projects that will result in 100-200 units per project and green-field projects that will result in 500-2,000 units per project. They have one of the largest nurse training schools in Shanghai as the partner providing them with trained staff.
Paul Gregersen, the MD of Bupa Care Services, believes that, as he put it, “everyone around the world does not want to go into a nursing home … the challenges Asia faces in this respect are not unique.” He shared three best practices from his business in Australia that are relevant to the China senior housing space. Much of his practice centers on dementia, which by 2030 will kill more people in Australia than any other disease. Bupa deals with the very end of life, an emergency purchase, to go into a skilled nursing facility because an elderly parent has fallen or has some other health issue that the family is no longer of capable of addressing. In his business, dementia is not “a bolt-on product”; it is their core. They begin by building a life storyboard – a visual that is on a board hung in their room as a communication aid. This not only serves as a reminder tool for the patient, it also provides help to the caregivers to ensure the narrative they touch on is consistent. As he said on Thursday, “there is nothing magical about these tools, it is all in the execution.” The second set of practices is centered on activities (gardening is their number one activity which means they have designed the planters at a height that can be accessed by someone in a wheelchair; the number two activity is – believe it or not – putting up and taking down the wash), community, and spending time with children (or, as Paul showed, dementia patients holding life-like babies). For men, who represent 1/3 of their population, they have what are called “man sheds” where they can do work with tools. Animals, ranging from dogs to tending to chickens, also play a role. The third component is their performance appraisal process. Every month, each of the 4,000 staff members are asked to make a new commitment to do one specific activity with a patient. One example was helping a female patient get dressed in her jewelry one evening.
As the 2012 Ageing Asia Investment Forum comes to a close, one of the points that I find myself reflecting upon is whether the real estate developers, and the financers who back them, are in sync with the operators. The former have beautiful facilities and equipment chasing what is a huge market; but the latter have basic personnel matters – the ability to find, train and retain semi-skilled and high-acuity care staff. These are not resolved and as Mark with CSC shows, finding a solution to this concern is going to require many operators to actually develop their own training infrastructure. In order for China’s senior care market to successfully develop, these two elements of a successful eldercare model need to get in phase one with the other. My sense is that now they are out of phase, a phenomenon common early on in high growth markets, and one particularly prevalent in China overall.