Capital Sources and Allocation

Chinese Investment: An Opportunity for U.S. Healthcare Organizations

February 23, 2018 9:34 am

Hospitals may be recipients of overseas investment.

“China has the ability and desire to invest in U.S. healthcare organizations to access U.S. innovation and medical technology and take that to China to improve the way that medicine is delivered in that country,” says Steven Shill, national leader of The BDO Center for Healthcare Excellence & Innovation. Shill describes the opportunities and challenges presented by Chinese investment in U.S. healthcare organizations.

Why is China getting involved in U.S. healthcare?

Shill: The ‘Healthy China’ Program is a focal point for the Chinese government. It emphasizes improving the well-being of the Chinese people. Also, there’s a big shift in economic status with a significant Chinese middle-class population that is looking for better health care. Thus, the Chinese desire U.S. healthcare expertise and technology and are investing in it to bring it to China.

In what ways are the Chinese investing in U.S. healthcare?

Shill: China is a willing participant in providing financing in various forms of capital, debt financing, and philanthropy. At the same time, many U.S. hospitals and health systems are in situations where they may be significantly constrained in terms of their ability to borrow, so Chinese investment is an opportunity.

For example, one Southeast hospital system has been under a significant amount of financial pressure. It has been trying to deleverage itself by selling a number of hospitals, and now it has significant investment from China. We’re seeing this also in healthcare organizations that are ancillary to hospitals. A West Coast radiology and oncology group went through a take-private transaction with a Chinese private equity firm. We think that this is just scratching the surface.

What complications exist in these transactions?

Shill: There are a number of significant hurdles, and they can be very time-consuming processes. Among the issues is a heightened level of concern regarding protected health information when foreign countries and foreign nationals invest in U.S. healthcare organizations. There’s also the CFIUS (Committee on Foreign Investment in the United States) review of these transactions, specifically in certain key industries that are critical to U.S. infrastructure. They’re concerned about key, strategic knowledge that could fall into the wrong hands.

Foremost, a critical, time-consuming process is the due diligence that takes place. Clearly, in many instances, U.S. corporations with foreign investors don’t know who they are dealing with. It becomes critical for U.S. companies to perform the necessary reverse diligence on exactly who their investors are. Are they agents of foreign government fronting to become private equity firms? Where is their money coming from?

Have you observed Chinese investors making changes to U.S. healthcare organizations they invest in?

Shill: I have not seen much direct involvement by foreign nationals in the operations. However, prior to the consummation of transactions, significant time and resources are spent to safeguard intellectual property.

From a cultural perspective, the specific interest in China is taking Western style medicine and transporting it to China. A great example of that would be the long-term care nursing home industry. One of the issues that China has experienced recently, with more husbands and wives working outside the home, is that there’s nobody ready to look after parents and other older relatives. So there’s a desperate need for senior living, assisted living, nursing home-type facilities in China, and that’s where there’s a huge transmission of know-how from the United States to China.

Does it matter if a U.S. healthcare organization is for-profit or not-for-profit?

Shill: Clearly, the investment from China so far has been for-profit in nature. However, we may start seeing philanthropic investment in academic institutions: in other words, grants that help Chinese organizations partner with not-for-profit hospitals, health systems and medical centers.

How does a U.S. hospital tap into this investment?

Shill: There is an ever-increasing number of events that are being planned by professional services organizations, global law firms, global accounting firms, and global investment banks. They’re acting as matchmakers for organizations that are seeking investment and those that are looking to make investment.

Ed Avis is a freelance writer and editor.

Interviewed for this article:

Steven Shill, national leader, The BDO Center for Healthcare Excellence & Innovation.


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