PAH’s General Manager Mao Weibiao: in-depth cooperation with hospitals is the only way to promote growth

Time: Sept.8 2016 Author: Ping An of China [Size：largemedium small]

The journalist of National Business Daily (NBD) noticed that Ping An Group, aiming at being China's biggest managed care insurance company, is focusing on 'pan health care' and planning for in-depth cooperation with healthcare service providers. In view of the current market background, what's the starting point for health insurance development? What exploration do the relevant enterprises need to carry out?

During the interview with the journalist from NBD days ago, Ping An Health (PAH)'s General Manager Mao Weibiao indicated that to seek in-depth cooperation with medical institutions is the only way for the development of health insurance companies.

Mao said: 'in the future, being the payer, insurance companies need to carry out extensive explorations on how to establish effective, innovative partnerships with medical institutions and how to provide better medical services for the insured and the mass so as to stimulate market demand.'

In his eye, pan health care must be China's biggest industry in the future, 'this industry chain covers many market participants: one is service providers, such as medical institutions, pharmaceutical factors, medical instrument factories, health management institutions and checkup institutions, and the other is payers, including social health insurance, private insurance and individuals. Currently, social health insurance is the main payer, and the future trend must be private insurance accounting for a bigger proportion and gradually replacing payment by individuals.'

China's health insurance remains in its infancy

NBD: How to view increased capital flows to the health insurance market? Has the industry entered its golden days?

Mao: In China, health insurance is not an emerging industry; however, relative to the size of P&C insurance and life insurance premiums, the development of health insurance in China lags behind. It is because both P&C and life insurance companies can engage in health insurance business in China; while for specialized health insurance companies with a history of only a decade, they are still in their infancy, with few products.

Taking a look at the global market, when a country's economic strengths reach a certain degree, its biggest industry will be the healthcare industry. According to the data of Organization for Economic Co-operation and Development (OECD), pan health care usually accounts for 11%~15% of the country's GDP, which even approaches 20% in the USA. For a ratio of nearly 20% in the GDP, its size should not be overlooked. Pan health care might become an important industry to support the national economy. Therefore, with the rapid development of China's economy, pan health care is a development area with great potential, which has become a consensus of mainland economic researchers. Participants of pan health care mainly include service providers and payers. Generally speaking, service providers include medical institutions, pharmaceutical factories, medical instrument factories, health management institutions and checkup institutions; and payers are made up of social health insurance, private insurance and individuals. Being a late-starter, mainland health insurance companies cannot rival large-sized commercial health insurance companies in Europe and the USA. Driven by the broad market direction, more and more market entities would like to participate in pan health care. Either the entities investing in medical service providers or insurance companies acting as payers is optimistic about market potential of 'pan health care', actively explores business models, provides medical services and participates in reforms of hospitals.

NBD: For new market participants, will the companies which entered the market earlier face bigger challenges?

Mao: Though pan health care has great development potential, which reaches RMB3 to 4 trillion now and may be up to RMB10 trillion in the future. However, commercial health insurance companies acting as payers face the same problem, i.e. how to provide quality medical services to customers? For life insurance products, the usual practice is paying compensation in case that an accident occurs; while health insurance needs to provide not only basic protection but also outpatient and inpatient services for customers. Thus commercial health insurance companies need to establish close partnerships with service providers like medical institutions; in addition, as customers are spread across the country, commercial health insurance companies need to establish a comprehensive medical service network through cooperation with thousands of medical service institutions in China.

One is payers and the other is service providers. How can both cooperate with each other to effectively solve problems (such as difficulties of registering) arising from the process of seeking medical services in mainland China so that common people who buy commercial health insurance can get better medical services? This is a challenge facing both existing health insurance companies and new market participants.

Based on the development experience of foreign countries, both social health insurance and commercial health insurance need to establish partnerships with medical institutions. Since we lack such experience, we may refer to international practice. In the future, being payers, how should insurance companies cooperate with medical institutions and provide better medical services for the insured and the public on this basis, which is an important question for the overall industry and even the government to consider.

How to put an end to the loss-making situation in the past 10 years

NBD: As the health insurance market in mainland China started late, can we refer to the mature business model in the overseas market?

Mao: The healthcare policies in different countries and regions are strikingly different, which can be roughly classified into the USA model, Germany model (including Japan and Taiwan China) and the UK model. However, even in the same Germany-style social security model, the social security systems are also different in Japan, Taiwan China and Germany. Therefore, commercial insurance models operated in different social security systems cannot be fully copied in mainland China. This is also something special about commercial health insurance. It needs to consider business models in the medical system of the country and partner with related parties. In a contrast, business models of P&C insurance and life insurance are relatively simple, and it's easier for them to refer to the experience of foreign countries.

When we refer to the experience of foreign countries, we must consider its difference from the domestic medical system. For example, social health insurance in China accounts for a considerable payment ratio, so we need to consider how to connect with social health insurance when designing products. In addition, unlike the medical system in mainland China which is dominated by public hospitals, the USA mainly has private hospitals, while there is a great number of non-profit hospitals in Taiwan China. Therefore, under different medical systems, insurance companies in different countries face different paint points of service providers, and business models adopted by each are also different.

However, we can learn by foreign countries' experience in technologies, say how to manage the insured, how to manage hospitals, and how to work out a billing model. After referring to the above experience, domestic health insurance companies need to consider designing a feasible business model by taking into account China's medical system.

NBD: Domestic health insurance companies have not changed their loss-making situation despite efforts in the past decade. How to solve this problem?

Mao: The commercial health insurance is, in itself, a low-profit industry. Even UnitedHealth Group in the USA sees a combined loss ratio of over 90% though it has had a size of more than USD100 billion and can effectively allocate costs. Currently, the market size of China's commercial health insurance companies is relatively small when compared with P&C insurance and life insurance. By excluding critical insurance premiums, the remaining premiums only stand at about RMB100 billion, which are unable to generate economies of scale relative to China's annual medical expenditure of RMB3 to 4 trillion at present. This is an issue about development stage. However, I believe if we persist in the development for another 5 to 10 years or some more time, the premiums of commercial health insurance will be bigger, costs will be further diluted, and risks can be better managed, thus enabling profitability; however, the industry characteristics determine that commercial health insurance will not reap high gross profits.

It is a must to work out a good business model so as to stimulate demand

NBD: How to view the difference of development paths of the existing five health insurance companies? Which companies have a brighter prospect?

Mao: The development direction of each health insurance company is different: protection-based companies seek innovations in business models, and seek every possible means to grow commercial health insurance, i.e. reimbursement products; and companies pursuing size growth mainly engage in universal health insurance, which is almost the same as the investment and savings products sold by life insurance companies. Commercial health insurance (reimbursement products) is the main player in the health insurance market in foreign countries. With improved economic development and living standard, as well as the people's increasing attention on medical services, the demand will get stronger and stronger.

For specialized health insurance companies, they cannot create value for society, medical system and the inured until they develop a good business model, work out good products to stimulate demand and transform it into business. If health insurance companies can boost the efficiency of medical system, improve the quality of medical services, and reduce unreasonable medical expenses through managerial experience and technical means, it will be a significant breakthrough. In addition, such health insurance companies are sustainable, and will see greater development in the coming 3 to 5 years.

NBD: Being one of the earliest to enter this area, what innovations does PAH have in business model?

Mao: Currently, about 700 to 800 medical institutions have established direct partnerships with PAH, including quality medical resources in domestic Tier-1 and 2 cities and overseas medical institutions. If aiming at a bigger market, PAH's cooperation with hospitals needs be effective and more extensive, with more innovations in business model; in the future, PAH plans to use more new products and new business models to establish more in-depth cooperation with medical institutions. This is a necessary path for any country to grow its commercial health insurance business, i.e. establishing in-depth cooperation with medical institutions.