Mental Health Care: China's Next Big Market

Official estimates have 13 of every 100 mainlanders suffering "psychiatric handicaps."

If China's balky economy is looking for growth in its service sector, here's a market with great potential: There are thought to be at least 180 million potential customers, 4.3 million of them in desperate need. Yet only some 20,000 qualified specialists are in force to meet the demand.

But this becomes awkward to state planners when you realize it's the insatiable appetite for Chinese mental health care. Central government estimates have 13 of every 100 mainlanders suffering "psychiatric handicaps," whereas the World Health Organization last July put the global share with a mental health disorder at not quite one in ten. China's health ministry has registered the 4.3 million as "seriously" afflicted.

Such an untapped market did propel one doctor to act, and the result is China's largest private mental health care operation. Wenzhou Kangning Hospital, springing from the coastal city known for its pervasive commerce, owns five centers and manages four others and raised some $80 million for further expansion in a November Hong Kong listing. Despite recent market swoons its shares continue to trade above the IPO price of HK$38.7.

Guan Weili, the 47-year-old founder, didn’t start out with grand ambitions. He simply was struck by the paucity of treatment when working as a clinician at Wenzhou Mental Hospital, his first job on graduation in 1987.

"What I saw is that public hospitals did not have enough medical resources or enough hospital beds to meet demand, could not satisfy the need of the society. I saw it every day. I saw patients not getting proper care," he says.

Even today, amid upgrades elsewhere in medicine, China's mental health care still lags far behind. It has only 1.7 beds per 10,000 of the general population, compared with the global average of 4.4 beds, and also trails countries like Russia. Meantime the symptoms of untreated mental illness, including instances of horrific violence against others, occur repeatedly. In January a woman in Guangdong Province wandered into a hospital and smashed a doctor's head with a hammer.

Trained in general practice at Wenzhou Medical University, Guan was assigned arbitrarily to work at a mental hospital. Psychiatry hasn't been a popular area of specialization in China, but the career suited him well. The hospital was near his home, and he met his wife, Wang Lianyue, a nurse working in the same unit. Today she is his top lieutenant as the company's executive director and general manager. Together they own a third of Kangning.

Sensing both need and opportunity, Guan started his own hospital in 1996, initially with 20 beds, encouraged by a local government with a reputation for fostering the freest brand of capitalism in China. Soon he bought land in then suburban Wenzhou for future growth. His wife joined two years later, when an expanded hospital was built.

Later the city of Wenzhou's freewheeling underground banking network would help him cover cash-flow needs, though at usurious rates. He had no choice. Chinese law bars hospitals from pledging their facilities as collateral for bank loans.

Only subsequently did two domestic private equity outfits, Defu Fund in Guangzhou and Beijing CDH, step in as financiers with rounds of funding in 2013 and pre-IPO in 2015, totaling 278 million yuan (about $42 million), to help with expansion outside of Wenzhou. Today Kangning is still concentrated around its Zhejiang Province base.

In the first six months of 2015 company revenues grew 17% to $25 million after even faster growth in three previous years. It is also gaining in profitability as a more prosperous society affords costlier treatment. Even outpatients at Kangning spend an average $76, including prescriptions, per visit.

But administrative complexity has drained Guan's energy from day one, leaving no time to practice medicine. "Managing a hospital is among the most complex [tasks] in corporate management," he observes. "It has the dual function of being a hospital and a corporation--and it involves life. It has the characteristics of hotel management, as it also has to deal with public space."

Indeed, a five-star system is in place at Wenzhou Kangning, with amenities and prices ordered to match. A top room could command 5,000 yuan a day. At its new partly owned affiliate, Beijing Yining Hospital, 38 beds are attended by 20 full-time medical staff, each patient having his own living quarters rivaling that of a luxury hotel. Add to that expensive imported therapeutic equipment.

No matter how desirable the room services, the ultimate goal is to reduce, not prolong, the stay. Thanks to enhanced efficacy of treatment, Guan says his patients now each spend on average 47 days in hospital, compared with the Chinese industry's 60 days and as long as 90 days just a decade ago. "With better medications and therapies come better results and shorter therapy sessions," he says.

Quality staffing helps. Kangning is able to recruit doctors from state hospitals by more than doubling their pay and giving out performance-based bonuses. It is hiring nurses at up to 80,000 yuan a year.

Still, mental patients need longer and more intensive care than most physical hospitalizations. Even one with mild syndromes might stay one or two weeks, he adds. That calls for more beds. On average, for every 100 outpatient visits a day, 400-bed capacity is needed, according to Guan--the reverse of the standard hospital formula. Wenzhou Kangning now averages 150 at its owned units.

Private psychiatric care in China grew at a compounded 20% annually to 2014, largely to treat common disorders like anxiety, depression, substance abuse and psychosis. Among the key hubs is Guangzhou, a megacity of 13 million where, Xinhua News reported, 68 out of every 100 citizens suffer insomnia. Elsewhere, large corporate employers such as Foxconn offer 24-hour hotlines and suicide prevention counsel. Guan sees the upsurge as a by-product of the nation's fast economic growth, likening it to Japan's experience at a similar stage of development.

Specialized mental hospitals have been around since the Chinese revolution in 1949, many drawing on care houses left behind by Christian missionaries. A drawn-out reform process began only 15 years ago, Guan says.

By 2013 the nation got its first mental health law, including a stipulated right of patients not to be hospitalized against their will. At one time perhaps 70% of patients were forcibly confined by law-enforcement agencies. A breakdown of Kangning's current patient registry by self- or family commitment versus official order is not available.

Beijing in 2014 appointed two popular celebrities, actress Jiang Wenli and news anchor Zhang Hongming, to be the nation's mental health ambassadors to promote awareness not just in big metropolises but also in the countryside.

Wearing his physician hat, the Kangning founder looks to the day Chinese psychiatrists become high-income professionals like their American counterparts. Businesses such as his will need to support that.

"In the end we will build up a national chain," Guan says. "Right now we will focus on a few regional centers, including Beijing. We will use different models to expand and tailor to different plans."