Behind The Harmonious Family'S "Selling Oneself": A Test Of Profit Balance In Private Hospitals Under Heavy Assets

From the boom of the takeover boom to the successive sale, the profitability of hospital assets has been stubborn.

In December 19th, the US stock listed company announced the completion of the acquisition of harmony home medical service and renamed Xinfeng medical group. Fosun medical announced at the same time, the sale of 47% of the shares of the United States, the consideration price of $523 million.

After 2015-2017 years of intense investment, the private hospital investment entered the selling tide in 2018. The Harmony House was once criticized by the industry for its poor profit and forced to sell itself. However, the valuation of nearly 1 billion 400 million dollars reached nearly 4 times that of the Harmony House before it was withdrawn from the market.

Medical services have always been known as "heavy assets and slow returns", and how to find long-term and stable balance of profits has become the key.

Debate on Valuation

In the capital cold winter of 2019, medical services as a long payback cycle industry, get $1 billion 400 million of funds, and harmony home valuation has become the focus of attention.

The announcement content of the new wind Tianyu acquisition of Harmony Home revealed that in 2018, the home revenue was 2 billion 60 million yuan, a loss of 176 million yuan, and the revenue in the first five months of 2019 was nearly 1 billion yuan, with a loss of 89 million yuan.

The loss of harmony home mainly came from the Shanghai Pudong hospital and Guangzhou hospital which were still in the climbing stage last year, as well as Beijing Da Tang Road Hospital in the construction period. In addition, in 2017 and 2018, the harmony family invested 1 billion in the construction of the new hospital. In 2018, there were about 140 million yuan in depreciation and amortization expenses. In the first half of 2019, there was a depreciation and amortization expense of about 170 million yuan.

After purchasing a hospital, we need long-term and continuous investment, and there is pressure in operation and management. Guangdong Weill hospital and Doctors Union Group CEO Lin Zihong told reporters on twenty-first Century economic report in December 14th that for self financing hospitals, even if they found a suitable profit growth point, the operation effect was still unsatisfactory, and no expansion was also the main reason for the failure of hospital operation. First of all, if we want to build a specialized school, we need to have the ability to expand. Secondly, we need professional doctors to build this specialty. Finally, we need professional management personnel, that is, professional operation management team.

The business objective of the Concord known for its obstetrics is not just specialized hospitals. As one of the largest high-end private hospital groups in China, the harmony family was born in 1981 by Li Bijing. In the early days, the United States and China mainly sold medical equipment, then expanded the medical care department, and operated private hospitals and clinics in Beijing and Shanghai, and listed on NASDAQ in 1994. In 2014, Sino US mutual benefit was purchased by Fosun medicine and TPG, and privatization was delisted.

A medium-sized brokerage analyst in East China analyzed the twenty-first Century economic report reporter: "in the medical service sector, under the trend of long cycle of returns, it is easy for the main frequency to be issued, but the Harmony House is now in control of the sale, but it reaches nearly 10 billion valuation, and the potential development potential in the future can still be expected. Take the Mayo Clinic in the United States for example, its revenue in 2018 was 12 billion 600 million dollars, or 88 billion yuan, and the two hospitals in Cleveland and John Hopki respectively earned 8 billion 400 million US dollars and 6 billion 153 million US dollars in 2017, but they all recovered after a long loss.

Examination of profit balance

Back to the cold spell of the economy, despite the "predictable future" of medical services, the sale of hospital assets is still the mainstream in the short term, and the profit balance test for hospitals is still on the way.

According to PWC statistics, the amount of hospital mergers and acquisitions in China reached 16 billion 127 million yuan in 2016, an increase of 237% over the 4 billion 785 million yuan in 2015. Meanwhile, the number of mergers and acquisitions in hospitals in 2016 reached 206, compared with 48 in 2015. Even in the first half of 2018, the tide of mergers and acquisitions continued. However, in the second half of 2018, especially at the end of the year, listed pharmaceutical companies have tightened their investment and even appeared selling hospitals. Most of the hospital assets sold by pharmaceutical companies are attributed to focusing on the main business.

Zhuang Yiqiang, director of Hongkong Aili hospital management research center, said: "it is still to be observed whether pharmaceutical companies purchase hospitals in depth or shallow water. But these enterprises can be divided into two types by purchasing hospitals into the medical service industry: one is financial investors, acts are similar to real estate, if they encounter a good price, they are likely to sell, and the other is strategic investors, most of whom want to deepen medical treatment.

But the slow return of capital, the impact on the main business of the company, the differences in the management of the company, the acclimatization after the cross-border, and the uncertainty of the policy and other factors have become a difficult problem for the listed companies to enter the field of medical services, making them begin to re evaluate the cost of the entry.

According to the analysis of the personages in the industry, "by the policy of bidding for Chinese patent drugs and controlling the cost of medical insurance, many pharmaceutical manufacturers have begun to enter a period of weak growth after a series of mergers and acquisitions. Therefore, pharmaceutical companies will protect cash flow by selling assets."

After purchasing a hospital, long-term and continuous investment is required, and the cycle of return is longer. No matter it is a public hospital or a private hospital, there are pressures in operation and management. Relatively speaking, private hospitals bear more pressure. In the pharmaceutical investment circle, there is a jest saying that "hospital assets have always been invested and always lost".

Lin Zihong told reporters on the twenty-first Century economic report that the management of hospitals is mainly about talents, and the opening of medical insurance policies in the country is not enough, resulting in problems in management of some private hospitals.

"After the implementation of the policy of the proportion of drugs and the payment of diseases, many hospitals are checking accounts at noon and afternoon. They can not exceed the quota and have to pay for the excess." There are hospital practitioners to the twenty-first Century economic report reporter analysis, "but this part of the money often can not fill the hospital, it will be counted in the head office, the Department has no money, and finally can only afford the doctor, the so-called loss of money will be lost in this, and whether it is private hospitals or public hospitals have always been unable to open this ridge. For hospitals, meticulous management is the key to break the slow business of profit. "

"In addition, in order to balance the medical resources all over the country, in recent years, the state has been loosening the policy to encourage and support doctors to practise more. The current situation is that private hospitals are digging everywhere, but real good doctors are still hard to find. Lin Zihong added.