Julikang Files IPO Prospectus: Operating 8 Sterilization Centers, Serving Over 200 Hospitals, and Reducing Hospital Costs by 30%

In recent years, with the relaxation of national policies and the drive to control internal operational costs in hospitals, the Central Sterile Supply Department (CSSD), originally a core department of hospitals, has increasingly been outsourced to third-party sterile supply service providers.

Among third-party sterile supply service providers, Julikang is a highly mature institution. As the only nationwide regional third-party sterile supply center in China, Julikang has established operations in seven cities since its inception in 2010. It currently operates eight centers, serving over 200 hospitals, reducing hospital costs by 30%, and achieving a 100% annual contract renewal rate.

What was the background behind Shanghai Julikang Investment Co., Ltd.’s decision to enter the third-party sterile supply services market? How was its implementation strategy designed? What outcomes and achievements have been realized? What are the prospects for the third-party sterile supply services market?

With these questions in mind, VCBeat (WeChat Official Account: vcbeat) interviewed Xu Jing, General Manager of Julikang. In addition to addressing our inquiries, Ms. Xu also shared with us Julikang’s progress and experience in third-party sterile supply services.

Within hospitals, sterilization services are provided by the Sterile Supply Department, a hospital-affiliated subspecialty classified as a support or core department that delivers ancillary support to mainstream clinical specialties. As an external provider, this function is known as a Regional Sterile Supply Center, which ensures the supply of sterile items to healthcare institutions through standardized management models.

What Are Sterile Items? Xu Jing explains that sterile items are reusable medical devices used throughout hospital surgical procedures and clinical diagnosis and treatment, permeating the entire spectrum of medical services. After undergoing cleaning, disinfection, and sterilization, these medical devices can be reused once they have been processed in accordance with established standards. The critical role of sterile items underscores their importance; therefore, ensuring quality control at the Central Sterile Supply Department (CSSD) guarantees the reliable supply of sterile items within the hospital.

Regional third-party sterile supply services originated in Europe at the beginning of this century. In 2002, experts from the UK Department of Health conducted inspections of 28 healthcare institutions within the UK that were equipped with sterile supply departments, identifying several common issues: sterile supply departments are capital-intensive units within hospitals, entailing high costs; staff members often lack sufficient professional expertise; and medical instruments in many departments, such as dentistry and obstetrics and gynecology, are not adequately processed.

Accordingly, these experts introduced the concept of regionalization and spent three years conducting quality accreditation and control for these 28 sterile supply centers. After three years of elimination, only six centers met the standards. The local government proposed to truly integrate resources and established a 3,000-square-meter sterile supply center within the region in 2005, which handles nearly 10,000 sets of instruments daily.

Following this successful case, centralized sterile supply services began to be adopted across Europe.

Currently, the world’s largest regional sterilization center is located in Lille, France, with a daily processing capacity of 18,000 sterile supply packs—three times the workload of the most mature Central Sterile Supply Department (CSSD) in China.

In 2009, the Ministry of Health of China proposed that the country’s sterile supply services should align with the Grade A standards of Europe and the United States.

Building on European and American practices, China reformed its domestic standards and introduced the “Two Regulations and One Standard” industry standard for sterile supply departments. In 2016, China further incorporated technical parameter requirements into this standard, making it a mandatory industry standard that third-party sterile supply service providers and hospitals must comply with.

However, public medical institutions in China are currently facing rising costs and high debt ratios. Moreover, hospital sterilization supply centers do not generate revenue but operate as cost centers. Xu Jing provides an analysis of the cost expenditures associated with hospital sterilization supply departments.

First, regarding facility space, current standards require hospitals to allocate 0.8–1% of their total area to the Central Sterile Supply Department (CSSD) based on bed count. This means that even a hospital with only 100 beds must establish a CSSD covering 100 square meters.

Secondly, the nature of the Sterile Supply Department dictates that it is a labor-intensive unit, requiring professional medical staff to be stationed there for management, resulting in high labor costs.

Finally, operating costs—including facility expenses, production consumables, and administrative overhead allocated to the hospital—contribute significantly. The accumulation of these expenses results in a high per-device processing cost. Some hospitals handle a limited volume of devices, leading to limited economies of scale for cost allocation, while their fixed costs remain substantial. For instance, a Tier-1 hospital with fewer than 100 beds incurs annual costs of approximately RMB 500,000.

Xu Jing summarized the four major factors driving the booming development of China’s third-party sterile supply industry:
1. Regulatory pressure resulting from the implementation of the 2016 industry standards;
2. In-hospital infection control: this is a mandatory inspection department;
3. Meets the requirements for internal operational cost control in sterilization supply centers that comply with standard specifications;
4. Support from national policies;

In this context, Julikang established its first regional sterile supply center in Shanghai in 2010, covering an area of 3,200 square meters. After one year of construction and the establishment of a management and control system, Julikang undertook its first secondary general hospital project in March 2011. The center achieved profitability within a single year and subsequently provided sterile supply services for reusable medical devices to multiple hospitals, including the Northern Branch of Ruijin Hospital Affiliated to Shanghai Jiao Tong University School of Medicine, the Northern Branch of Huashan Hospital Affiliated to Fudan University, and the Changning District Maternal and Child Health Hospital of Shanghai.

Third-party sterile supply services are an outsourced service model that primarily collaborates with hospitals to build a coordinated management platform. This approach not only delivers standardized services and management protocols but also involves joint efforts with hospitals to establish a quality-assured system for the safety of sterile items.

Xu Jing, using Julikang as a model, introduced how third-party sterile supply centers collaborate with and manage operations alongside healthcare institutions.

The entire service process of the Sterile Supply Department involves both in-hospital and out-of-hospital operations, with external services primarily interfacing with hospitals through the sterile item supply chain. All internal supplies adhere to the same standards as those implemented by the hospital, covering areas such as the contaminated zone, inspection zone, and distribution of sterile items. Sharing with the hospital regarding operational models, quality control processes, market data, and workload reports is achieved through the Julikang Group’s MIS management platform.

At the operating room client site, Julikang has installed a sterile inventory management system. Staff members review tracking data collected throughout the day for hospitals, while control personnel enter the operating rooms to assist with backend data completion and organization. As one of the most profitable departments in a hospital, the operating room demands stringent risk control. For high-value surgical instruments, Julikang enhances assessment during their outsourcing process, performing qualitative and quantitative evaluations, developing customized solutions, and providing on-site services.

Shanghai Julikang Investment Co., Ltd. has also achieved integration with hospital internal systems for the quality traceability of sterile items, establishing a sterile item tracking system that enables full-process monitoring of items, including operational logs, equipment and facilities, and logistics parameters. In the event of any disputes from patients or medical staff, all physical parameters and operational logs of the items can be directly traced via QR code scanning, truly realizing the principle of “outsourcing services, but not quality” for sterile items.

For large-scale, high-volume Grade 3A hospitals, Julikang conducts surveys among clinical departments and management during project implementation. Both groups have expressed the expectation that Julikang provide an emergency contingency plan. Many Grade 3A hospitals operate 24/7, necessitating the immediate activation of emergency protocols in the event of urgent surgical cases.

Accordingly, Julikang has established a corresponding emergency response model that places greater emphasis on integrating in-hospital and out-of-hospital operations. An emergency supplies activation center has been set up within the hospital: urgently needed items are processed on-site, while routine items are returned to third-party providers for handling. Healthcare personnel are only required to use and register the items; all aspects of item retrieval, processing, distribution, and oversight are managed through on-site coordination and administration by Julikang staff.

Xu Jing also emphasized that, for hospital sterilization rooms, items must be linked to personnel during use to enable true item tracking on the management platform.

Since its establishment in 2009, Julikang has established a nationwide presence across China, with eight operational sterile supply centers, four centers under construction, and eight sites currently undergoing location selection. Its footprint spans major cities including Shanghai, Tianjin, Chongqing, Changsha, Shenyang, and Hefei, achieving a comprehensive regional layout throughout the country.

Regarding fee structures, Julikang primarily charges based on the number of devices, employing a flexible pricing model that is more reasonable and thus more readily accepted by hospitals.

Regarding the construction costs of sterile supply departments (SSDs), Xu Jing informed us that prior to 2018, the state had not yet issued corresponding construction standards. Including investments in specialized equipment and implementation, the cost of building an SSD at that time was approximately RMB 15 million. In 2018, the National Healthcare Administration imposed stricter requirements on the construction and quality control standards for SSDs, leading to a corresponding increase in costs. Xu Jing stated that Julikang has extensive experience in cost control.

Xu Jing stated that she fully understands and accepts the high standards and stringent requirements set by the state. This is because a sterile supply center may simultaneously serve ten or even twenty medical institutions; once an adverse event occurs, the consequences would be immeasurable. Therefore, the state imposes requirements on third-party medical service providers in accordance with the establishment standards for medical institutions.

To ensure timeliness, Julikang operates an entirely self-built logistics network. It allocates delivery routes and determines the number of logistics trucks required for each area based on the number of contracted hospitals and distribution points. Under this route planning model, a single logistics vehicle serves multiple hospitals. Furthermore, every truck is equipped with a GPS positioning system, enabling full-process dispatch and resource reallocation in response to emergency hospital needs.

For instance, if a hospital requires emergency surgery, it can use GPS positioning to seek assistance. If a logistics vehicle is found nearby delivering supplies to another hospital, the vehicle can be immediately dispatched to deliver the sterile items needed for the surgery.

Logistics vehicles are configured in accordance with national regulations and standards, permitting only the receipt and transport of sterile items. After use, they undergo sterilization and disinfection, followed by ongoing regulatory oversight.

Due to the specialized nature of Julikang, its Shanghai operations are equipped with special-purpose vehicles for the transport of emergency medical supplies across the entire central region. Xu Jing stated that Shanghai serves as the origin of Julikang’s refined management practices, and through practical implementation, these strategies will be gradually rolled out nationwide.

Sterile supply is a highly specialized niche with profound professional depth. Hospitals also evaluate whether enterprises possess the capability to undertake such services, the rationality of their service delivery plans, and the adequacy of their quality assurance measures. Xu Jing stated that surgical instruments and internal transportation requirements vary across hospitals. Therefore, more scientifically grounded implementation plans and stricter quality control systems are areas in which Shanghai Julikang Investment Co., Ltd. has been continuously improving and refining.

Julikang is committed to building a third-party supply chain platform for sterile items and is currently expanding its project portfolio on this platform. Xu Jing told us that Julikang’s mission is to serve hospitals effectively through this platform, enabling them to allocate more medical resources to patient care.

Xu Jing specifically introduced to us the extended projects that Julikang has built for Grade A tertiary hospitals. They have developed a precision management module for operating rooms in these hospitals, which manages surgical equipment and instruments. In the hospital where the application has been most successful, Julikang helped manage 290 million pieces of equipment and instruments used across all surgeries in the operating room. Now, through the positioning of equipment and facilities, as well as the setting of roles for management and operational personnel, the required devices and facilities can be located immediately.

Xu Jing stated that all of Julikang’s extended platforms are designed to liberate operating room labor. Therefore, Julikang also provides hospitals with comprehensive services for the use of surgical instruments, including leasing solutions for surgical equipment.

Driven by the vast number of medical institutions and the continuous growth in surgical volumes, China’s third-party sterile supply market currently stands at nearly RMB 50 billion, a trend expected to spur the emergence of numerous service providers and enterprises in the future.

After eight years of accumulation and deepening industry insights, Julikang hopes that all third-party sterile supply service providers will enter this market with a professional spirit, sign mutually recognized service agreements with hospitals, clearly define responsibilities and rights, adhere strictly to commitments, and supply sterile items to hospitals with professionalism and contractual integrity. Meanwhile, regional integration should be achieved, such as centralized wastewater treatment, which holds significant importance for environmental protection.

Xu Jing stated that the ultimate goal of third-party sterile supply service providers should be to deliver professional third-party sterile supply center services to primary hospitals unable to establish their own sterile supply centers, secondary hospitals struggling to meet compliance standards, and tertiary hospitals facing cost-control pressures, through regional third-party service delivery.

Currently, Julikang is developing a late-stage project dedicated to building an intelligent sterile supply center. Leveraging the establishment of its sterile supply platform and the professional expertise accumulated over many years, Julikang has constructed a precise, intelligent center encompassing transportation, warehousing, logistics, and item identification, and is currently rolling out this model across China. Xu Jing stated that by the end of 2019, the company aims to operate 19 standardized regional third-party sterile supply centers, with some of these centers achieving full intelligent operations.

Through these strategic initiatives, Julikang aims to provide a convenient and intelligent work platform for tertiary and secondary hospitals, as well as community rehabilitation centers, thereby delivering its professional supporting services to a broader range of medical institutions.