Care-Renal Nephrology Physician Group Secures RMB 50 Million Investment and Pursues IPO Ambition

Recently, the hemodialysis market, which has seen a surge of social capital from various sectors, has gained a new competitor: Care-Renal Nephrologist Physician Group (Care-Renal) (hereinafter referred to as “Care-Renal Physician Group”). Established just three months ago, this physician group has already secured a substantial valuation. In addition to signing a RMB 50 million letter of intent for investment with one investment firm, it is currently in discussions with additional investors regarding potential investments on the scale of hundreds of millions of yuan.

Kairui Physician Group boasts a prestigious lineup of partners: several hail from renowned Grade-A tertiary hospitals in Beijing, including academic leaders and doctoral supervisors in the field of nephrology, experts in vascular access surgery, administrators of large-scale hemodialysis centers, and directors of nephrology departments at key hospitals across various districts of Beijing. These expert partners are all at the forefront of the field in China, with complementary specialties.

Meanwhile, from its inception, CareRay Medical Group invited several managers with extensive corporate management experience and medical backgrounds to join as partners, overseeing professional commercial operations.

Lin Hai is one of the managers. Before joining CarePlus Medical Group, Lin Hai had many years of work experience in foreign pharmaceutical companies and nine years of entrepreneurial experience. Earlier, Lin Hai was also an internist who graduated from Peking University Health Science Center.

Lin Hai shared with VCBeat the original intention behind founding the CareRay Physician Group. “Experts have long recognized the following drawbacks of physicians practicing at multiple institutions individually: arduous travel and associated medical risks; a passive position, making them easily replaceable by partner hospitals or companies, leading to unstable collaborations; and limited scale and influence. Compensation mostly consists of service fees with capped amounts, without access to corporate equity, among other issues. The CareRay Physician Group aims to establish companies and hospitals under its own independent brand, with equity ownership held by the group itself.”

Expert resources are the greatest competitive advantage of CareRay Physician Group, as these experts have signed exclusive agreements with CareRay. “Apart from their regular duties at public hospitals and government academic institutions where they currently serve, the experts will not collaborate with other similar commercial entities in a personal capacity, uniting to build the influence of the CareRay brand,” introduced Lin Hai.

However, Lin Hai also pointed out that not every expert is willing to accept an exclusive cooperation agreement. The doctors and experts who have signed such agreements with CareRay Medical Group have shown considerable courage in doing so. “They may worry, ‘What if I become financially liable by tying myself to a commercial entity?’ Especially prominent specialists are reluctant to be represented by agents and strongly resent being controlled by so-called ‘brokers.’”

Nevertheless, Lin Hai expressed confidence: “We are gradually educating physicians to help them recognize that their value can be maximized. This value encompasses not only serving a larger patient population but also the capital market valuation they deserve for participating in the establishment of chain-based physical hospitals.”

Collaborate with competitors, prioritizing minority or majority equity stakes.

According to Lin Hai, after learning of the establishment of the CareRay Doctor Group, many companies eagerly sought to discuss collaborations. However, their proposed cooperation models remained traditional, involving the payment of consultation and service fees to experts. Moreover, the consultation and service fees they offered fell significantly short of Lin Hai’s expectations.

Lin Hai told VCBeat that many companies expressed surprise when KaiRui Physician Group proposed taking an equity stake. “Having dealt with physicians for years, this was the first time they had encountered such a request.”

From Lin Hai’s perspective, equity participation or even holding a controlling stake is the approach truly considered by CareRay Physician Group. “CareRay is a physician group that emphasizes corporate capital value and has IPO aspirations. Only in hospitals where we hold equity or a controlling interest can physicians maximize their share of the benefits.”

Currently, four enterprises have expressed willingness to negotiate with CareRay Medical Group on a partnership in which CareRay would hold a 30% equity stake in hospitals through technology transfer.

Business Model

CareRay Medical Group’s specific business model involves establishing a chain of nephrology treatment and hemodialysis centers through two approaches: acquisition and self-construction, as well as equity-based joint ventures. The group also invests in new technology projects within the nephrology dialysis industry. Its concrete development plan is to build the CareRay brand by holding controlling interests in and operating 12 high-quality, profitable chain nephrology dialysis centers, achieving total revenue of RMB 400 million and net profit of RMB 100 million, with the goal of going public in 2018. After the IPO, CareRay will expand through acquisitions or self-construction to operate more than 100 high-quality nephrology dialysis centers nationwide, aiming for a valuation nearing RMB 10 billion.

Acquisition or Self-Build of Hemodialysis Centers

CareRay has a dedicated management team responsible for hospital acquisitions and greenfield development. Each hospital integrated into the CareRay Physician Group will appoint a full-time Hospital Director, under whom a Medical Director will serve, representing the expert team of the CareRay Physician Group.

“Our hospital president must possess excellent hospital management experience, focusing on excelling in administrative operations, while the medical director’s primary responsibility is to excel in clinical practice, leveraging their professional expertise,” said Lin Hai.

How to Rapidly Establish a Nationwide Network of Hemodialysis Centers: CareRay Medical Group Adopts Either Acquisition or Greenfield Development. “Acquiring hospitals with existing hemodialysis qualifications and medical insurance reimbursement status entails higher costs but saves time; building centers from scratch involves relatively lower costs but requires waiting for approval of hemodialysis qualifications and medical insurance reimbursement,” said Lin Hai. In practice, CareRay Medical Group will select the most suitable approach based on the specific circumstances of each province.

In Beijing, CareRay Physician Group has completed acquisition negotiations with two hospitals. Regarding specific acquisition criteria for hospitals, Lin Hai stated that hospitals below the Tier II level are acceptable.

According to reports, the intention behind CareRay Medical Group establishing a flagship hemodialysis center in Beijing is to set a national benchmark. “This flagship hemodialysis center operates on a considerable scale, which, to some extent, reflects strength and competitiveness. The facility also serves as a national training base and surgical center. We place great emphasis on patient experience. In addition to receiving the most professional medical care, kidney disease patients undergoing dialysis are treated with full respect and enjoy meticulous, human-centered services. Their quality of life is comprehensively enhanced through social activities, entertainment, and group outings,” said Lin Hai.

In the future, CareRay Medical Group’s hemodialysis centers will include both large-scale and small-to-medium-sized facilities. In fact, the optimal location for a hemodialysis center is within a 5-kilometer driving distance from patients; such centers typically fall into the small-to-medium category, with approximately 30 beds.

Overview of the Domestic Hemodialysis Market

Currently, there are approximately 2 million patients with end-stage renal disease (ESRD) in China, among whom only 300,000 receive dialysis treatment. This results in a dialysis penetration rate of merely 15%, significantly lower than the 75% rate observed in developed countries in Europe and America. With advancements in treatment standards, the average duration of dialysis per patient is expected to exceed 10 years, with annual costs ranging from RMB 60,000 to RMB 100,000. The current market size for hemodialysis stands at only tens of billions of yuan, but it is projected to expand substantially to over one hundred billion yuan in the future, indicating immense growth potential. The future trend in the dialysis market points toward a shift of patients to small-scale community dialysis centers. Taking Taiwan as an example, patients treated at community dialysis centers account for 75% of the total, whereas in Beijing, this figure is only 25%, suggesting considerable room for growth.

Nearly every company entering the hemodialysis services sector aspires to become the next Fresenius Medical Care or DaVita.

Last year, the two largest global hemodialysis service chains reported operating revenues of €15.8 billion and $12.7 billion, respectively. They deliver patient care through a worldwide network of hemodialysis centers.

Social capital’s entry into the hemodialysis service market stems from strong policy support.

In 2012, the former Ministry of Health and five other ministries jointly issued the "Guiding Opinions on Carrying Out Work for Critical Illness Insurance for Urban and Rural Residents," which included hemodialysis in the critical illness insurance reimbursement policy. The actual reimbursement rate was set at no less than 50%, with tiered reimbursement rates established based on cost levels. In 2013, the scope of critical illness insurance was further expanded, stipulating that impoverished populations meeting relevant conditions would receive an additional 15% from the civil affairs medical assistance fund, bringing the total reimbursement rate to no less than 90%.

On March 19, 2014, the Medical Administration Bureau of the National Health and Family Planning Commission issued the "Letter on Soliciting Opinions on Management Specifications and Basic Standards for Independent Hemodialysis Centers," which introduced significant policy preferences in three areas: First, establishing a dialysis center no longer requires affiliation with a secondary-level or higher hospital possessing a nephrology department; instead, a dialysis center may be established provided there is a secondary-level or higher general hospital within a 10-kilometer radius and a service agreement for managing acute dialysis complications is signed. Second, all other auxiliary departments of an independent dialysis center may be outsourced. Third, senior nephrologists are permitted to practice at multiple sites, including independent dialysis centers.

Subsequently, pharmaceutical manufacturers producing hemodialysis-related products, medical device companies, and healthcare investment firms have flocked to enter the hemodialysis services market. These include Changshan Pharmaceutical, Shenyang Sunshine Pharmaceutical, Xinhua Medical, Weigao Group, and Biolight, among others.