Future Direction of Health IT and Emerging Business Opportunities CEIBS Health Club Shanghai, China May 28, 2012 Future Direction of Health IT and Emerging Business Opportunities in China

Presentation Agenda About the Dorenfest Group 3 Page About the Dorenfest Group 3 A Foreigner’s View of Healthcare in China 15 Current Status and Future Direction of HIT in China 25 Where Does China Stand on the Global HIT Continuum? 34 Emerging Business Opportunities in China Healthcare 41 Career Considerations 47

The Dorenfest Group 40 years experience in HIT Offer healthcare improvement services through a variety of businesses. Software Hospital Operations Improvement for over 300 Hospitals Consultation with over 200 Technology and Software Vendors in Health Created the Product That Became the HIMSS Analytics Database Our work focuses on improving patient care and operational efficiency through better change management Work process improvement Management systems improvement Improvement in services for patients Improvement in quality of patient care

Dorenfest’s Investigation of China Healthcare in 2005-2006 Visited 17 cities in China Met 100’s of healthcare industry leaders in China Visited over 100 hospitals to review hospital operations and define opportunities for improvement Met provincial and city health bureau leaders in cities visited Met with many companies selling products and services to the healthcare industry in China Evaluated a group of hospital ownership and management opportunities and assessed viability of the Dorenfest “model hospital” in China Developed a strategy for bringing Dorenfest skill and experience to China

Dorenfest Vision of a Model Hospital Provides improved quality of care to its patients Operates at a highly efficient level through effective use of systems and better work processes Offers its services to patients at an affordable cost Creates a highly satisfied patient population with the patients observing a noticeable improvement in the services and treatments provided by the hospital Utilizes appropriate digital technology to create a state of the art “digital hospital”

China Healthcare Leaders Want to Leapfrog the World in IT Use Chinese hospitals and health bureaus are carefully considering how to be more successful in taking next steps forward in IT use There is a recognition that for China to accomplish its objectives in HIT requires the following: Learning quickly from the global experience Overcoming resistance to change Knowing how to manage change Doing more of what the rest of the world did right and less of what they did wrong to avoid mistakes other countries have made and China is still making Developing more expertise in these areas of need quickly 6 6

Chinese Hospitals Needed Help in the Following Areas The creation of IT plans The buying of IT systems The implementation of IT systems Change management to gain benefits and improvements from new IT systems 7 7

The Dorenfest Group Is Bringing Needed New Skills to China 1. Hospital Operations Improvement and Change Management 2. IT Program Improvement, Problem-solving, Strategy, and Planning 3. New Approaches to Buying IT Systems in a Stronger Partnership with Users 4. New Ways to Implement IT Systems

Project Examples The Dorenfest China Healthcare Group was formed in 2006 to offer consulting services to China Hospitals and Health Bureaus. We have worked with over 25 hospitals and health bureaus to help them use information technology more effectively and have consulted with a variety of Chinese and Western healthcare companies Examples of health bureau clients for RHN and digital hospital planning Shenzhen Chongqing Examples of hospital clients Peking University Third Hospital Foshan City First People’s Hospital Shanghai Changning Maternity & Infant Health Institute Rizhao City People’s Hospital / 9

Project Examples (Continued) Examples of Western clients bringing their skills to mainland China Hong Kong Hospital Authority IMS China Microsoft China Philips Healthcare China Examples of Chinese company clients Donglian Heren Health Simcere Pharmaceuticals SINOPHARM / 10

Dorenfest Education in China – Tongren Hospital, Beijing 2005

Dorenfest Education in China – Zhejiang Medical Association 2009

The Dorenfest Group Business Model The Dorenfest Group operates as a healthcare investment and consulting company with a small team of full-time experts, supplemented by a large number of partners to provide the necessary skills to our clients and our affiliates The Dorenfest Group assembles the project team with the skills and experience needed for the client’s success We partner with a number of major universities and companies. Examples of those we regularly partner with include: Johns Hopkins International maxIT Microsoft Philips

The Dorenfest China Healthcare Group Current Status as of May 28, 2012 Still in Phase 1. Timing of Phase 2 not determined yet All our current clients like our work a lot and buy more projects from us The market is booming with interest and opportunity in the areas we have skill in We made our entry at the right time and developed the experience and reputation before all of these new opportunities emerged, and as a result are positioned with great understanding of the current situation and a good reputation in China Issues for us: Consulting market in China HIT still very small Dorenfest operates in China as a small entrepreneurial company, because the consulting market is small. This will not always be true, so we are now in the process of building critical mass to handle the expected growth in the market Finding and training the right people to bring these new services to China is an important factor in the next steps in growth

A Foreigner’s View of Healthcare in China CEIBS Health Club A Foreigner’s View of Healthcare in China

The Development of Healthcare in China 1. In the change to a more market driven economy in China, there was a shift from government funding of the healthcare system to citizen funding, which has made China the highest “patient pay out of their pocket” healthcare system in the world 2. China’s healthcare spending has made it one of the most efficient healthcare systems in the world 3. China’s outpatient care has followed a different model than the rest of the world, with most outpatient care now provided on hospital campuses 4. Most countries’ healthcare systems now have problems, which generally come from not managing past changes properly 5. China, on the other hand, has not changed its healthcare system as rapidly as other countries, so its problems are different 16

Healthcare Cost Trends ($ and RMB in billions) Forecasted Growth Rate – 15% in 2008 and 20% in 2009 and 2010 RMB in Billions 1900 RMB ($275.0) Government Social Insurance Out-of-pocket 1128 RMB ($165.0) 984 RMB ($144.0 ) 866 RMB ($126.7 ) 759 RMB ($97.0) 659 RMB ($84.9 ) 579 RMB ($74.7) 459 RMB ($59.1) 216 RMB ($27.8) 75 RMB ($9.6) 13.8% 15.2% 14.1% 13.6% Annual Growth Rate 14.6% SOURCE: MINISTRY OF HEALTH ANNUAL STATISTICS YEARBOOK

Average Medical Expense Per Outpatient Hospital Visit ($ and RMB) Drug Exam/Test Medical Services 136 RMB ($19.9) 127 RMB ($18.6) 129 RMB ($18.8) 118 RMB ($17.3) 86 RMB ($12.6) 40 RMB ($5.8 ) SOURCE: MINISTRY OF HEALTH ANNUAL STATISTICS YEARBOOK

Outpatient Registration Is an Example of the Problems of Being an Efficient Investor 19

Waiting to Pay for Services

The Outpatient Health Record Which Patient Keeps

Customer Service Has Been a Lower Priority 1. Long wait times 2. Very few advance appointment systems 3. Average time of physician visit is 2-5 minutes 4. Collecting money and making profits are a major focus 22 22

Challenges of the Chinese Healthcare System 1. Over 50% of healthcare costs are paid directly by patients out of their pocket 2. Access to healthcare for the poor has been limited, but now changing 3. The middle and upper classes are dissatisfied with healthcare services 4. Doctor income earning methods weaken the doctor-patient relationship 5. Drugs and tests have funded too much of the healthcare costs 6. Hospitals have needed to earn profits to support themselves 7. Primary care is just beginning to separate from hospitals to newly-developed community clinics 8. Healthcare reform will cause healthcare costs to rise more rapidly 23 23

Healthcare Reform in China is Bringing Many Changes and Much New Spending 1. Basic care for people in China who cannot afford to pay for care 2. Large stimulus spending is being made to improve healthcare 3. Many major changes are being implemented all at once. Some are: Public hospital reform Community clinics Modernizing facilities Clinical pathways Regional health networks Electronic health records Many more 4. The challenge for China and the opportunities for wise business people is in the management of all of these changes in a short period of time to accomplish the desired outcomes 24

Current Status and Future Direction of HIT in China CEIBS Health Club Current Status and Future Direction of HIT in China

The Development of HIT in China Chinese hospitals began to computerize in the early 1990s The initial focus of computer efforts was on financial systems In the early 2000s, Chinese hospitals began to implement IT for clinical systems Many software solutions are now available, with well over 1,000 smaller software companies now operating in the HIT market in China Between 2005 and 2010, China hospital spending on IT grew from 5 billion RMB in 2005 to 16 billion RMB in 2010, and to 21.5 billion RMB in 2011 This rapid growth in spending will continue at an even more rapid pace over the next several years 26 26

Factors Contributing to Future Spending Growth in China HIT Redundant, expensive, and error-prone hospital work processes led to the initiation and development of HIT in China Fueled by the Ministry of Health (MOH) guidelines for health IT development issued in 2003, calling for all cities in China to implement RHNs and digital hospitals by 2010, hospitals began to purchase clinical systems in a variety of areas In 2009, China Healthcare Reform was passed, and a stimulus spending program of almost one trillion RMB in new spending was initiated to support Healthcare Reform Improved use of IT is one of eight pillars of the new China Healthcare Reform. The 3521 project national vision for HIT was summarized in the twelfth five-year plan for HIT to provide the framework for HIT and RHN development in China from 2011 to 2015. Focuses of HIT development include: Improve hospital IT systems leading to digital hospitals Implement electronic health records (EMR and EHR) Create the second wave of RHN development to provide data sharing throughout cities, provinces, and at a national level IT systems to support expanded healthcare insurance 27

Factors Contributing to Future Spending Growth in China HIT (Continued) The vision document for 3521 is comprehensive and extensive, and may be summarized as follows: 3 levels of health information platform – nation, province and region (city or county) 5 groups of applications – public health, healthcare service, health insurance, drug administration, general management 2 basic databases – resident electronic health record and electronic medical record 1 dedicated health infrastructure network 2 sets of systems – data standards system and network security system Much spending is going on right now to implement first steps in the execution of this vision. 28

HIT Is One of Eight Pillars of China Healthcare Reform Core of Health Reform: Establish Basic Healthcare System Healthcare system that covers all urban and rural residents Public healthcare system Medical service system Medical insurance system Secured pharmaceutical supply system Management Mechanism Operation Mechanism Investment Mechanism Pricing Mechanism Supervision Mechanism Talent Supply HIT Construction Legal System Further Implement Health Reform

The Competitive Environment 1. There are over 1,000 small software vendors active in China HIT 2. The market segments with the most vendors are HIS, PACS, RIS, LIS, and EMR 3. All HIT vendors in the market started in a city and most are still operating in that city or a small region around the city. Many of these smaller local vendors have a dominant market share in the area they service. Some HIT vendors have become more national in scope 4. Many vendors in the hospital computer systems market offer heavily customized solutions rather than products. These heavily customizable solutions create greater dependency on the software vendor and are more difficult/expensive to keep current when vendors release new software updates periodically 5. Chinese hospital leaders would like to see a new generation of HIT software developed for the country to assist in helping them accomplish their “leapfrog” objectives 30

The Current Computing Environment in a Typical Large Complex Chinese Hospital Today Sample Current Systems (High Level View) Office Automation Systems Core Vendor (Vendor 1) Major Ancillary Systems Major Financial Systems Major Clinic Financial (Vendor 2) R.I.S./PACS (Vendor 4) Order Management Inpatient ADT and Billing Cashiering (Vendor 2) General Accounting Performance Assessment System (Vendor 13) MD Workstation (Vendor 2) L.I.S. (Vendor 3) Inpatient Physician Workstation Outpatient and ER Registration Policy Exchange Platform (Vendor 13) Pharmacy (Vendor 2) Blood Bank (Vendor 3) Outpatient Physician Workstation Outpatient Pricing and Charging Webport System (Vendor 13) Major Admin Systems L.I.S. (Vendor 3) Bar Code (Vendor 3) Inpatient Pharmacy Material Supply Hospital Website (Vendor 13) Medical Ins (Vendor 9) OR/Anesthesia (Vendor 5) Outpatient Pharmacy Smart Card Medical Ins (Vendor 10) Ultrasound (Vendor 6) Lab Price System Patient Consultation Survey Medical Records (Vendor 11) Stomatology (Vendor 7) Inpatient Insurance Interface RF Card Producing Sub-System Human Resources (Vendor 12) Instrument and Equipment Management Many Other Niche and Specialty Systems Inpatient EMR (Vendor 8) Note: Chart taken from a couple of real hospital situations with each vendor or product family shown in a different color

Major Areas of Future Development and Opportunity in the China HIT Market 1. Application software will become more productized with greater tools to support the growing use of IT in hospitals 2. New application software to serve the not yet automated areas of clinical work processes are emerging very quickly 3. Integration tools to facilitate the development of an improved IT environment will emerge 4. Data analytics products and support tools to facilitate better data analysis, reporting, and decision making will emerge as Chinese Hospital Managers grow in sophistication 5. New service and implementation approaches are beginning to emerge General contracting for entire efforts with some company software and some partner software Front end planning, buying, and implementation services purchased from independent third parties to help hospitals make better buying decisions and create more successful implementation of software

Today Chinese Hospital HIT Investment Is Spent Differently Than the Rest of the World SOURCE: CCW Research 33

Where Does China Stand on the Global HIT Continuum? CEIBS Health Club Where Does China Stand on the Global HIT Continuum?

Broad Comparison of US and China HIT Situations . Key Element US China Per Capita Healthcare Spending $7,500+ $100+ Employees per bed 6+ 1 to 2 HIT Spending Very high Very low Number of Software Vendors in a Hospital 80+ 20+ Integration Status Okay Very bad Size of IT Staff Very Big Small Dependence on Software Vendors Medium Very High Implementation Approaches Fair Bad Historic Data Available in Any Form Lots Very Limited Historic Data Available in Accessible Automated Form Considerable Very limited Clinician Use of Data Growing Limited to none

How Did the Rest of the World Get to Their Present Level? 1. The U.S. started first, made a huge amount of error from inexperience, and has created an advanced, but very inefficient HIT program 2. The next group of adopters, including Canada, Europe, and Australia, did better than the U.S. by learning from the U.S. experience 3. Later adopters in Asia, such as Hong Kong, have accomplished the best results in the shortest period of time by paying very close attention to the experience of others and doing more of what they did right, and less of what they did wrong

What Are the Key Success Factors in HIT Use in the Rest of the World? 1. Good front end methods for buying and implementing new HIT systems, with a focus on functional specifications and user buy-in 2. Physician and user leadership with the involvement of many physicians and users 3. Good integration tools to support the purchase of software products from different vendors in a more seamless way 4. Software products with user modification tools that match the needs of the hospitals and can easily be upgraded to reflect changes and new rules 5. Careful learning from their own experience and the experience of other countries to minimize mistakes in the process of buying and implementing HIT systems

China Has Moved Too Fast in the Following Areas of HIT Development 1. Oversimplifying vision and ideas so that execution brought disappointment 2. Buying HIT systems too quickly with too little front end planning and too little user involvement 3. Adopting best of breed software acquisition approaches without adequate attention to how these different software vendor products would fit together as a unit and work seamlessly in the hospital

China Has Moved Too Slow in the Following Areas of HIT Development 1. To recognize the value and to invest in the methods to integrate a variety of different software vendors, and to not use too many software vendors if they cannot be integrated 2. To address cultural impediments to good change management by involving the users more and adopting processes that lead to good buying decisions

Creating More Success in the Current China Healthcare Environment 1. There is much momentum for change. More money will be spent and better results are mandatory 2. Because of limited investment for many years in China HIT, Chinese hospitals have created a poor foundation for implementing its HIT vision of the future, and have made many of the same mistakes that the U.S. made in its early adoption of HIT Now China is at a crossroads. It is spending much money to accomplish a very grand HIT vision But more careful front end planning at every level of the country – from the hospital to the health bureau to the national level – must be done to support the execution of what could be a wonderful vision if successfully implemented By recognizing what the rest of the world learned from their successes and failures, and doing more of what the rest of the world did right, and less of what the rest of the world did wrong, China will be able to make much faster and better progress in the future of HIT implementation

Emerging Business Opportunities in China Healthcare CEIBS Health Club Emerging Business Opportunities in China Healthcare

Western Businesses Now Operate in Many Markets in China Most major Western companies and many Western investors have reviewed China for investment opportunities Large multinational companies are now operating in most industries in China First for low cost manufacturing Later to serve the Chinese marketplace Western companies operate in China at the pleasure of the Chinese government When there is a strong need for what the Western company offers, the Chinese government will make it easier When the need is reduced, the Chinese government can create a variety of obstacles for the progress of that company The size and future growth of the Chinese marketplace is like a magnet that attracts these companies, even though there are lots of challenges for them

Western Businesses Now Operate in Many Markets in China (Continued) Doing business in China is different than doing business in the West. When Western companies come to China, there are many things they must learn in order to be successful in operating a business in China When Chinese companies come to the West, they experience similar adjustment issues The Chinese people are very entrepreneurial and in general are great business people. Doing business with them on their turf presents a variety of challenges for Western companies

Western Companies in the Healthcare Industry in China Many Western companies operate in the Chinese healthcare industry Most dominant market segments served by Western companies are: Pharmaceuticals Medical devices Medical imaging Many companies in these markets have operated in China for a long time and have been quite successful in serving the Chinese healthcare industry In addition, multinational technology companies such as IBM, Hewlett Packard, Cisco, Microsoft, Intel, and others that operate in many industries in China also sell their products in the healthcare industry in China

China Healthcare Offers New Opportunities for Foreigners Rapid growth in healthcare spending and a desire to improve healthcare services A desire to move toward international standards for serving the growing middle class and wealthy population Skills missing in China to accomplish healthcare improvement objectives Foreign skills are valued and many universities, hospitals, and companies are bringing their skills to China Ways to serve the emerging needs profitably are still not clear

Some Opportunities Emerge in Healthcare Services With the emergence of healthcare reform, China has a much bigger desire to learn from the US China is serving the middle class and wealthy with the same healthcare system they serve the poor people with, and there is an opportunity for better healthcare provided by foreigners to the upper middle class and wealthy New opportunities are emerging in senior care, rehab medicine, and a variety of medical specialties where China has limited skill (a good example is what happened in cosmetic care a number of years ago) Opportunities are emerging in HIT software and services

Career Considerations CEIBS Health Club Career Considerations

Career Considerations It is a great opportunity for me to talk with so many young people just starting their working career Questions on your mind I am sure include the following: What should be my career entry point? In what geography should I start my career? What should be my career objectives? What other questions do you have?

THANK YOU. SHELDON I. DORENFEST FOR MORE INFORMATION CONTACT: THE DORENFEST GROUP THE DORENFEST CHINA NBC TOWER, SUITE 2725 HEALTHCARE GROUP 455 N. CITYFRONT PLAZA DRIVE HUAIHAI EAST ROAD NO. 45 CHICAGO, IL 60611-5555 HUAIHAI PLAZA US OF AMERICA SUITE 908 PHONE: 312-464-3000 SHANGHAI, CHINA FAX: 312-467-0541 PHONE: 021-51001821 WEB SITE ADDRESS: www.Dorenfest.com E-MAIL ADDRESS: info@Dorenfest.com SHELDON’S E-MAIL ADDRESS: sheldon@Dorenfest.com 49