【正文】 Patients NonReimbursableReimbursableTie r 3 Tie r 2 Tie r 1020406080100%Percent of Total Patients Tier 3 hospitals have a higher percentage of nonreimbursable patients, mainly because of specialized treatment. 25 July 27 EastChina bc HKG Source: Ministry of Health, Ministry of Labor, Hospital Interviews Reimbursement amounts are decided primarily by insurance type, although Tier 1 hospitals have much lower limits. ZhongShanYangPuZhongShanYangPuHuangPuZhongShanYangPuHuangPuYiChuanLinF enS t at e Fu n ded E m p l o y e eM e di c a lI ns ura n c eE n t erp ri s eM e di c a l C a reA l l2 00 2 001 201 00701 0040457060050100150200Reimbursement Limit per Prescription Tier 2 Tier 3 Hospital Tier 1 China Distribution Strategy Reimbursement Limitations Evolution of Insurance Shanghai Reimbursement ? Statefunded reimbursement: covers: government agencies, party agencies, institutions administered by work unit ? Enterprise medical care (old system): covers: stateowned enterprises, collectiveowned enterprises administered by work unit ? Employee medical insurance (under testing for rollout since 1994): covers: stateowned enterprises, collectiveowned enterprises administered by Social Welfare Center (Serious Disease Fund under experimentation as well) ? Commercial insurance, etc. Future Model for Everyone ? Covers 40MM workers ? Covers 100MM ? Covers 20MM workers currently ? Covers 27MM 26 July 27 EastChina bc HKG Sh a n g h a i * N a n jin g C h a n g z h o u1 , 3 0 02106505001 , 0 0 01 , 5 0 0Sh a n g h a i * N a n jin g C h g z h o u1 . 70 . 20 . 10 . 00 . 51 . 01 . 52 . 0Eastern China: Drug Retail Environment China Distribution Strategy Note: * Including ~500 supermarkets and department stores with small drug sales Source: Bain Interviews The number of drug stores and total sales differs dramatically depending on the evolution of the city. Drug Store Sales Total Drug Sales Rmb Bn (PTC) As a Percent of Shanghai Sales: 12% 6% Number of Outlets Number of Outlets Average Throughput: Rmb 27 July 27 EastChina bc HKG Source: Bain Interviews China Distribution Strategy Drug Store Description While there may be some variations across cities, there are only several models for these retail outlets. “Chain” Stores Affiliated Stores JV with Hospitals Independent Stores ? Wholly owned by one owner ? Usually under one brand name ? Located within district or city wide ? Partnership between hospital and chain retailer/distributor ? Located next to Tier 3 or Tier 2 hospital ? Independent from chains and hospitals ? Most associated with government or party anization ? Some owned by individuals ? Independent stores associated with chain stores usually separately managed Ownership: Valueadded: Future Potential: ? Centrally managed with central purchasing Each outlet tailors its purchases but may be required to source 8090% from parent ? Affiliation with hospital ? Conveniently located across city, not just in urban areas ? May source a portion from central chain, but maintains some autonomy ? Continued consolidation within cities ? Link between chain stores and distributors ? Good hedge by hospitals in case of healthcare reform changes ? Winwin for chain stores ? Hard to sustain business given strength of chain stores and hospital JV drug stores ? Will bee integrated more closely with chain stores 28 July 27 EastChina bc HKG Sm all O ut l et sL a rg e O u t l ets(4 C ha i ns)N u m be r o fS tore s/ O u t l etsTota lTh ro u g h p u t (P TC )210 R m b 15 6 M M0204060801 0 0%S m a llO u t l etsL a rg eO u t l etsN u m be r o fS tore s/ O u t l etsTota lTh ro u g h p u t (P TC )65 R m b 7 1 M M0204060801 0 0%S m a llO u t l etsL a rg eO u t l etsK ey O ut l et s ( ~ 15 Ch ain s )N u m be r o fS tore s/ O u ltetsTota lTh ro u g h p u t (P TC )1 , 3 0 0 R m b 1. 7 B N0204060801 0 0%Percent of Total Drug Stores/ Sales Source: URS Database。 Bain Interviews。 Bain Estimate and Analysis Shanghai Nanjing Changzhou 500 500 300 33% 60% 7% 120 90 30% 70% 40 25 20 51 Percent of Total Drug Stores/ Sales Percent of Total Drug Stores/ Sales China Distribution Strategy Eastern China: Accounts/Throughput by Drug Store Type Key outlets account for at least 50% of total city drug throughput. 29 July 27 EastChina bc HKG K e y L a r g e S m a l l2 . 5 3 .01 . 0 1 .50 . 2 0 .50 .00 .51 .01 .52 .02 .53 .0Average Annual Drug Sales / Outlet (RMB MM) Shanghai Nanjing Changzhou K e y L a rg e Sm a ll1 . 20 . 40 . 00 . 51 . 01 . 52 . 02 . 53 . 0K e y L a rg e Sm a ll1 . 80 . 50 . 00 . 51 . 01 . 52 . 02 . 53 . 0Average Annual Hospital Throughput (PTC, Rmb MM): 130 China Distribution Strategy Eastern China: Average Throughput by Drug Store Type The average sales of drug stores across these three cities ranges from Rmb MM, lower than Tier 1 hospitals’. 40 7 80 11 115 15 6 1 Source: Bain Interviews。 Bain Estimate and Analysis Average Annual Drug Sales/ Outlet (RMB MM) Average Annual Drug Sales/ Outlet (RMB MM) 30 July 27 EastChina bc HKG China Distribution Strategy Source: Bain Interview Shanghai: Drug Store Key Player (Hua Shi) Hua Shi is currently the largest c