Interface News Reporter | Huang Hua
Interface News Editor | Xie Xin
On May 10, China Resources Medical announced that it was about to close its Huaiyin Hospital.
CR Healthcare is a wholly-owned subsidiary of CR Group -—— the only listed platform of CR Healthcare Group, mainly engaged in hospital asset management. At present, it has 146 medical institutions with a total of about 22,000 beds in operation, and is the leading enterprise of domestic hospital groups.
Huaiyin Hospital is a second-class for-profit general hospital located in Huai'an City, Jiangsu Province. In 2021, Huaiyin Hospital was bought by China Resources Medical for more than 800 million yuan.
It can be said that the 800 million deal of China Resources Medical has been a complete failure, and all this happened only in the third year after the acquisition.
As of press time, China Resources Medical has not responded to this matter other than the announcement, but according to the Jiemian News reporter's understanding, behind this shutdown, the restructuring of Huaiyin Hospital has changed hands several times in history, and it is inextricably linked with the loss of patients caused by changes in the operating environment of the local medical market.
Continued losses and impairments
In CR Healthcare's acquisition announcement in 2021, Huaiyin Hospital has about 1,190 open beds, 40 clinical medical and technical departments, and 1,200 hospital employees, which can provide basic medical services for nearly 900,000 people in the region, with an average annual diagnosis and treatment volume of nearly 600,000 person-times, making it the largest and leading general hospital in the region, and the only second-class general hospital in Huaiyin District designated by medical insurance, and completed the for-profit restructuring in 2019.
According to the official website of Huaiyin Hospital, the full name of this hospital is "Huai'an Huaiyin Hospital", and its predecessor was the Huaiyin County Anti-Japanese Democratic Government Health Office established in 1941. In 1946, 1951 and 1976, the hospital was successively renamed "Huaiyin County People's Government Health Center", "Huaiyin County People's Health Center" and "Huaiyin County People's Hospital". In January 2001, the hospital was renamed "Huai'an Huaiyin Hospital".
In the 2021 annual report, CR Medical proposed that the acquisition of Huaiyin Hospital is the company's strategy to further establish itself in the Yangtze River Delta. As of the end of 2021, CR Medical has two hospitals in Jiangsu, one is Huaiyin Hospital and the other is Xuzhou Mining Hospital.
Unlike Huaiyin Hospital, which is a for-profit hospital, Xuzhou Mine Hospital is a comprehensive non-profit state-owned public hospital, and it was also a hospital that joined China Resources Group during the restructuring in November 2007. The acquisition of for-profit hospitals is no small attempt by CR Healthcare, and subsequent announcements have shown that all this is not easy.
According to the financial information disclosed by China Resources Medical, from 2021 to 2023, Huaiyin Hospital will continue to lose money in operation, and the amount of losses will continue to grow. From 2021 to 2023, the hospital's losses will be about 67.294 million yuan, 76 million yuan, and 30 million yuan.
In 2022, the year after the acquisition, CR Medical made an impairment decision on this investment. That is, the goodwill of Huaiyin Hospital was impaired by 108 million yuan, and the bad debt provision of 45 million yuan was also made for the hospital's receivable government purchase service fees. In 2023, CR Medical will continue to reduce its impairment. Due to the impairment related to Huaiyin Hospital, CR Medical's net profit in 2023 will reach 447 million yuan.
Dragged down by the Huaiyin Hospital investment case, China Resources Medical will continue to increase revenue without increasing profits in 2022 and 2023. Among them, in 2022, the company will achieve a net profit of 159 million yuan, a year-on-year decrease of 62.6%.
On May 10 this year, China Resources Medical said that Huaiyin Hospital currently lacks business development opportunities, and the operating loss will continue for a long time, the company believes that compared with continuous operation, Huaiyin Hospital to stop operating is a better choice at this stage, the company will apply to the industry regulatory authorities to stop operating the hospital, and after approval, the hospital will be closed down.
According to CR Medical's announcement in 2021, before the acquisition, Huaiyin Hospital was directly 100% owned by Huai'an Huaiyin Hospital Investment Management Co., Ltd., which was indirectly controlled by Sinophi Hospitals (note: Cigna's assets). At that time, Cigna held 7.12252 shares of Sinophi Hospitals, representing only 2.89% of Sinophi Hospitals.
The other 97.11% stake in Sinophi Hospitals is already held by Renfang Medical. Among them, NHPEA, Sihuan (note: the announcement of China Resources Medical is expressed as "Sihuan", which actually refers to Yaozhong International (Hong Kong) Co., Ltd.) and Che Holdco hold 57.06%, 38.14% and 4.8% of the shares of Renfang Medical, respectively.
According to the announcement of China Resources Medical, among the shareholders of Renfang Medical, NHPEA is indirectly controlled by Morgan Stanley's private equity fund, and Che Holdco is controlled by Che Fengsheng, chairman of the board of directors of Sihuan Pharmaceutical, which refers to Yaozhong International (Hong Kong) Co., Ltd., a wholly-owned subsidiary of Sihuan Pharmaceutical, a Hong Kong-listed company.
Pursuant to the agreement between the two parties, Renfang Medical and Cigna conditionally agreed to sell 237.99341 shares and 6.12252 shares of Sinophi Hospitals, respectively, and Jianghua Management, a wholly-owned subsidiary of China Resources Medical, will acquire 99.19% equity interest in Sinophi Hospitals. Sinophi Hospitals indirectly holds an 80% stake in Huaiyin Hospital. CR Medical paid a consideration of RMB883 million.
This also means that China Resources Medical's acquisition of Huaiyin Hospital in 2021 is actually from Morgan Stanley, Sihuan Pharmaceutical, and Che Fengsheng. Before this investment occurred, Cigna had already shown a trend of withdrawal.
Judging from the results, the acquisition of China Resources Medical seems to be extremely unlucky. Its most specific performance is that after the acquisition, the performance of Huaiyin Hospital directly "turned into a loss".
According to the announcement of China Resources Medical at the time of the acquisition, Huaiyin Hospital before the acquisition was a profitable medical institution, with after-tax profits of 49.721 million yuan and 10.109 million yuan in 2019 and 2020, respectively. However, after the acquisition, from 2021 to 2023, the hospital continued to experience losses of more than 10 million yuan.
As for the deterioration of Huaiyin Hospital's operating conditions, China Resources Medical is always vague, mentioning that the reason is that "Huaiyin Hospital has gradually lost medical staff since 2022". The company did not specify where the paramedics went.
On May 13, Jiemian News reporters called multiple contact numbers on the official website and official account of Huaiyin Hospital, but the calls were not answered. The last post on the hospital's official account was dated March 15 this year.
A former employee of Huaiyin Hospital told Jian News reporters that he joined the company in October 2022, and the situation of the hospital was already very bad when he joined the hospital, and in October 2022, the number of inpatients in this hospital was about 120. But at that time, there were still some old employees who did not leave, and after a month, the only few old employees also went to the Fifth People's Hospital of Huaiyin, and the number of patients decreased, and the business situation was difficult to be optimistic.
The above-mentioned person said that doctors from other hospitals of China Resources Group will also return one after another in 2023, so the departments of Huaiyin Hospital have become very unsound, and the hospital has been in a state of staff tension. Due to the resignation of people one after another, Huaiyin Hospital could only continue to integrate departments, until the surgical department was cut in March this year, and the hospital did not accept many patients.
The employee also said that the hospital's current aftermath work has not yet been completed. Among the employees, most of the compensation is paid according to N+1, but for pregnant women, the hospital said that it will only pay 2N+1, and there is no mention of three periods of salary and maternity allowance. In addition, employee bonuses have been in arrears since the second half of 2023, and so far, the four months of bonuses for this year have not been paid.
It was a celebrity acquisition
Although Huaiyin Hospital is not the top three in China, it has been famous in China several times. Moreover, every time it attracts attention, it is implicated in the medical asset investment case.
2014 was a year in which Huaiyin Hospital frequently appeared in media reports. According to China News Network, in July 2014, Huai'an City organized a delegation to the United Kingdom to carry out economic and trade investment activities, during which it signed an investment cooperation agreement with Cigna of the United Kingdom with a total investment of nearly 1 billion yuan in Huaiyin Hospital, and a framework agreement to invest billions of yuan in Huai'an to build an international cancer hospital with the world's advanced level.
At the event, then British Prime Minister David Cameron also praised the investment from Cigna, saying that it would become "a model for cooperation between China and the UK in the field of health care". As a result, Huaiyin Hospital also won the title of "a big hospital bought by the British".
Also in 2014, because of the investment of Cigna in the United Kingdom, Huaiyin Hospital also had a "doctor's protest against being acquired" incident. At that time, the industry media "Medical Circle" also tried to call Huaiyin Hospital, Huaiyin District Health Bureau, and Huai'an Municipal Health Bureau to try to verify, but did not get an official reply.
Later, according to a report by "Seeing the Medical Circle" in April 2021, a credit rating report issued by China Chengxin International showed that in 2014, the Huai'an District Government transferred Huai'an Huaiyin Hospital Investment Management Co., Ltd., with an appraised value of 521 million yuan, to Huai'an Huaiyin District Urban Assets Management Co., Ltd., and in December of the same year, 80% of the equity of Huaiyin Hospital was transferred to the British Cigna Medical Group, and Huai'an Huaiyin District Urban Asset Management Co., Ltd. retained 20% of the shares.
Cigna is one of the foreign participants in the field of medical asset investment in China, and its full name is "Cigna Medical Investment Co., Ltd.", which is the representative company of the British pharmaceutical industry investment in China.
In addition to Huaiyin Hospital, Cigna has invested in many other hospitals in China, especially during the period from 2014 to 2017. For example, in Huai'an, Jiangsu Province, it once invested in the establishment of Cigna Lianshui Hospital together with the First People's Hospital of Huai'an City and the People's Government of Lianshui County. However, Tianyancha shows that Cigna Hospital (Lianshui) Co., Ltd. has been deregistered on November 23, 2022.
In fact, in 2014, at the same time that Huaiyin Hospital became a "big hospital bought by the British", Sihuan Pharmaceutical, a Hong Kong-listed company, also issued an announcement.
Specifically, on December 22, 2014, Sihuan Pharmaceutical announced that Yaozhong, a wholly-owned subsidiary of the company, and two investors, MSPEA Health and Euromax, agreed to inject capital into the joint venture. This joint venture is Renfang Medical Holdings Limited ("Renfang Medical"), in which Euromax, MSPEA Health and Yaozhong own 23.71%, 38.14% and 38.14% of the shares of Renfang Medical, respectively.
The total amount of capital injected into Renfang Medical is 830 million yuan, and they will be acquired by Renfang Medical through its subsidiaries. The price of 830 million yuan is almost the same as the price that China Resources Medical will take over in 2021 seven years later.
According to Sihuan Pharmaceutical's announcement at the time, among the two investors, MSPEA Health, which holds 38.14% of the shares, is a company specially established by Morgan Stanley Private Equity Asia (Morgan Stanley Private Equity Asia) on the occasion of this joint venture, while Euromax, which holds 23.71% of the shares, is wholly owned by Che Fengsheng, chairman of the board of directors of Sihuan Pharmaceutical.
Sihuan Pharma also mentioned in the announcement that Sinophi Healthcare is a strategic partner in the company's hospital investment and management, and it has played an important role in the investment in Huaiyin Hospital.
This also means that behind the vigorous "British bought a big hospital" incident that year, in addition to Cigna Medical, Morgan Stanley, Sihuan Pharmaceutical, and Che Fengsheng were all involved.
Later, when China Resources Medical took over Huaiyin Hospital in 2021, Cigna's shareholding had changed, and Morgan Stanley's shareholding ratio had been further increased in 2014.
Acquisition legacy issues are mine-laid
However, according to the relevant people who participated in Cigna Medical's acquisition of Huaiyin Hospital, it is not difficult to find that it may be the various mistakes in this transaction that eventually led to the current closure of Huaiyin Hospital.
The person told the interface news reporter that because there was a financial deficit of nearly one billion yuan in Huai'an that year, he was eager to sell Huaiyin Hospital to make up for the local financial deficit. After the completion of the transaction, Cigna Medical also took the local government of Huai'an to the UK to attract investment, during which it also met with the then British Prime Minister Cameron.
However, the deal was not without opposition to the deal in the local area, both from within the government, and the bigger resistance was the conflict between Tang Yeqin, then the director of Huaiyin Hospital, and the new shareholder.
According to the official website of Huaiyin Hospital, Tang Yeqin became the president of Huaiyin Hospital in September 2000. According to the official website of the Fifth People's Hospital of Huai'an City, at the end of 2014, under the leadership of the district party committee and the district government, Cigna invested in Huaiyin Hospital and implemented the reform of the president responsibility system under the leadership of the board of directors; Tang Yeqin was appointed as the president.
But in fact, the person said that after the transaction was completed, Tang Yeqin was more resistant to the management of the new shareholders, and even organized people to besiege the representatives of the new shareholders in the hospital, and under a series of contradictions, the final solution was to build another hospital in Huai'an City, and transfer Tang Yeqin to the new hospital as the president and be responsible for the preparatory work.
Perhaps this decision was made at the beginning, laying the groundwork for the closure of Huaiyin Hospital.
This new hospital is now known as the Fifth People's Hospital of Huai'an, and it is worth noting that it is only about three kilometers away from Huaiyin Hospital, almost on the same street, and there must be competition between the two sides.
On the official websites of the two hospitals, they almost share the history of the hospital before 2015.
According to the content of the official account of the Fifth People's Hospital of Huai'an City in February 2021, Huaiyin People's Hospital of Huai'an City (Huai'an Fifth People's Hospital) was formerly known as Huaiyin Hospital of Huai'an City; In 2015, due to system reform, the district government invested 1 billion yuan to build a new public "Huai'an Huaiyin People's Hospital" in another place, and added the "Huai'an Fifth People's Hospital" brand; The first phase of the hospital is scheduled to be completed and put into use in July 2021.
Based on the above information, it can be seen that Huai'an Huaiyin People's Hospital and Huai'an Fifth People's Hospital are one hospital at this stage, and they were also developed from Huaiyin Hospital at the earliest. On January 20, 2022, after the official operation of the Fifth People's Hospital of Huai'an City, Huaiyin People's Hospital of Huai'an City/Huai'an Fifth People's Hospital has formed a more direct competition relationship with Huaiyin Hospital.
According to the release of the Fifth People's Hospital of Huai'an City in March 2023, on February 23 of that year, the Jiangsu Provincial Health Commission has confirmed the Fifth People's Hospital of Huai'an City as a tertiary general hospital, and the next goal of the Fifth People's Hospital of Huai'an City is to create a "third-class general hospital".
Based on this, it is speculated that the Fifth People's Hospital of Huai'an City will need to further improve its operating effectiveness. However, for the second-level Huaiyin hospital in close proximity, the competitive pressure is also increasing. In addition, there is only one competitive hospital in Huai'an. These may be the reasons why CR Medical said in the announcement that there is a "lack of business development opportunities".
Of course, this kind of competition in the future was not unseen by Cigna Medical back then. It is understood that Cigna's main positioning of Huaiyin Hospital was to vigorously develop tumors, but relevant people believe that after Tang Yeqin was transferred, the hospital managers selected by Cigna performed poorly.
In the eyes of former employees of Huaiyin Hospital, the reason why Huaiyin Hospital is operating so badly is because the hospital has not received patients, and it has cut off its daily source of income.
According to a former employee of Huaiyin Hospital, most of the patients in Huai'an City will go to the First People's Hospital of Huai'an City, while patients in Huaiyin District and Huaiyin Township now go to the Fifth People's Hospital of Huai'an City. He also said that the doctors of Huaiyin Hospital returned to the five hospitals in batches, and their establishment also went to the five hospitals.
The loss of medical resources may be the most direct reason for the current situation of Huaiyin Hospital.
Later, Huaiyin Hospital also encountered an anti-corruption incident. On October 14, 2019, Liu Zeyu, secretary of the Huaiyin District Party Committee, who led the promotion of the sale of Huaiyin Hospital to Cigna Medical, was suspected of serious violations of discipline and law, and was subject to disciplinary review and supervision investigation.
In July 2020, according to the Huai'an Municipal Commission for Discipline Inspection and Supervision, Tang Yeqin, deputy director of the Standing Committee of the People's Congress of Huaiyin District, Huai'an City, was suspected of serious violations of discipline and law, and is currently undergoing disciplinary review and supervision investigation.
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