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WHARTON CHINA BUSINESS FORUM

WHARTON CHINA BUSINESS FORUM. FEBRUARY 6, 2010. PHILADELPHIA, PENNSYLVANIA. EMERGING OPPORTUNITIES IN CHINA H.I.T. TODAY’S PRESENTATION. DESCRIBE DORENFEST IN CHINA PROVIDE A FEW HIGHLIGHTS ABOUT HEALTHCARE IN CHINA DISCUSS THE H.I.T. SITUATION IN CHINA. THE DORENFEST GROUP.

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WHARTON CHINA BUSINESS FORUM

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  1. WHARTON CHINA BUSINESS FORUM FEBRUARY 6, 2010 PHILADELPHIA, PENNSYLVANIA EMERGING OPPORTUNITIES IN CHINA H.I.T.

  2. TODAY’S PRESENTATION • DESCRIBE DORENFEST IN CHINA • PROVIDE A FEW HIGHLIGHTS ABOUT HEALTHCARE IN CHINA • DISCUSS THE H.I.T. SITUATION IN CHINA

  3. THE DORENFEST GROUP • HEALTHCARE CONSULTING AND INVESTMENT FOCUS • OFFER HEALTHCARE IMPROVEMENT SERVICES TO SUPPORT A MORE POSITIVE WORLD FUTURE • HELP HEALTHCARE ORGANIZATIONS TO IMPROVE HEALTHCARE SERVICES WHILE REDUCING COSTS BY IMPROVING WORK PROCESSES, MANAGEMENT SYSTEMS, SERVICES TO PATIENTS, AND QUALITY OF MEDICAL CARE • IN 2006 THE DORENFEST GROUP FORMED THE DORENFEST CHINA HEALTHCARE GROUP, BASED IN SHANGHAI, TO BRING OUR SKILL, TECHNOLOGY, AND CAPITAL TO CHINA IN A TWO-PHASE PROGRAM • WE ARE NOW OPERATING IN PHASE 1 OF THIS PROGRAM, OFFERING A VARIETY OF CONSULTING, TRAINING, AND EDUCATION SERVICES TO THE CHINA HEALTHCARE SYSTEM • WE EXPECT TO ENTER PHASE 2 OF OUR ACTIVITIES IN CHINA IN LATE 2010 OR 2011 WHEN WE WILL BEGIN TO MAKE INVESTMENTS IN WELL-DEFINED, GOOD BUSINESS PROJECTS, IN PARTNERSHIP WITH CHINESE HEALTH BUREAUS AND HOSPITALS

  4. DORENFEST 2005 INVESTIGATION OF HEALTHCARE IN CHINA • 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

  5. DORENFEST CHINA PHASE 1 BUSINESS OPERATIONS • HOSPITAL AND HEALTH BUREAU MANAGEMENT CONSULTING • OPERATIONS IMPROVEMENT AND CHANGE MANAGEMENT • STRATEGIC PLANNING FOR NEW I.T. SYSTEMS • I.T. SYSTEM SELECTION • I.T. SYSTEM IMPLEMENTATION • WORK PROCESS IMPROVEMENT • MANAGEMENT TRAINING • INTERIM I.T. MANAGEMENT SERVICES • OTHER SERVICES • GENERAL MANAGEMENT CONSULTING FOR HEALTHCARE COMPANIES • CHINA ENTRY STRATEGIES • MARKET ANALYSES • PRODUCT STRATEGIES • MARKET RESEARCH • IMPLEMENTATION CONSULTING • EDUCATIONAL PROGRAMS FOR HOSPITAL AND HEALTHCARE BUREAU LEADERS

  6. SOME RECENT CLIENT EXAMPLES IN CHINA • EXAMPLES OF HEALTH BUREAU CLIENTS • SHENZHEN • CHONGQING • EXAMPLES OF HOSPITAL CLIENTS • SHANGHAI CHANGNING MATERNITY AND INFANT HEALTH INSTITUTE • PEKING UNIVERSITY MEDICAL COLLEGE #3 HOSPITAL • RIZHAO CITY PEOPLE’S HOSPITAL • EXAMPLES OF HELPING CLIENTS FROM OTHER LOCATIONS TO BRING THEIR SKILLS TO MAINLAND CHINA • HONG KONG HOSPITAL AUTHORITY • MICROSOFT

  7. DORENFEST EDUCATION IN CHINA – TONGREN HOSPITAL, BEIJING 2005

  8. DORENFEST EDUCATION IN CHINA – ZHEJIANG MEDICAL ASSOCIATION 2009

  9. WHARTON CHINA BUSINESS FORUM A FEW HIGHLIGHTS ABOUT HEALTHCARE IN CHINA

  10. CHINA HEALTHCARE EXPENDITURES WILL GROW RAPIDLY($ AND RMB IN BILLIONS) 14.6% 15.2% 14.1% 13.6% 866 RMB ($126.7 ) 984 RMB ($144.0 ) 1128 RMB ($165.0) 759 RMB ($97.0) 1900 RMB ($275.0) 13.8% 659 RMB($84.9 ) 459 RMB ($59.1) 579 RMB ($74.7) 216 RMB ($27.8) 75 RMB ($9.6) Annual Growth Rate Forecasted Growth Rate – 15% in 2008 and 20% in 2009 and 2010 RMB in Billions Government Social Insurance Out-of-pocket SOURCE: MINISTRY OF HEALTH ANNUAL STATISTICS YEARBOOK 10

  11. Drug Exam/Test Medical Services AVERAGE MEDICAL EXPENSE PER OUTPATIENT HOSPITAL VISIT ($ AND RMB) RMB 136 RMB ($19.9) 129 RMB($18.8) 127 RMB($18.6) 118 RMB($17.3) 86 RMB ($12.6) 40 RMB ($5.8 ) SOURCE: MINISTRY OF HEALTH ANNUAL STATISTICS YEARBOOK

  12. PKU3 HOSPITAL OUTPATIENT CLINIC REGISTRATION AT 7:00 AM

  13. THE OUTPATIENT HEALTH RECORD WHICH PATIENT KEEPS

  14. ALMOST 60% OF HEALTHCARE COSTS ARE PAID DIRECTLY BY PATIENTS OUT OF THEIR POCKET ACCESS TO HEALTHCARE FOR THE POOR HAS BEEN LIMITED, BUT NOW CHANGING THE MIDDLE AND UPPER CLASSES ARE DISSATISFIED WITH HEALTHCARE SERVICES DOCTOR INCOME EARNING METHODS WEAKEN THE DOCTOR-PATIENT RELATIONSHIP DRUGS AND TESTS FUND TOO MUCH OF THE HEALTHCARE SYSTEM HOSPITALS NEED TO EARN PROFITS TO SUPPORT THEMSELVES PRIMARY CARE IS JUST BEGINNING TO SEPARATE FROM HOSPITALS TO NEWLY-DEVELOPED COMMUNITY CLINICS HEALTHCARE SYSTEM CHANGES WILL CAUSE HEALTHCARE COSTS TO RISE MORE RAPIDLY CHALLENGES OF THE CHINESE HEALTHCARE SYSTEM

  15. WHARTON CHINA BUSINESS FORUM SOME HIGHLIGHTSABOUT H.I.T. IN CHINA

  16. U.S. HOSPITALS LED THE WORLD INTO H.I.T. IN THE 1960s AND SOUGHT AN EHR THROUGH FOUR GENERATIONS OF I.T. SYSTEMS • FINANCE SYSTEMS (LATE 1960s and 1970s) • LIMITED CLINICAL SYSTEMS (LATE 1970s AND 1980s) • MORE ADVANCED CLINICAL SYSTEMS (1990s) • ELECTRONIC HEALTH RECORDS (2000s)

  17. CHINA BEGAN TO COMPUTERIZE ITS HOSPITALS IN THE EARLY 90’S INITIALLY PROGRESS WAS SLOW, WITH A FOCUS ON FINANCIAL SYSTEMS IN THE EARLY 2000’S, CHINESE HOSPITALS BEGAN TO IMPLEMENT I.T. FOR CLINICAL SYSTEMS MANY SOFTWARE SOLUTIONS AVAILABLE, WITH SEVERAL HUNDRED SMALLER SOFTWARE COMPANIES EMERGING IN 2005, CHINA SPENT LESS THAN 1% OF TOTAL HEALTHCARE COSTS ON I.T. OR ABOUT $600 MILLION (USD) IN 2007, CHINA SPENT OVER $1 BILLION (USD) ON H.I.T. GROWTH IN H.I.T. INVESTMENT IS EXPECTED TO ACCELERATE, RISING TO ALMOST $3 BILLION USD IN 2010 THE DEVELOPMENT OF H.I.T. IN CHINA

  18. CHINA HOSPITAL WORK PROCESSES ARE REDUNDANT, EXPENSIVE, AND ERROR-PRONE THE MINISTRY OF HEALTH (MOH) GUIDELINES FOR HEALTH I.T. DEVELOPMENT CALL FOR ALL CITIES IN CHINA TO HAVE REGIONAL HEALTH NETWORKS AND ELECTRONIC MEDICAL RECORDS AUTOMATED BETWEEN 2003 AND 2010 PROVIDED MUCH MOMENTUM NOT MUCH SUCCESS TO DATE HEALTHCARE REFORM INCREASED INVESTMENT AND MOMENTUM CHINESE HOSPITAL LEADERS WANT TO TAKE A BIG LEAP FORWARD IN IMPROVING WORK PROCESSES AND IN DIGITIZING CHINESE HOSPITALS IMPROVED USE OF I.T. IS ONE OF 8 PILLARS OF THE NEW CHINA HEALTHCARE REFORM PLAN. FOCUSES INCLUDE: ELECTRONIC HEALTH RECORDS DATA SHARING THROUGH REGIONAL HEALTH NETWORKS IMPROVED HOSPITAL I.T. SYSTEMS I.T. SYSTEMS TO SUPPORT HEALTH INSURANCE FACTORS CONTRIBUTING TO FUTURE SPENDING GROWTH IN CHINA H.I.T.

  19. CHINESE HOSPITALS HAVE INVESTED TOO LITTLE IN I.T. SYSTEMS AND I.T. INFRASTRUCTURE SOFTWARE PRODUCTS AND INTEGRATION TOOLS ARE NOT GOOD ENOUGH INEXPERIENCE IN SOFTWARE BUYING RESULTS IN BAD BUYING DECISIONS AND POOR IMPLEMENTATION THIS HAS RESULTED IN NEW I.T. SYSTEMS, OFTEN ADDING WORK AND CREATING UNNECESSARILY REDUNDANT WORK PROCESSES HOSPITAL LEADERS, NOT KNOWING WHAT THEY DO NOT KNOW, CONTINUE TO USE POOR BUYING AND IMPLEMENTATION APPROACHES BECAUSE THEY DO NOT KNOW BETTER WAYS ARE POSSIBLE, AND THERE IS A STRONG MOMENTUM TO CONTINUE WITH THESE APPROACHES FACTORS IMPEDING SUCCESS IN CHINA H.I.T.

  20. THERE ARE HUNDREDS OF SMALL SOFTWARE VENDORS ACTIVE IN CHINA H.I.T. THE MARKET SEGMENTS WITH THE MOST VENDORS ARE EMR, H.I.S., PACS, R.I.S., AND LAB ALL H.I.T. VENDORS IN THE MARKET STARTED IN A CITY AND MOST ARE STILL OPERATING IN THAT CITY OR A SMALL REGION AROUND THE CITY. SOME H.I.T. VENDORS ARE BEGINNING TO BECOME MORE NATIONAL IN SCOPE MANY VENDORS IN THE H.I.S. MARKET OFFER HEAVILY CUSTOMIZED SOLUTIONS RATHER THAN STANDARD SOLUTIONS. THESE CUSTOMIZED SOLUTIONS CREATE GREATER DEPENDENCY ON THE VENDOR AND ARE MORE DIFFICULT/EXPENSIVE TO KEEP CURRENT AS VENDORS PERIODICALLY RELEASE UPDATES CHINESE HOSPITAL LEADERS WOULD LIKE TO SEE A NEW GENERATION OF H.I.T. SOFTWARE DEVELOPED FOR THE COUNTRY TO ASSIST IN HELPING THEM ACCOMPLISH THEIR “LEAPFROG” OBJECTIVES THE COMPETITIVE ENVIRONMENT

  21. IMPROVED BUYING AND IMPLEMENTATION OF I.T. SOFTWARE WITH MORE USER INVOLVEMENT BETTER USE OF I.T. TO SUPPORT HOSPITAL MANAGEMENT BETTER USE OF I.T. IN CLINICAL SERVICES DIGITAL HOSPITALS WITH ELECTRONIC HEALTH RECORDS WILL EVOLVE WITH GREATER FREQUENCY BETTER SYSTEMS INTEGRATION AND MORE STANDARDS TO SUPPORT I.T. PROGRESS AND THE USE OF MULTIPLE VENDORS IN THE I.T. ENVIRONMENT REGIONAL HEALTH NETWORKS WILL EVOLVE CHINA’S GOAL IS TO LEAPFROG THE WORLD IN H.I.T. ACCOMPLISHMENT EXPECTED EVOLUTION OF H.I.T. IN CHINA

  22. MANY WESTERN COMPANIES OPERATE IN THE PHARMACEUTICAL, MEDICAL DEVICE, AND MEDICAL IMAGING SEGMENTS OF CHINESE HEALTHCARE MULTINATIONAL TECHNOLOGY COMPANIES OPERATING IN CHINA, SUCH AS IBM, HEWLETT PACKARD, CISCO, MICROSOFT, AND INTEL, HAVE BUSINESS IN HEALTHCARE UNTIL RECENTLY, THE CHINA H.I.T. MARKET DID NOT LOOK LIKE AN OPPORTUNITY AREA FOR WESTERN COMPANIES WHILE ALMOST ALL SOFTWARE IN CHINA IS PROVIDED BY CHINESE COMPANIES, THE EXPECTED GROWTH IN CHINA H.I.T. MARKET AND LACK OF GOOD APPLICATION SOLUTIONS ARE MOTIVATING MANY WESTERN COMPANIES TO LOOK AT THE CHINA H.I.T. MARKET AS A MAJOR OPPORTUNITY THE U.S. TRADE AND DEVELOPMENT AGENCY (TDA) IS FUNDING A BIG PROJECT FOR THE SICHUAN PROVINCIAL HEALTH BUREAU WESTERN COMPANIES IN CHINA HEALTHCARE

  23. CHINA’S SPENDING ON HEALTHCARE AND H.I.T. IS GROWING RAPIDLY PAST INVESTMENTS IN H.I.T. HAS RESULTED IN A GREAT DEAL OF DISSATISFACTION WITH APPLICATION SOLUTIONS NOW AVAILABLE IN CHINA A NEW GENERATION OF H.I.T. PRODUCT SOLUTIONS IS FELT TO BE NEEDED BY HEALTHCARE LEADERS IN CHINA BETTER CHANGE MANAGEMENT SKILL AND EXPERIENCE IS AN EVEN GREATER NEED, BUT THIS NEED IS LESS EVIDENT TO CHINESE HEALTHCARE LEADERS AT THE PRESENT TIME WESTERN EXPERIENCE IS WELCOMED BY CHINESE HOSPITAL AND HEALTH BUREAU LEADERS AS THEY MOVE FORWARD TO ACCOMPLISH THEIR H.I.T. AND WORK PROCESS IMPROVEMENT OBJECTIVES OPPORTUNITIES ARE EMERGING FOR WESTERN COMPANIES IN CHINA H.I.T.

  24. IT HAS TAKEN MANY YEARS FOR IBM, HEWLETT PACKARD, GE, AND SIEMENS TO ESTABLISH POSITIONS IN THE CHINA H.I.T. MARKET MANY OTHER WESTERN COMPANIES HAVE STUDIED OR ENTERED THE CHINA H.I.T. MARKET FOR BRIEF PERIODS DIFFICULTIES FOR WESTERN COMPANIES INCLUDE THE FOLLOWING: WESTERN PRODUCTS DO NOT FIT CHINA WORK PROCESSES, BUT WESTERN COMPANIES DO NOT FULLY UNDERSTAND THE CHANGES THAT MUST BE MADE WESTERN PRICES FOR SOFTWARE PRODUCTS ARE TOO HIGH FOR CHINESE HOSPITALS CHINA IS A VERY DIFFERENT MARKET THAN MOST OTHER COUNTRIES, AND THE DIFFICULTIES ARE NOT FULLY RECOGNIZED. THERE ARE PITFALLS AND WESTERN COMPANIES MAKE MANY MISTAKES DURING THEIR LEARNING PERIOD THE CHINESE ARE VERY SELECTIVE WHEN SPENDING MONEY, SO WESTERNERS MUST PROVE THEMSELVES THROUGH PERFORMANCE CHALLENGES FOR WESTERN COMPANIES IN CHINA H.I.T.

  25. THANK YOU Questions? FOR MORE INFORMATION CONTACT:SHELDON I. DORENFEST THE DORENFEST GROUPTHE DORENFEST CHINA NBC TOWER, SUITE 2725 HEALTHCARE GROUP 455 N. CITYFRONT PLAZA DRIVE RENMIN ROAD NO. 988 CHICAGO, IL 60611-5555 JINGTIANDI INTERNATIONAL TOWER UNITED STATES OF AMERICA SUITE 908 PHONE: 312-464-3000 SHANGHAI, CHINA FAX: 312-467-0541 PHONE: 021-63203522, 63269722 WEB SITE ADDRESS: www.dorenfest.com SHELDON’S E-MAIL ADDRESS: sheldon@dorenfest.com

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