China e-health overview

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In 2015, global digital health market funding reached USD6 billion. In 2016, the mid-year total investment in the sector already hit the historic record of USD3.9 billion. Among the top 10 deals during the year 2016 so far, PingAn Good Doctor, a comprehensive B2C health service and management app, powered by China’s insurance giant PingAn Group, leads the largest deal value at USD500 million, according to StartupHealth report.

Around the world, there is a clear convergence of enthusiasm; from US, Middle East, to China, India, countries have been adopting digital health solutions in a substantial way in the last several years.

Yet China’s e-health development will be shaped by a unique transformation course because it has been building upon a very complicated landscape.

First, benchmarking with the US or other western countries, China’s health market is dominated by public hospitals and devoid of a sophisticated structure of family doctors or private clinics. For most Chinese suffering from any symptom of illness in need of medical care, the first touch point always starts at the door of a public hospital. China’s state-owned hospital is classified into 3 types, with the rating system from A (the lowest standard) to AAA (the highest standard). The AAA rating hospitals only account for 7.2% of the total number of public hospitals in China. They are mostly located in 1st or 2nd tier cities but need to take on 45.2% of the treatment cases since patients perceive AAA rating hospital is the most reliable destination to seek professional help. The dilemma often causes long queuing line and inadequacy of the public hospital service. The inefficient health-care system with patients access as the biggest pain point sprang up many startups in providing online scheduling, online physician consultation, remote diagnosis etc. In the past, these companies tend to tackle a small part of healthcare value chain. But now big startups considered themselves ready for the end to end integration, and even experimented the concept of “internet hospital”, which is trying to digitalize every step of offline patient journey via the internet, including appointment, consultation, diagnosis, check lab result, prescription, follow-up, drug purchase for common or chronic disease. For example, established in 2010, GuaHao (Weiyi Group), one of China’s largest hospital appointment platforms, launched nation’s first “internet hospital” in a small water town Wuzhen in 2015.

Second, China e-health offering has been very patient centric and sometimes is struggling with a viable business model. Current dominant incumbents often have more than 5 years of existence and already acquired a massive user base. For example, Chunyu, launched in 2011, has become the leading remote physician consultation app, with over 65 million registered users, 200,000 registered physicians, and 110,000 daily inquiries. The huge traffic acquisition was, nonetheless, at the expense of providing free consultation service for the majority of its end users. Physician services are paid by Chunyu, not by patients. For a long time, industry experts evaluate Chunyu’s business model is neither profitable nor sustainable; and doomed to perish one day. However, Chunyu has been actively seeking new monetization methods, such as charging patients for premium doctor services or implementing so called “O2O” strategy, the idea of opening offline clinic, as a natural extension of online consultation services.

Third China internet giants, especially the BAT, consider themselves more capable of trailblazing the e-health innovation. They have been rolling out formidable e-health strategies over the past few years. Alibaba is the earliest mover and so far a well-rounded player, either in terms of investment or self-powered health services, addressing key aspects of healthcare needs, covering smart device, online appointment, consultation, diagnosis, treatment, drug e-commerce. In May 2014, it started to vigorously promote the concept of “future hospital”: Alibaba makes its 3rd party payment Alipay and mobile platform available to healthcare providers and helps them to create an online hospital platform; patients can use the platform to access all hospital functions, including online payment and settlement of medical insurance. Nevertheless, one big pitfall lingers at this stage as Alipay fails to link directly to each patient’s account of basic health coverage paid by the government, which impedes the automation of reimbursement process upon using Alipay for online medical bill payment. Tencent, on the other hand, is now leveraging the popularity of WeChat and WeChat Pay to form open platform and partnership with healthcare providers, very close to the idea of Alipay’s “future hospital” in essence. Tencent is also a savvy investor in e-health sector in order to wield its impact behind-scene. For instance, Guahao(Weiyi Group) the one debuts the “first internet hospital” in China has been backed by Tencent. In 2014, Tencent invested in DXY, China’s biggest physician online community and digital medical content portal.Baidu, albeit a late comer, definitely not less aggressive and comprehensive in its approach, has a strong focus on building the big health data cloud and open health smart wearable platform such as Dulife which provides cloud computing to analyse user’s physiological index.

Fourth, China has a very under-developed private health insurance market. The adoption rate is estimated to be less than 10% of the whole population. On average only 3.5% of medical expenses would be covered by the private insurance, 55.8% are backed by the government and 40.7% are borne by the individual payor (In comparison, in US private insurance often takes about 33.5% of the medical bill). In addition, the largest proportion of the medical bill is incurred by the cost of medicine, rather than the hospital services. Many insurance companies are making initiatives to crack into this new frontier. For instance, PingAn Group in China already envisioned the synergy between new digital health innovation and its traditional health insurance business; PingAn Good Doctor is the gateway of value-added health services for its insurance policy holders.

Lastly but not the least, China’s healthcare system is heavily regulated by the government via a top-down control. This implies current health policies are very likely lagging behind the explosive growth of e-health solutions. Although regulator has shown open and supportive gestures toward e-health development, significant uncertainty around government attitude still remains due to lack of effective supervision mechanism. Let us take a look in drug e-commerce. In the US e-commerce channel stands for 30% of total drug sale versus less than 1% in China. US online prescription drug sale occupies 50% of the drug e-commerce while in China it is a forbidden territory. Authorities have relaxed the grip on the OTC drug online sale recently and Alibaba anticipated that to lift the ban on prescription drug e-commerce is just a matter of short time. But Alibaba soon realised it is going to take more than a leap of faith. Several months ago, China FDA even halted and prohibited the OTC drug retailing on Alibaba’s Yao.Tmall, the marketplace to aggregate diverse online pharmacy vendors. It was a slap in the face of Alibaba’s burning ambition in drug e-commerce.

China, with its huge population and under-developed health care system, has the strong yearning of accelerating the digital health innovation to enhance the overall efficiency. But its unique ecosystem imposes compelling challenges that you would not often encounter in other parts of the world. The hopes are high, the barriers are fragmented, the players are fierce, thus China e-health market is the perfect combination of opportunity and risk.

Cecilia Wu

A witty, nutty and frosty writer who hopes to jot down moments of inspiration from her daily life

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