By: Qinglin Zhao (Karoline)
This land is absolutely lucrative, and also competitive; most importantly, there is a lot to explore.
The Chinese health industry is definitely a huge pie that most companies aim to share. According to the Ministry of Finance in China, the health market is expected to grow to $1.2 trillion by 2020. With such a tremendous scale, it cannot be a “winner takes all” business but will involve various players, either from online or offline.
There are several problems that the health industry in almost all countries are facing: the aging population, the increasing rate of chronic diseases, the rising cost of R&D and the insufficient workforce, especially medical specialists. For example, from 2004 to 2014, the cost of developing new drugs has increased by 145%. But China, specifically, has more challenges of its own. The fundamental problem is the disequilibrium of supply and demand in the health system and the disproportion of the medical resources. The report by iResearch indicates that there are only 2.31 practicing physicians for every 1000 people, while the Organization for Economic Co-operation and Development averege is 3.19. Other than the first-class hospitals, where most skilled doctors work, there are only a few located in very developed cities. The quality of community and local clinics is patchy, so patients always go to the first-class hospitals for the best medical services. As a result, the resources at basic hospitals are wasted and top-tier hospitals become too overcrowded to serve the patients.
The shortage of offline medical resources is where internet companies see the opportunity. Compared to offline hospitals, internet hopsticals respond and react in a much quicker way. Besides, patients have an easier access to online doctors. As of 2015, the scale of Internet medical users in China is 152 million, which accounts for 22.1% of all Internet users. Internet medical companies usually establish electronic medical records (EMR) for every user, allowing users and their offline care-givers to keep track of their health status. Furthermore, users update their EMR from time to time, so online doctors could monitor a patient’s condition and give prescriptions more efficiently. The velocity and veracity of Internet explains the stunning scale of online user traffic, though the Internet medical service is limited to merely medical consultation, which fails to create real value for both patients and companies. The core of medical services still lies in medical diagnosis, treatment, operation, etc, which the Internet cannot provide. Patients’ willingness to pay the Internet medical companies for consultation or appointment with offline hospitals is very low. Thus, there is lack of payers in the supply chain. The business seems to be unprofitable, so why startups keep entering the healthcare market and what exactly are they seeking for?
The target is big data, which is of the most importance to almost all industries in the 21st century. According to the report released by IMS Institute, in the healthcare industry, the most valuable data types would be administrative data, clinical data, biometric data, demographic data. The applications of big data range from clinical therapeutic methods, public healthcare policy, pharmaceutical development, marketing to health insurance plans. For example, the pattern from the big data could build a better model for the insurance companies to predict risks, which is the priority as of finance. The potential of big data is undoubtedly beyond all mentioned above. The problem is that the volume, veracity and variety of data is not ideal in China because data are not completely standardized, and it is where Internet health startups are making changes: to collect and analyze data for better use. Most startups are tech-oriented and strive to obtain personal data by online consultation or portable devices. Big data could contribute to the insurance companies, aka the biggest payer in the ecosystem, so its ultimate value seem to be self-evident. Clearly, Internet health startups are confident about this, and they do not hurry but absorb data consistently.
Companies with deep pockets have a better play. WeDoctor, a $6 billion online health platform, has invested tons of money to develop its own network of hospitals and doctors. The advantage of working directly with hospitals is data with a higher quality in terms of its format and applicable value. According to one report from Bloomberg, WeDoctor possesses a central database where doctors in its network would upload patients’ information with consent, which could benefit pharmas and insurers in terms of marketing. WeDoctor also opened clinics to complement its online medical services, most of which are located in residential projects run by WeDoctor’s partners. If WeDoctor tells a successful story of going from online to offline, Ping An is another successful case of going the other way around. Ping An Healthcare and Technology, China’s largest online health and medical platform, is the subsidiary of Ping An Insurance. Ping An Insurance is a China’s financial conglomerate, worth $213 billion, as of January 2018. Its goal is to build up its business cycle, with online health platforms, medical groups and insurance companies. Ping An Healthcare and Technology is now China’s largest online health and medical platform by it average monthly active users and daily average online consultations, according to Frost & Sullivan, and is ready for IPO in Hong Kong at a value of $5.6 billion.
China’s tech tycoons such as Tencent and Alibaba, one focused on social media, the other online shopping, also invest heavily in the healthcare market. According to iYiou, Tencent has invested around $3.3 billion in medical startups since 2014. Back to questions we asked earlier in the article, why does the amount of medical startups keep growing even though they suffer from net losses and what are they aiming? Apart from offering better medical services in the profitable healthcare market, they may also have been waiting for the collaboration with influential business conglomerate like Baidu, Alibaba and Tencent.
With regards to issues in China’s healthcare system, big data is just the most accessible and applicable tool that the healthcare industry could rely on for now. Blockchain, artificial intelligence and augmented intelligence have gradually entered the public domain as well. The question of how they can serve as a solution to improve medical services is interesting to think about, or at least, to look forward.
- Ministry of Finance of the People’s Republic of China. (2013, Oct 15). Retrived from http://www.mof.gov.cn/zhengwuxinxi/caijingshidian/jjrb/201310/t20131015_998878.html
- Deloitte. (2018). 2018 Global and US health care outlook. Retrieved from https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/us-and-global-health-care-industry-trends-outlook.html
- Lulu Yilun Chen. (2018, July 3). A $6 Billion China Startup Wants to Be the Amazon of Health Care. Retrieved from https://www.bloomberg.com/news/articles/2018-07-02/a-6-billion-china-startup-wants-to-be-the-amazon-of-health-care
- Peggy Sito, Xie Yu. (2018, April 12). Chinese Online Medical Platform Ping An Healthcare and Technology to Raise US$1B from Hong Kong IPO. Retrieved from http://www.scmp.com/business/companies/article/2141501/chinese-online-medical-platform-ping-healthcare-and-technology
- Image source: https://www.chinamoneynetwork.com/2018/07/04/chinese-oncology-firm-linkdoc-raises-151m-series-d-round-from-cic