CHIC, Shanghai

April 2nd, 2015

Can eHealth solve China’s

Healthcare challenges?

| 1

Impact on the

Healthcare

value chain

Today’s discussion

Context for

eHealth in

China

Implications

for industry

participants

| 2

What is….the Context for

eHealth emergence in

China?

| 3

Potential for disruption – Some context

Many issues in China HC system… …while a fertile ground for ehealth market

Conflicts between

doctors and patients

Significant mark-up in

distribution channel

Poor quality

of supply

Lack of access

in rural areas

Inefficient hospital

operations

Heavy burden

of chronic diseases

Huge adoption of

mobile platforms

Government support

for e-Health

Access to capital

Largest e-Retail

market

Large and creative

IT community

Giants and hopeful

start-ups piling in

| 4

Average 3 hours spenton smart phone everyday

Mass adoption of mobile platform - infrastructure supports the

rapid growth of mobile health sector in China

SOURCE: McKinsey Global Institute (MGI); MIIT; Enfodesk; GBI; CMPMA

700million

active smart devices

in 2014

477

million 3G users

in 2014

Market size RMB

in 2014

3.0billion

12.5 billion Forecasted to reach RMB

By 2017

Growth

rate

27%YOY

2,000Over

healthcare related

smartphone apps in

the market

| 5

Number of mobile phone

internet users

GMV breakdown for Alibaba on

Singles Day

of internet users are mobile

phone internet users

SOURCE: China Internet Network information Center 34rd Statistical report released July 2014

525500

420

356300

201413201220112010

Huge adoption of mobile platforms - almost everyone is a

mobile internet user in China

1 Data mentioned in January 2014 report only, not in July 2014 report

Millions Percentage of sales

57 Mobile43

83%

| 6

Total investment (mn USD) No. of deals

Access to capital – money started to flow in with 80+ deals

closed in China eHealth industry in 2014, for a total amount

of $1.7b

SOURCE: Literature search, team analysis

10

189

1

104

258

23

73

75

99

204

621

Social media apps

Physician tools

Others

Health apps

Online community

Health monitoring

Web-based portals

Hospital information

system

Drug e-sales

Remote consultation

/ scheduling

Mobile devices

9

8

2

1

1

9

3

5

10

13

20

| 7

April 2009 November 2011 August 2014

SOURCE: Literature search; Team analysis

Government support - The Chinese government started to

support development of eHealth services a few years ago

2 3 4 5 61

August 2012 May 2014 January 2015

A USD 9.8 billion budget plan to

standardizing the IT system in major

hospitals, building a public EMR

system and regional medical

information platform

– MOH “Strategic Report on

Healthy China 2020”

Plans to enable sales

of selected Rx drugs

through online

channels

– Draft version of Internet

supervision and management

of food and drug

Telemedicine pilot schemes

in 5 provinces: Ningxia,

Yunnan, Inner Mongolia,

Guizhou and Tibet

– NDRC Approval notice

“To support

informatization

and IT integration

in healthcare”

– NDRC & MOII “IT

industry restructuring

and revitalization plan”

“The latest technologies in

informatization, internet, and

cloud will be the key for elec-

tronics healthcare development”

– MOC “12th five-Year (2011 - 2015) plan

on medical equipment industry”

Allows online service providers to

offer medical suggestion & only

healthcare institutions can provide

remote medical treatment

– NHFPC “Guideline for

Remote medical service”

| 8

iCloud system

Develop "iCloud system" to improve healthcare management

High-tech facilities

Take advantage of Internet, IOT, cloud computing, wearable

devices, tele-medicine to promote healthcare service

Big Data

Promote the application of big data in healthcare system

Personal healthcare information system

Establish digital databases for EHR and patient information,

target to cover almost the entire population by 2020

Healthcare information network

Build robust health information platforms in four levels (national,

provincial, city-level and county-level) and achieve integration

Government support – Most recently, the State Council

announced a five-year roadmap for healthcare service

development, with e-health listed as one key area of focus

SOURCE: Literature search, McKinsey analysis

Wide adoption

of eHealth

| 9

Customer

Value

proposition

Care

value

chain

Technology

Payor

SOURCE: McKinsey analysis

As in the broader digital space, China’s uniqueness is already evident in

the eHealth arena

Why?

▪ Inefficient healthcare system

with patient’s access as the

biggest pain point

Most offerings are

“patient centric”

Offerings to physicians,

hospitals, and patients

▪ Different healthcare system

and priorities

▪ Limitations in big data driven by

hospital IT systems and

technical capabilities in China

Focus on building

“platforms” to

improve access

and efficiency

Increasing focus on big

data-enabled solutions

to improve quality of

care

▪ High barriers to integrate core

healthcare services provided by

fragmented and government-

owned hospitals in China

Each solution

covers a small part

in healthcare value

chain

End-to-end integration,

e.g. from diagnosis to

follow-up

▪ As seen in other sectors, China

is still largely at the “imitation”

stage

Mostly leverage

existing

technology

Leading innovation in

technology

▪ Un-sophisticated public payors

and underdeveloped private

insurance in China

Individual users

pay for services for

most solutions

Insurance companies

and corporates are

important payors

| 10

… the impact on

China’s healthcare

value chain?

What is …

| 11

eHealth has started to shape China’s healthcare landscape

on 5 dimensions

5 Empowering PERSONAL healthcare

3 Offering online DISTRIBUTION options

4Transforming physician & patient

COMMUNITIES

1 Solving ACCESS challenges

2 Enhancing healthcare DELIVERY

| 12

Delivery

Personal

care

Accessibility

Distribution

Community

On each dimension, new solutions appearing to address key needs in

provision of China’s healthcare New solutionsKey HC system needs

▪ EMR

▪ Integrated registration, pay-

ment and e-report platforms

▪ Enhance experience in hospitals

▪ Enhance diagnosis and treat-

ment capability and efficiency

▪ Healthcare knowledge &

disease management

▪ Wearable devices

▪ Body function and life style

▪ Increase in awareness of

disease on large scale

▪ Better management of personal

health

▪ Online scheduling

▪ Remote consultation

(Platform/family doctor)

▪ Improve access to quality

healthcare services

▪ Eliminate inefficiencies in

hospital operations

▪ Drug sales O2O

▪ Online Consumer

Health/OTC platforms

▪ Purchase drugs with more

convenience and at lower cost

▪ Physician & patient networks

▪ Complied knowledge /

database

▪ Social media

▪ More knowledge sharing and

support among physicians and

patient communities

| 13

Delivery

Personal

care

Accessibility

Distribution

Community

Many players – both small and large – are actively ridding the trends

Launch of

“Jiangkangyun”

Example of

players Digital giants Healthcare ITEntrepreneurs

| 14

5 Empowering PERSONAL healthcare

3 Offering online DISTRIBUTION options

4Transforming physician & patient

COMMUNITIES

1 Solving ACCESS challenges

2 Enhancing healthcare DELIVERY

| 15

Chunyu is the largest remote physician consultation platform

in China

SOURCE: Interviews; literature search; McKinsey analysis

▪ Free consultation

services for vast

majority of users

▪ Paid members can

consult specified

doctors (RMB 10-

100 per inquiry) via

“Air Hospitals”

▪ Response time is

3-30 minutes

▪ Most physicians

are from Class 2

hospitals

▪ For “free

consultation”

services,

physicians are paid

by Chunyu RMB

1.5 per inquiry

▪ For services

delivered via “Air

Hospitals”,

physicians will be

get paid by patients

(transferred by

Chunyu)

ACCESSIBILITY – REMOTE CARE

# of active users: 30M # of daily inquiries: 50K

Pay for

partial

services

Subsidize

and

transfer

paymentConsultation,

appointment services

Physicians Patients

# of physicians: 40K

| 16

Public institutions have also started to test the remote care models, with

active support from the government

SOURCE: GBI, press search

ACCESSIBILITY – REMOTE CARE

China’s 1st online hospital

approved by NHFPC (Feb 2015)

▪ Patients to gain medical advice

from doctors in the Guangdong

No. 2 Hospital (3A) via online

video conferencing access

points in community and village

healthcare centers, pharmacies

or other designated sites

Telemedicine pilot schemes

approved by NDRC (Jan 2015)

▪ 5 participating provinces:

Ningxia, Guizhou, Tibet, Inner

Mongolia and Yunnan

▪ 3 participating hospitals from

Beijing make medical resources

available for remote care

China's rare disease diagnosis platform adopted

in Shenzhen 2nd People's hospital (Jan 2015)

▪ Patients to upload imaging data to the site

▪ Access to over 200 leading imaging experts

around the country

▪ Expert consultations guaranteed within 48 hours

| 17

Established in 2010, Guahao has connected 900+ hospitals in 23 provinces, has 30M

registered members and 100k affiliated physicians

Basic functions

Online

appointment

(core)

Hospital

information

inquiry (new)

Online

consultation

(new)

Guahao (Weiyi) is the largest online appointment platform

in China

SOURCE: Interviews; literature search; McKinsey analysis

692900

20141312

100

2011

8

Number of hospitals covered

72100

28

201413122011

7

Number of appointments

Million patients/times

ACCESSIBILITY – ONLINE SCHEDULING

| 18

5 Empowering PERSONAL healthcare

3 Offering online DISTRIBUTION options

4Transforming physician & patient

COMMUNITIES

1 Solving ACCESS challenges

2 Enhancing healthcare DELIVERY

| 19

▪ Covers ~20% of Chinese

physicians at this stage

▪ Hopes to start making profits

after achieving 50%

coverage

▪ Most revenue is from

advertising today, but

expected to tap into big data

business through EHR

resources in the future

SOURCE: Literature research; McKinsey analysis

Xingshulin: Empower physicians with clinical tools

Clinical tools

▪ EHR Pile: Enable physicians to record, manage and share EHR

conveniently by photos or audios

▪ Medical pocket: Contents include frequently-used clinical guidelines,

labs handbook, pharmacopeia, etc.

▪ Medical literature: Bilingual medical literature library containing 300+

first-class journals for 70+ subjects

Xingshulin

Pharmacos

Physicians

Marketing service

Service fee

Clinical tools

DELIVERY – PATIENT CARE

| 20

▪ As part of hospital information system, mobile nurse

station is offered by various IT service providers

▪ Mobile nurse station is currently a pure 2B business,

in which hospitals pay for software development and

mobile terminal purchasing, with potential to

eventually evolve into a big data business in the future

▪ High cost is the major barrier for wider adoption of

mobile nurse station

SOURCE: Literature research; McKinsey analysis

Mobile nurse station: Making patient care by nurses more efficient

Identify patients

via exclusive QR

code

Record vital signs

via PDA at wards

Consult doctors

in real time

(IM, IV, labs, etc.)

Physician

terminal

Hospitals adopting mobile nurse stations for

multiple reasons:

▪ Reduce medical accidents caused by patient

misidentification

▪ Store and share patient data more efficiently

▪ Better execute doctor’s advice in shorter time

▪ Evaluate nurses’ performance based on reaction time

documented by mobile nurse station

DELIVERY – PATIENT CARE

| 21

▪ 47 hospitals in 10+ provinces

have enrolled in “future

hospital” plan as of January

2015, and 300k+ patients have

used this platform

▪ 100+ hospitals are expected to

join the plan by the end of 2015

▪ Alibaba hopes to link “future

hospital” to online Rx drug

sales, and establishes big data

platform based on that

Alibaba “future hospital”: Improve hospital operation

efficiency and move hospitalizing activities online

SOURCE: literature research; McKinsey analysis

“Future hospital” officially released in May 2014, with aim to improve the efficiency

of hospital operations and move offline hospitalizing activities online

▪ Alibaba makes its Alipay payment system and mobile platform available to healthcare

providers, and helps them establish an online hospital platform

▪ After following hospitals’ official service accounts on Alipay, patients can use online

appointment, payment, labs results checking, online settlement of medical

insurance and other functions of their hospitals

Future hospital

IT service Hospitals

Patients

Depute Alibaba

to operate online

services

Online services

DELIVERY – OPERATION

| 22

5 Empowering PERSONAL healthcare

3 Offering online DISTRIBUTION options

4Transforming physician & patient

COMMUNITIES

1 Solving ACCESS challenges

2 Enhancing healthcare DELIVERY

| 23

China’s online retail market is growing very fast

1,130

436

285204

1207444

2018E201420132012201120102009

As % of

total retail

SOURCE: iResearch; McKinsey Insights China database; McKinsey Global Institute analysis;

iConsumer 2015 China; Team analysis

China’s online retail market already the largest in the world

1 Based on 2011 terms, 1USD=6.46RMB NOTE: Numbers may not sum due to rounding.

2 iConsumer 2015 China

2.1 3.4 4.7 6.2 10.6

Reached

US 2002

size

Reached

US 2004

size

Reached

US 2008

size

Reached

US 2011

size

DISTRIBUTION

Chinese consumers are

comfortable with e-commerce

Percentage of online shopper2

Percent of digital respondents

Never 33

Online shopper

67

China’s e-tailing market size, 2009–18

USD, $ billion, in 2011 USD1

7.9 18.3

Exceeded

US 2013

size

| 24

▪ CITIC 21 CN, now renamed as Alijiankang, mainly

engages in services for drug authentication,

tracking and logistics, which can help to lead

safer drug supply

– Coded all the medicines listed in the national basic

medicine categories as well as imported medicines

– Got approval and qualified to sell medicine on a

third-party website

▪ Alibaba plans to develop a pharmaceutical product

information platform and get access to online drug

market, aiming to greatly improve medical industry

Alibaba plan to help fund a pharmaceutical information platform

being developed by CITIC 21CN

Alibaba and Yunfeng bought control of CITIC 21CN Co. for $171 million to enter

the drug-data industry in 2014

▪ Alibaba and Yunfeng together hold 54.3% of CITIC 21 CN on completion of the deal

▪ Alibaba aims at developing a pharmaceutical product information platform by

leveraging CITIC 21CN’s vast pool of pharmaceutical product data and

combining this with Alibaba’s e-commerce, cloud computing and big data

capabilities

SOURCE: Literature search, Mckinsey Analysis

DISTRIBUTION

| 25

Drug electronic

administration

code inquiry

Scripts

synchronization

Drug

purchasing

Ali-Health replicates the “bidding” model of the taxi market

Ali-Health spearheads the O2O prescription drug sales model

SOURCE: Interviews; literature search; McKinsey analysis

Pilot started in Shijiazhuang and Hangzhou in Nov 2014

200k downloads, 60k registered members in a month in Shijiazhuang

Ali-Health plans to expand to Beijing, Shanghai, Guangzhou in 2015

Basic functions

▪ Scan drug electronic administration code to

acquire drug information

▪ Check and download scripts from partner

hospitals of Ali Health

▪ O2O sales: Customers send requests by

uploading picture of scripts, and choose

pharmacies among those who bid for their

orders. Selected pharmacy will deliver drugs

and settle payments offline

▪ Direct purchase from Tmall drugstore

DISTRIBUTION – O2O

| 26

Guahao.com took over

Jxdyf.com, an online

pharmacy platform

Jointown

officially

launched

Qumaiyao and

Ehaoyao apps,

its (O2O) drug

purchase

platforms

GSK China

opened an official

shop on Tmall

JD.com received type A

online drug transaction

certification from the

China Food and Drug

Administration

Shanghai Pharma will

form an online drug

distribution JV with

Zhongxie Pharma

Yihaodian, a subsidiary of Ping An,

received type A online drug

transaction certification from the

CFDA

Other players are rushing into this space as wellDISTRIBUTION – O2O

SOURCE: Literature search, McKinsey Analysis

| 27

5 Empowering PERSONAL healthcare

3 Offering online DISTRIBUTION options

4Transforming physician & patient

COMMUNITIES

1 Solving ACCESS challenges

2 Enhancing healthcare DELIVERY

| 28

With Tencent’s backing, DXY now has the resources

to accelerate its development

SOURCE: Interviews; literature search; McKinsey analysis

Biomedicine trade platform

Recruiting

Job hunting

Medical information

Survey platform

Doctor and hospital

information, drug guide

Physicians

Hospitals

General public

Survey platform

Data services

Pharmacos/marke

ting research

companies

Main audience

DX doctor

Social media

Academic

journals

Medical record

Medication

assistant

BBS

SNS

Blog

Medical

knowledge

COMMUNITY – PHYSICIAN

▪ Established in 2000

▪ 4 million registered

members with average

daily page view of 1.8

million in 2014

▪ Helped over 700

pharmacos, life science

companies and marketing

research firms to reach

Chinese physicians and

scientists in the past five

years

▪ Received a $70 million

investment by Tencent

in 2014

| 29

Entrepreneurs set to tackle the deep “trust issue” between physicians

and patients

COMMUNITY – CONNECTING PHYSICIANS AND PATIENTS

Descrip-

tion

Target

users

Key

features

▪ Mobile platform that

connects doctors and

patients for follow-up

consultation and drug

refills via the app

▪ A mobile medical guide

that is based on patient

peer reviews and

recommendations on

medical services

▪ Launched in 2015 as the

first clinical evaluation of

mobile intervention in

China with focus on chronic

and post acute care

▪ Doctors and

patients

▪ Patients ▪ Doctors and

patients

▪ Registration

▪ Remote

consultation

(via Phone /

message)

▪ Drug refill

▪ Patient management (for

doctors)

▪ Registration

▪ Off-line

consultation

▪ Payment

▪ Drug fill

▪ Review &

recommendations

▪ HCP & care

giver

monitoring

▪ Personalized

care plans

▪ Open source

clinical protocols

▪ Hospital to clinic care

coordination

SOURCE: Literature research; company annual report; McKinsey analysis

| 30

5 Empowering PERSONAL healthcare

3 Offering online DISTRIBUTION options

4Transforming physician & patient

COMMUNITIES

1 Solving ACCESS challenges

2 Enhancing healthcare DELIVERY

| 31

▪ Baidu announced the

establishment of a standalone

mobile health division in 2015

– Plan to collaborate with top

domestic hospitals to provide

registration services

– Aim to integrate various mobile

health and medical businesses

▪ Baidu partners with 301 hospital

for online medical platform

– Will work to establish a mobile

phone app and website

– Provide services including

registration, e-payments, and

telemedicine

Internet services giant Baidu has taken steps into the

medical field

Baidu raised its mHealth activities during 2014,including providing wearable health

device, establishing the Beijing Health Cloud for patient data, and launching doctor

appointment app, and will compete with Alibaba and Tencent in this area

Product PicturesDescription

PERSONAL CARE

SOURCE: Literature research; McKinsey analysis

Dulife

▪ Baidu’s first wearable health

device

▪ Provide cloud computing to

analyze users’ physiological

indexes

Beijing

health

cloud

▪ Partnered with the Beijing

municipal government

▪ Use big data technology to offer

pre-diagnosis assessments for

users

Baidu

Doctor

APP

▪ An APP for patients to access to

physicians and make online

appointment

▪ Available to check patients’

ratings and provide feedback

| 32

▪ ~500 apps for

diabetes

management in

China market,

most of which

have stopped

▪ Mainstream

diabetes apps

include

Boyibang/Wellt

ang, D Nurse,

Control

Diabetes

SOURCE: Press search, McKinsey

A large number of Diabetes Management apps already on market

Monitor

Docu

ment Reminder

Educa-

tion

Consul-

tation Description

▪ “Hardware + supporting app“ business

model

▪ It is estimated that Diabetes Nurse sold ~9K

glucose monitors and ~15K boxes of test

paper from its launch at the beginning of

2014 to August 2014

D Nurse

▪ Control Diabetes offers an end-to-end

solution

▪ Has ~200 physicians in total, including

some CHC GPsControl

Diabetes

▪ Welltang reached ~3M downloads from

Android markets since launch

▪ However, accessible physicians are still very

few on this platform

– 4 “in-house” physicians and dietitians

– 42 affiliated physicians from public

hospitals

Boyibang/

Welltang

▪ Diabetes Space is a very simple app for

diabetes knowledge education and

reminders

D Space

PERSONAL CARE – CHRONIC DISEASE MANAGEMENT

SOURCE: Press search, McKinsey

| 33

iHealth, a leader in mobile medical devices, received an

investment by Xiaomi in 2014

SOURCE: Literature research; company annual report; McKinsey analysis

iHealth, a wholly-owned subsidiary of Andon with branches in the US, HK and Europe, started

to manufacture branded smart remote medical devices in 2011

iHealth received USD25 million investment from Xiaomi in 2014

iHealth has 5 categories and 10+ products today

1 Currently glucose monitor and SpO2 tracker not available in mainland China mainland

Basic functions

Monitor1

▪ Monitor activities and life signs, e.g.,

BP, SpO2, glucose, weight, steps,

sleeping

Document

& visualize

▪ Document historical data and visualize

the results on smart devices

(smartphones/ tablets)

Sharing &

reminding

▪ Automatic share monitoring results with

family members remotely, also

available for sharing on SNS

PERSONAL CARE – MOBILE DEVICES

| 34

… the implications

for industry

participants?

What are …

| 35

Fragmented public

hospital sector

Regulatory

uncertainty

Lack of insurance

coverage of drugs

in retail/on-line

channels

Scarce talent base

SOURCE: McKinsey analysis

Challenges and uncertainties for sustainable growth of eHealth

▪ Customized interface required with each hospital due to fragmented

hospital sector with isolated HIS. This creates barrier to scaling up

solutions targeting hospitals as users

▪ Lack of motivation of many public hospitals creates additional

constraints

▪ No clear regulation on remote physician consultation

▪ Significant uncertainty around government posture due to lack of

effective control mechanisms

▪ Restricted Rx online sales. Little clarity as to when and how much

online channels will open up

▪ Government insurance has little coverage for retail pharmacy channels,

constraining the shift of prescription fulfillment from hospitals to retail /

on-line pharmacies

▪ Scarce mHealth talent with interdisciplinary knowledge, e.g., knowledge

in disease, healthcare system, hospital operation, and patient behaviors

| 36

Investment

community

Insurance

companies

Pharma and

MedTech

companies

Providers (private

hospitals, etc.)

Implications for industry participants

SOURCE: McKinsey Analysis

▪ Stay competitive by digitalizing the full value chain, from sales to

distribution to product design and analytics

▪ Develop ecommerce and mobile facility, which can provide an

opportunity to solve the ongoing costly problem of distribution

▪ Requires a multifaceted approach to understand the underlying drivers

in healthcare sector – sources of growth, pools of profit

▪ Seek more ways to monetize the service, either with direct revenue

from service or indirect revenue through analytics and ability to reach a

stable user base

▪ Develop a better and real time understanding of patient/consumers’

demand through better segmentation with big data

▪ Explore and scale digitalized methods to better promote products

▪ Form e-Health partnering team to explore disruptive models

▪ Figure out a strategy to make better clinical decisions with more robust

clinical decision support system based on real time data

▪ Adapt a people intensive operating model to a more digitized workplace,

and try to improve productivity and efficiency

| 37

Looking forward, eHealth players also need answers to …

▪ How to utilize big data to enhance design, positioning

and targeting of my offering?

▪ How to offer an integrated end-to-end solution, or to

be part of the integration?

▪ How to transform from a one-time sale of a great idea

to a long-term partnership with the customers?

▪ How to organize my company to adapt to rapid

changes in the eHealth market environment?

| 38

Industry insights Collaboration with CPA

iTunes Store –

“McKinsey on

China”

Our China healthcare leadership team (Partners and Associate Partners)

For more on China healthcare …

www.mckinseychina.com

▪ Data driven periodic reports

▪ TA specific deep-dive (e.g.,

oncology, immunology)

▪ Next issue coming up in Q2

▪ How sick is China's

pharmaceutical market?

▪ Will market forces revolutionize

Chinese healthcare?

▪ What healthcare system can

China afford?

▪ Will the next medical

equipment champion come

from China?

▪ Obesity – How big will China

get?

1

2

3

4

5

2014

2013

2012