Internet hospital in China: Current trends and future ...€¦ · Medical consultation &...

Internet hospital in China: Current trends

and future directions

Presentation

August 13, 2020

The materials contained in this document are intended to supplement a discussion with L.E.K. Consulting. These perspectives are confidential and will only be meaningful to those in attendance Copyright © L.E.K. Consulting Limited

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Intelligent thermometer

Intelligent sphygmomanometer

Intelligent heart rate monitor

Intelligent blood glucose meter Intelligent

hardwareTelemedicine

Medical

informatization

Interregional telemedicine

collaboration

Telemedicine collaboration

across hospitals

Appointment registration

Clinical consultation

Patient community

Medicine e-commerce

Hospital Information System

Picture Archiving and

Communication Systems

Management Information

System

Electronic Medical Record

Referral platformToday’s focus

Internet

hospital

Digital health landscape

Intelligent hardware, telemedicine, internet hospital and medical informatization

together build up China’s digital health landscape



China internet hospital ecosystem

Internet hospital

Patients

Government

Hospital

Physician

Medical

consultation &

prescription 医

Pharmas Drug 药

Physician

training, patient

management

A technology platform with hospital

license

Essential medical services tied to

brick-and-mortar hospital

Many integrate self-owned hospitals,

self-owned online pharmacies and

drug delivery services

Medical

resources

xx Key stakeholders

Key stakeholders’ inputs

x Essential internet hospital services

x Add-on internet hospital services

Supervision

Operation and

IT infrastructure

Marketing

communication

Drug

supply

Insurance 险

Internet hospital is a licensed online medical institution, offering consultation &

prescription to patients online, by integrating hospital and physician resources



A trial administration policy (consultation paper)

required local authorities to revoke all previous

approved Internet hospital licenses and to re-

register under new policy

Announced three policies to clarify market entry

and service coverage specifications, indicating

a supportive attitude

Highlighted the importance of remote medical

service and approved the first Internet hospital in

2015

Internet hospital policy roadmap

Built 15 internet hospital pilot projects in

Yinchuan, triggering a wave of 40+ new internet

hospitals in 2017

Approved online sales of prescription drugs and

announced guidance on online medical

insurance payment to support the development

of internet hospital

Current permitted scope of services

General consultation (i.e. only giving

advice on symptoms and

recommendations for further health check)

Internet hospitals cannot conduct 1st

time diagnosis of a patient

- grey area in practice: currently no

details in policies about definition

and verification; physicians will

check with patients and make

judgement based on online

conversations; no documentation of

the 1st time diagnosis is needed

- interpretation of the policy has room

for debate; general consensus is that

outlook remains positive

Service scope is limited to common or

chronic diseases (though policy does not

provide a list of specific diseases)

Exploration

(2014-16)

Piloting

(2016-17)

Uncertainty

(2017-18)

Clarification

(2018-19)

Acceleration

(2019-present)

Source: NHC, NATCM, State Council, NDRC, CAC, L.E.K. interviews, research and analysis

The innovative concept of Internet hospitals in China has evolved over time and is

growing in scope and adoption



Internet hospital license application requires brick-and-mortar medical institution

and IT infrastructure, which are not high barrier in general

Internet hospital must tie to a brick-and-mortar

licensed medical institution*

Brick-and-mortar hospital needs to have

corresponding clinical departments with at least 1

chief physician and 1 deputy chief physician

Online prescriptions should be reviewed by

pharmacists

3rd level of Graded Protection of Information System**

(5 level in total, 5th as highest level of protection)

Sufficient IT capability (e.g. ICP license, software &

hardware, talent)

Brick-and-mortar medical institution

IT infrastructure

Requirements to apply for internet hospital license

Application to

registration authority^

that the brick-and-

mortar medical

institution belongs to

Note: * 《医疗机构执业许可证》 ** Required for information system whose data leakage can cause damage to national security ^ 执业登记机关, usually Provincial Healthcare Commission

Source: 互联网医院管理办法（试行）, NHC, NATCM, State Council, VCBEAT, L.E.K. interview and analysis

Nationwide service allowed

Could invite physicians anywhere in

the country to join its platform

Could provide online medical service

to patients anywhere in the country



Level of online-offline integration and development of internet hospital

are driven by changes of

- digitalization and technology

- ecosystem incentives on physicians and institutions

- direct regulation (e.g., service limits)

- indirect regulation (e.g., data privacy)

Internet hospital market size is expected to reach RMB 100B in 2020,

and 70-80% are physical product sales (consumer health products, OTC,

prescription drug, personal healthcare appliances, etc.)

In the long term, multiple breakthroughs could potentially accelerate the

growth of internet hospital, including:

- widespread extension of BMI reimbursement

- online initial diagnosis and prescription

- expansion of disease coverage (common / chronic) to specialties

- establishment of Direct-To-Patient (DTP) drug delivery

Online consultation number reached ~270 million in 2019, which equals

to ~1/10 of total consultation number in L3 hospitals

- ~90x of Huashan Hospital^ 2019 consultation number

30 48

119

269

0

100

200

300

400

500

192016 17

~500

May 202018

China internet hospital* development

(2016-May 20)Number of hospitals

Note: * Based on the number of internet hospital licenses; **《互联网诊疗管理办法（试行）》《互联网医院管理办法（试行）》《远程医疗服务管理规范（试行》; ^ a leading 1,200

bed hospital in Shanghai

Source: VCBEAT, Cn-Healthcare, Kantar, NHC, Qianzhan, L.E.K. research and analysis

Accelerated due to 3

policies** of internet hospital

launched in Sept. 2018

2232

47

70

100

0

20

40

60

80

100

20E18172016 19

China internet hospital market size

(2016-20)Billions of RMB

Internet hospital has experienced exponential growth in China and is expected to

remain growth momentum in the future



Regulatory documents Key takeaways

Encourage the development of

remote consultation and telemedicine

service to alleviate the pressure of

brick-and-mortar medical institutions

and prevent cross-contamination

- including but not limited to

online health monitoring,

education, chronic disease

follow-up diagnosis etc.

Allow common and chronic

disease patients to reimburse for

drugs and medical service online

Set the goal to improve medical

institution digitalization level and

build connected medical

insurance reimbursement system

across the country by 2030

Source: NHC, NHSA, State Council, L.E.K. analysis

Policy breakthrough during COVID-19

1 Policy letter for strengthening digitalization to support the battle against Covid-19 (Feb. 2020)

10Implementation Opinions on Further Optimizing the Business Environment and Better Serving

Market Entities (Jul. 2020)

6Promote "Migrating to the Cloud to Use Data to Empower Intelligence" to help enterprises with

digital transformation (Apr. 2020)

8

Notice of the General Office of the National Health Commission on Further Improving the

Appointment Diagnosis and Treatment System and Strengthening the Construction of Smart

Hospitals (May 2020)

4 Guiding opinions on building Internet plus reimbursement during Covid-19 (Mar. 2020)

2 Policy letter for encouraging online consultation (Feb. 2020)

3Policy letter for strengthening medical institution administration by risk level during Covid-19

(Feb. 2020)

5 Guiding opinions on strengthening healthcare reforms (Mar. 2020)

7Policy letter for completing technical specifications and financial management of Internet plus

medical services in public medical institutions (May 2020)

9Notice on information technology to support normal epidemic prevention and control work

(Jun. 2020)

Driven by remote healthcare needs during COVID-19 outbreak, the China

government is accelerating the development of internet hospital



0 500 1,000

2-3x

9x

3-4x

Source: Company websites, L.E.K. interview, research and analysis

Key metric YoY growth of leading platforms(February 2020 vs. February 2019)

percentage

Brick-and-mortar institutions are under high risk of

cross contamination due to the COVID-19

outbreak, pushing internet hospitals to the

frontline of the virus defense

Online consultation platforms were quickly

launched in over 10 provinces such as Zhejiang

and Shanghai, providing COVID-19 consultation

service to over 300k users

Leading internet hospital platforms are actively

seeking business development opportunities

“… We hold highly optimistic outlook for this industry

(Internet hospital) ... This round of fundraising of no more

than 10 billion HKD is to further cultivate the healthcare

field and comply with encouraging policies to accelerate

company’s development…”

Vice President, AliHealth

0 500 1,000

1-2x

3-4x

2-3x

0 100

1.5x

1.3x

1.4x

Registration Prescription B2C pharmacy

sales

Leading internet hospitals reported exponential patient traffic growth during

COVID-19 outbreak. Consultation and prescription also saw strong growth


PAGD

WeDoctor

AliHealth


BMI coverage is believed to be the foremost

potential driver for internet hospitals.

Breakthrough during COVID-19 outbreak is

unlikely to be revoked as the policy direction is

clear, but nation-wide implementation might

take 3-5 years in ideal condition

Current challenges include:

- public hospitals are constrained by BMI

budget cap, thus reluctant to share

budget for online channels

- implementation of DRG is expected to

break hurdle from hospital BMI budget

cap, but is likely to target inpatient first

and unlikely to target chronic diseases in

the short term

- technology barriers in patient identification

and drug usage tracking

- poor hospital IT and digitalization

readiness in general for lower tier cities or

medical institutions

Types DateDisease

coverageMedical institutions

Sichuan Feb 1st Special

outpatient

disease

Zhejiang Feb 10th Common

disease

Chronic disease

Tianjin Feb 13th Chronic disease

Jiangsu Feb 19th Chronic disease

Wuhan Feb 25th Common

disease

Chronic disease

Example online medical reimbursement pilot projects

WeDoctor Tianjin

Internet Hospital

WeDoctor Wuhan

Internet Hospital

Note: * Basic Medical Insurance

Source: NHC, L.E.K. interview, research and analysis

COVID-19 drove breakthrough in BMI* coverage for internet hospitals, but

nation-wide implementation is expected to take a few years



Source: NHC, L.E.K. research and analysis

Medical Treatment Alliance (MTA)医联体

Third party platforms第三方平台

Hospital own platform实体医院线上平台

Type of internet hospital in China

Description

Future

outlook

An alliance of public hospitals

supported by local government

Brick-and-mortar hospital

collaborates with third-party

digital solution provider to

bring its service online

Mostly public hospitals

Foothold for digital natives,

and aim to provide full

cycle health management

from prevention to rehab

More likely to thrive in under-

developed areas

Limited by insufficient resources,

limited service capabilities and

lack of incentive

Strong short term momentum

due to COVID-19 outbreak

But currently low value

realization

Most scalable in the long

term due to high integration

of medical resources

There are 3 major types of internet hospitals in China



Leading competitors all have comprehensive service portfolio

Drug delivery

Other value add

services

Insurance

Medical

consultation &

prescription

Essential

Ad

d-o

n

PAGD WeDoctor Ali Health JD Health Jianke

Chun Yu

Yi

Sheng

Haodf DXY

Tencent

Doctorwork

*

✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔

Collaboration with third

party logistics

companies

✔ ✔ ✔ Collaboration with third party logistics companies

✔ ✔

Facilitate

charity

clinics with

pharma

sponsor

Physician

training

(WeDoctor

University)

AliCloud

technology

support

User data

analysis

and

customized

promotion

Marketing

campaign

supported

by patient

data

Online marketing, consumer

survey, operation support, etc.

Offline

clinic

network

Note: * Merged by Penguin Doctor (企鹅医生) and Almond Doctor (杏仁医生) in 2018, focused on medical consultation through online channel, intelligent devices and

offline clinics, and has opened over 50 offline clinics

Source: L.E.K. analysisCopyright © L.E.K. Consulting Limited


Some questions for consideration…

How will this new channel impact the allocation of resources?

Will this new channel trigger compliance issues?

How can internet hospitals better serve the needs of patients and other stakeholders?

1

2

3

4

How are internet hospitals changing pharmaceutical and other medical suppliers' go-to-

market models?

5

How will internet hospital change marketing and potentially sales practices in the future?

When do we anticipate expansion of reimbursement coverage?6

How does the integration of large players impact the industry? 7

How does the growth of this market impact broader telemedicine initiatives?8


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Internet hospital in China: Current trends and future ...€¦ · Medical consultation &...

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