By Natalie Yu
Digital health has become the new frontier that big business is striving to conquer. In both China and America, large corporations traditionally involved in the technology, pharmaceuticals or insurance industries are converging on the emerging field of digital health. Not only are they developing novel services, they are also working to disrupt traditional models of service delivery.
summer DukeEngage project, I conducted research in Shanghai on telemedicine
initiatives aimed at improving the accessibility and affordability of medical
services. Through analyzing the regulatory and market environment in China, I discovered
the importance of the private sector’s involvement in healthcare, as well as
the role of government policy in creating favorable conditions for the
development of financially viable solutions to long-standing inefficiencies. In
this article, I will lay out the context behind innovation in telemedicine by
providing an overview of healthcare challenges in China, and the policy shifts
that have shaped the evolution of telemedicine’s definition and legal
boundaries. My discussion of these issues will culminate in an in-depth
examination of how policy has influenced the activities of three Chinese
conglomerates Tencent, Alibaba and Ping An—and, in turn, how these big businesses
have changed the government’s posture towards health technology.
The Rise of Telemedicine in China
Figure 1: Major challenges facing the Chinese healthcare system based on data from the New York Times1 and Collective Responsibility2
China’s burgeoning population has exposed fault lines in its healthcare system. The growing chasm between urban and rural popoulations clearly manifests itself in healthcare: city-dwellers in cities such as Beijing and Shanghai are able to access multiple top-tier hospitals while villagers rely on clinics that may be hundreds of miles from where they live1. Although China achieved universal insurance coverage in 2011 through a basic social insurance scheme, disparities in insurance coverage are inextricably tied to geography. Rural residents pay lower premiums but receive significantly fewer benefits3—there is little conclusive evidence to show that public insurance has reduced out-of-pocket expenses among rural residents4. However, most people in China still rely on state-sponsored insurance, with commercial insurance remaining in the early stages of market penetration5. The public sector continues to shoulder much of the burden in service delivery as well, with the number of visits to public hospitals and number of patients discharged from these hospitals accounting for 90% of volume nationwide6. Public hospitals are overworked, resulting in up to 13.5 hour wait times for individuals who need specialist appointments1. On the other hand, the primary healthcare system is weak, with just general practitioner per 6,666 patients1. Mounting tensions between doctors and patients due to deep-set mistrust culminate in physical violence, resulting in a vicious circle of mutual suspicion1.
The myriad of systemic issues in healthcare present a set of golden opportunities for the private sector. In particular, as patients are both the main payers and burden-bearers in the healthcare system7, the most straightforward solution for big business would be to directly target disgruntled patients and provide services they are willing to pay for. Given their expertise in consumer engagement, large corporations in technology, e-commerce and insurance have been propelled to the fore of this wave of innovation. Over the years, this “Internet-based healthcare” (direct translation) has come to more closely approximate “telemedicine” as it is understood in English. While there is no clear consensus on a precise definition of telemedicine, the WHO characterises it as:
“The delivery of healthcare services, where distance is a critical factor, by all healthcare professionals using information and communication technologies for the exchange of valid information for diagnosis, treatment and prevention of disease and injuries, research and evaluation, and for the continuing education of healthcare providers, all in the interests of advancing the health of individuals and their communities8.”
In line with this definition, big businesses in China have been devising various Internet-based healthcare services, from physician-physician online consultations to novel solutions that connect patients to medical consultations, medication delivery and health information on demand9. The beginnings of this service delivery transformation can be traced back to 20144. Since then, the government has responded to private sector developments in telemedicine by enacting regulations that served to monitor the technology and test its efficacy by pilot—namely by designating the province of Yin Chuan as a testbed10. The reactive nature of policy evolution reflects a preference to err on the side of caution, taming the explosive growth of telemedicine and putting it through the crucible. At the same time, however, the experimental phase that lasted from 2014 to the summer of 2018 was a period of uncertainty, during which even the very definition of “telemedicine” as well as its legal boundaries were unclear, resulting in the death of many businesses that were hamstrung by the lack of regulatory clarity. In the following section, I will outline the main phases of policy development relevant to telemedicine.
Figure 2: Key milestones in the development of telemedicine policy in China based on data from VCBeat6
Government regulations governing technology in China tend to be concretised only after tightly-controlled observation periods11. In practical terms, this means that while the private sector started to bring in new interventions in 2014, the telemedicine scene in China only took off in the summer of 2018 due to the lag time in policy development11. The pilot phase in telemedicine began in 2014, during which the government permitted the digitisation of select non-medical services. A variety of telemedicine models existed in this early phase. Public hospitals began to launch “Internet Hospitals” that offered non-medical services such as registration and informal consultations with physicians online. Private companies seized on the opportunity to collaborate with public hospitals and set up joint “Internet hospitals”, or decided to establish their own physical hospitals. In tandem with Internet Hospital development, other companies even offered fully virtual medical services.
However, the noose began to tighten around the field of telemedicine with greater government scrutiny. It was at this time that the government began suspending the operations of private companies that were otherwise abiding by regulations. A case in point was the penalisation of e-commerce giant Alibaba’s medication sales service, which was forced to shut down12. In 2016, the Yin Chuan province positioned itself as a testbed for telemedicine, enacting policies that permitted more experimentation with telemedicine operating models. Despite this, the legal definition of telemedicine remained hazy. As such, businesses were hesitant to expand and experiment unless they had been explicitly permitted to do so by the government13. The period that followed saw dwindling investments in telemedicine and fewer operational companies14. At the beginning of April 2017, the Yin Chuan local government facilitated the establishment of 15 Internet Hospitals. However, at the same time, regulations were at their strictest as the government announced its intentions to formulate new telemedicine governance guidelines. Party officials conducted site visits to monitor telemedicine companies in the closest way possible. At the end of 2017, only about 50 of the 5000 original telemedicine companies set up in 2014 survived both regulatory scrutiny and the dearth of investments11. From 2014 to 2018, the majority of telemedicine providers stuck closely to the safe model of providing non-medical online services; however, these were not financially sustainable. The sweet spot of maximum consumer convenience and profitability for providers was found in medical services that could be reimbursed by insurance, be it public or private. Yet, without clearly delineated legal boundaries specifying what the government would condone, businesses did not dare to diversify their offerings to consumers and tackle some of the more pressing issues in healthcare.
Fortunately, the industry reached an inflexion point in the summer of 2018, when the Chinese government published three key policy documents signalling the release of the telemedicine industry from the evaluation phase. These regulations define key boundaries clarifying the legality of various telemedicine services15. Firstly, they lay out three main forms of telemedicine: remote medical services, Internet medical services and Internet Hospitals. Remote medical services refer to instructional or informational services provided to patients or other hospitals for training and education; Internet medical services refer to medical consultations for common illnesses and follow-up appointments for chronic diseases provided by licensed doctors; Internet Hospitals refer to hospitals that provide their services online. Second, the new regulations stipulate that only returning patients whose health records are accessible to the consulting physician can receive online medical consultations. Third, the policies delegate the monitoring of telemedicine activities to local governments, as telemedicine providers are required to have physical hospital facilities to take legal responsibility for services rendered. Concrete approval processes through which licenses for each telemedicine subtype can be obtained are fleshed out in the document. Taken together, these key clauses on terms of operation have helped to dispel the uncertainty hanging over the field of telemedicine, allowing both public and private sector actors to chart their next steps without fear of being penalised due to erroneous interpretation of the rules.
Private Sector Development
Three notable corporations active in telemedicine are Tencent, Alibaba and Ping An. Through my analysis of the market landscape, funding data and government policies, I studied these companies’ growth trajectories and I realised that their developments in the healthcare space have been heavily influenced by policy developments. I will illustrate the main insights I drew in the vignettes below.
Tencent has quietly risen to become one of the world’s top 10 companies by market capitalization. Like its competitor Alibaba, it has joined the ranks of US tech giants Apple, Alphabet, Microsoft and Amazon. Sheltered by the great firewall that prevents American tech firms from operating in China, Tencent has built an entire ecosystem that encompasses the operations of multiple American tech giants put together. Tencent has three core pillars undergirding its business—the messaging app WeChat that services 1 billion active monthly users16; the mobile gaming franchise that is the largest globally16; and the network of video, payment, music and other services that is comparable to those offered by Netflix, PayPal, Spotify and more combined17. The company has leveraged its all-encompassing technology platform and ecosystem and consumer base to back WeDoctor, an online registration and consultation application, in 201418.
Figure 3: How Chinese and American giants stack up based on data from Statista19 (May 2018)
WeDoctor had humble beginnings in 2010 as a free registration service known as “Gua Hao Wang” that patients could use to make appointments with doctors in hospitals20. The company saw this as a public good and pledged never to charge anyone for the service. In its initial years, WeDoctor faced similar challenges to other telemedicine companies in figuring out a viable means to continue providing free registration. In 2015, it pivoted to become an Internet Hospital, pairing its online registration and non-medical consultation services with Wuzhen Hospital, the physical hospital that it set up. By operating through this new private hospital, WeDoctor could legally expand its service offering to medical services and, more importantly, secure collaborations with insurance companies. Today, WeDoctor allows its 27 million regular users easy access to doctors across different specialties20. Patients are thus able to receive medical attention in a timely fashion and choose the doctors they want to see. Doctors, on the other hand, are rewarded proportionally to services rendered, instead of drawing a standardised salary as they would within the public hospital system. In order to offer more seamless telemedicine services, WeDoctor has been laying the groundwork for cloud-based storage of medical data as well as concretising insurance reimbursement arrangements with both national and private insurance organisations. The latest developments in policy have confirmed that these plans lie within the legal scope of operation for Internet Hospitals. This has given WeDoctor more confidence to build on its telemedicine business and become a comprehensive health maintenance organization, offering medical services, medication and insurance on its cloud-based platform.
Taken together, the greater strength of the WeDoctor group will promote the growth of Tencent’s ecosystem. In the same way that Alphabet is a holding company that comprises Google, WeDoctor is but one of the many companies under Tencent’s umbrella, which span the domains of healthcare imaging analysis, information provision and consultations. With the green light from the government, Tencent can continue developing a seamless platform that allows consumers to access health and medical services on demand. By empowering large corporates to grow the telemedicine industry, the government also stands to gain from the greater efficiencies in the healthcare system brought about by the private sector.
Alibaba is China’s dominant e-commerce behemoth, often likened to Amazon. However, Alibaba’s operations extend far beyond the digital marketplace. The company owns both of China’s top marketplaces (Tmall and Taobao), which handle over 80% of the country’s online sales21. In addition, it runs the mobile payments system Alipay that is used by over 900 million people worldwide (for comparison, Apple Pay has 127 million active users22) and controls Ant Financial Services, the leading money market fund that is at the forefront of fintech innovation21. The company’s reach extends to the public sector, as it works with governments to build smart cities23. Since 2014, Alibaba has decided to make healthcare a priority. The company announced its “Initiative for Future Hospitals”, which involves the integration of online consultations, medication purchases and mobile payments into a single platform24, AliHealth. Although similar to WeDoctor’s vision, Alibaba planned to target rural areas as well25.
However, regulations on telemedicine penalised AliHealth in 2014. Despite AliHealth’s overall compliance with licensing requirements, the government suspended sales of over-the-counter medications on its online health marketplace26. This alarmed many other telemedicine providers and forced the company to rework its strategy. Instead of operating a purely online marketplace, it decided to pursue an online-to-offline (O2O) model by forming partnerships with pharmacy chains and smaller medication stores that had a shopfront presence27. These brick-and-mortar stores are charged with delivering purchases of prescription medications made on AliHealth’s platform to customers, in line with government policy favouring such online-offline collaborations. AliHealth has since built up a repertoire of services surrounding medication sales, including offering patients virtual consultations with pharmacists to obtain prescriptions, and offering pharmacies medication supply chain management. The latest policy developments will allow it to build on the O2O agreements it has with 20,000 pharmacies across 200 cities to create an end-to-end marketplace powered by big data and replete with generic and specialty medications. This would address the key last mile challenge of getting medications to patients at scale, an issue that the healthcare system and government itself have struggled for decades. In turn, with greater regulatory clarity, Alibaba’s strengths as a logistics and technology provider will be further consolidated in the healthcare domain. As it continues to work on artificial intelligence tools for providers as well as cloud applications through the other businesses under its wing, Alibaba is contending with Tencent28 to build the most comprehensive telemedicine platform that will serve patients by the billion.
Ping An is a holding company that dominates insurance and financial technology. As China’s largest insurer, Ping An Insurance is second only to Berkshire Hathaway in global market capitalisation19. Meanwhile, Ping An Technology sits at the top of the FinTech Top 100 leaderboard. The corporation has built an ecosystem based on its strengths in finance, technology and insurance, bridging them most notably to the domain of healthcare via offshoots Ping An Good Doctor and Ping An Health and Technology. Through the former, Ping An was able to offer telemedicine services to clients purchasing its insurance plans. This represents a new business model in China, where the market remains open as most patients do not own commercial insurance. Prospective clients would thus find this attractive as they stand to benefit from subsidised online medical services if they buy Ping An’s insurance.
Figure 4: Ping An’s multi-sector ecosystem that has been built upon its traditional strengths in insurance and banking29
However, the journey has not always been smooth for Good Doctor. Like its counterparts in the telemedicine industry, the company had been struggling to ensure the financial viability of its business, relying instead on its parent company’s resources. Converting customers from free non-medical consultations to paid medical services has remained challenging, even as the number of users rose from 30 million to 1.93 billion from 2015 to 201830. After receiving free non-medical advice from doctors on the Good Doctor platform, patients often head to physical hospitals, where they pay for medical services such as formal consultations and medications31. Unfortunately, Good Doctor’s hands were bound—the regulatory environment at the time did not favour the development of such value-adding medical services on its platform, thus it could not act to prevent the leakage of cash flow to traditional healthcare institutions. As the company was prevented from building an all-encompassing healthcare platform, revenue generation remained a key problem.
In the months that followed the establishment of new regulations in 2018, a flurry of activity ensued. Good Doctor went public on the Hong Kong stock exchange in late April and became the first listed health technology company in the world32, raising a total of over USD 1.12 billion. Moreover, the clarification of the government’s position on telemedicine bodes well for Good Doctor because of its alignment with the company’s core healthcare offering in home-based healthcare. Good Doctor’s “One-Minute Consultation + One-Hour Medication Delivery”33 aims to speed up the provision of medical attention to patients wherever they may be and to target the last-mile problem of getting medication into patients’ hands. As of June 2018, the program has been rolled out in 62 cities, providing 24-hour services in collaboration with 4150 pharmacies. The company plans to increase the comprehensiveness of its offering by adding features such as chronic disease management to its model of “insurance + teleconsultation + medication”, making Good Doctor a convenient one-stop platform that allows patients to bypass long wait times and inefficient prescription mechanisms endemic to the conventional healthcare system. This vision is driven by Ping An’s larger business in insurance, technology and financial services, and puts Ping An in a mutually supportive relationship with the governmental agenda. On one hand, Ping An has the technical expertise and resources to transform the government’s goals for telemedicine into a reality; on the other hand, the government creates the right regulatory environment that permits the growth of Ping An’s telemedicine venture into a financially sustainable business.
This close examination of Tencent, Alibaba and Ping An’s forays into telemedicine has shown me the ways in which policy evolution shapes the private sector’s growth trajectory. I began to understand the tensions introduced by the experimental, testing and strict governance phases that lasted from 2014 to mid-2018. These policy shifts challenged the corporations’ business models, while providing limited flexibility for further experimentation. As such, the private sector had to persist in shrewd manoeuvring to eventually win the government’s support for their telemedicine programs. During and after my DukeEngage experience, I had the privilege of witnessing the fruits of these efforts, as the government opened the doors for more innovation and growth in telemedicine by clarifying its legal boundaries.
In sum, my
DukeEngage experience clearly demonstrated how regulation acts an interface
between the government and the private sector. The regulatory environment is
controlled by the government, thus giving it the power to decide the boundaries
of big business’ involvement in healthcare. Paradoxically, policy change in
China is reactive, and depends on demonstrated successes by businesses willing
to deviate from the status quo. As such, the corporate world is able to push
for change by innovating in a way that addresses national priorities and
catches the government’s attention. At the same time, this makes for a
tumultuous journey as regulatory boundaries are often fuzzy initially,
affecting the rate at which businesses develop viable, diversified solutions.
Thankfully, the preliminary successes of telemedicine companies has spurred the
Chinese government to open up this space in order to leverage the private
sector’s expertise in technology and consumer engagement, in the hopes that
this will transform the healthcare system more quickly and effectively than
top-down measures. As such, regulation is a process of negotiation that has to
occur between the government and stakeholders so that good ideas can gain
traction and scale up. As the field develops, the Chinese government would do
well to bring other stakeholders such as patients to the table. Although this
would make policy creation more unwieldy, patients are the ultimate target
whose interests should protected in the current conversation between
government, big business and healthcare institutions.
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