How Will the New Regulatory Rules Reshape China's Internet Healthcare Industry?

Recently, the National Health Commission released the “Detailed Rules for the Supervision of Internet-Based Diagnosis and Treatment (Draft for Comments)” (hereinafter referred to as the “Detailed Rules”), marking the most significant policy in the field of internet healthcare in 2021. In light of several milestone policies introduced since 2020, these Detailed Rules were formulated on the basis of the state’s full recognition and encouragement of internet-based medical services, aiming to promote a virtuous cycle of innovation and standardized development within the industry.

The “Detailed Rules” clearly delineate the red lines between AI-assisted and AI-replaced care, as well as between medical practice and pharmaceuticals, among other key relationships. This not only establishes clear boundaries for core industry practices but also drives increasingly distinct differentiation across various sectors within the industry.

Previously, VCBeat has already published “The Strictest Regulatory Rules for Internet-Based Medical Consultations Are Here: Will the Industry Undergo a Major Transformation?“Interpreting the Detailed Rules,” this article will elaborate on future development and differentiation trends by integrating the current characteristics of segmented tracks in the internet healthcare industry.

To facilitate the analysis of industry segmentation trends driven by the Detailed Rules, it is essential to first examine the existing disparities within the industry. After years of development, internet healthcare enterprises have gradually diverged into three major sectors—medical services, pharmaceutical services, and health services—due to differences in historical resource accumulation, strategic direction adjustments, and revenue structures.

This sector is dominated by internet healthcare enterprises with years of deep industry engagement, which hold first-mover advantages in the coverage and accumulation of medical resources. Their trials and explorations have yielded many pioneering achievements. A typical characteristic of these enterprises is the integration of online and offline, as well as in-hospital and out-of-hospital resources, to reshape medical service processes and promote improvements in service quality and efficiency.

In 2015, WeDoctor established China’s first internet hospital, pioneering a series of integrated innovative healthcare services, including online appointment scheduling, remote consultation, e-prescribing, medication delivery, and online payment. In 2016, Haodf.com launched its Yinchuan Smart Internet Hospital, aggregating physicians from across China—particularly renowned specialists—online. Based in Yinchuan, it serves the Northwest region and extends its reach nationwide.

Since then, the internet healthcare industry has experienced a trough in 2017, witnessed the dawn of recovery in 2018, and reached a highlight moment during the anti-epidemic efforts in 2020. After ups and downs, some companies that could not sustain their operations have exited the market, while new ones have been established. Companies represented by WeDoctor and Haodf Online continue to establish themselves in the industry with medical services as their core focus.

Meanwhile, as internet-based healthcare gains access to richer resources, the field has also seen the emergence of internet-driven disease management models with extended service chains. In addition to comprehensive platforms such as WeDoctor, which offer digital chronic disease management, there are also companies like Medlinker and Weimai that focus primarily on disease management.

In the pharmaceutical services sector, notable characteristics of enterprises include: entering internet healthcare through pharmaceutical e-commerce; currently deriving a significant proportion of revenue from the sales of pharmaceuticals and non-pharmaceutical products (such as health supplements, medical devices, and daily chemical products) and related services, while accounting for a low share of revenue from medical services. Consequently, these companies have consistently not reported medical service revenue as a separate line item in their financial statements.

Given the inherent strong correlation between medicine and pharmaceuticals, the pharmaceutical e-commerce sector has evolved over many years to meet users’ diverse needs. Beyond selling medications, it has gradually leveraged internet hospitals as a platform to extend its service offerings to include online consultations, electronic prescriptions, and disease management.

For example, JD Health and AliHealth originated from the retail operations of JD.com and Tmall, respectively. They exhibit distinct e-commerce platform characteristics while gradually expanding their medical service offerings. Pharmaceutical e-commerce platforms such as 1 Drug Network and Dingdang Fast Medicine have also applied for licenses to operate internet hospitals, providing services including follow-up consultations, prescription renewals, and chronic disease management.

In the health services sector, companies primarily leverage internet-based consultations, science popularization content, and other digitally enabled solutions to address users’ health-related inquiries. Focusing on the pre-consultation and post-consultation phases, they help users with disease prevention and screening, thereby fostering healthy lifestyles.

For the general public, healthcare needs extend beyond treatment during illness to include health-related requirements guided by professional expertise, such as those pertaining to pregnancy and childbirth, childcare, and weight management. For many individuals in these groups, medical consultation is not always necessary; instead, they can seek authoritative answers when encountering uncertainties and manage issues independently, resorting to professional medical care only when needed.

To address needs beyond these specific diseases, DXY provides authoritative medical education to the general public through its brands such as Dingxiang Doctor and Dingxiang Mama, while its online consultation services offer timely answers to public health inquiries. Baidu Health, leveraging its high-traffic entry points, identifies users’ health concerns, delivers relevant educational content, and gradually expands into diversified service scenarios including appointment scheduling, online medication purchases, and health insurance.

Building on the three aforementioned sectors, specialized internet-based medical services have emerged, encompassing all three types of service offerings. However, given the significant variations in physician resources, pharmaceutical supplies, and health management approaches required across different specialties, this article does not provide an analysis of these areas; a separate paper will be dedicated to elaborating on them.

Next, let us examine the underlying logic and business models of each sector, which also determine the extent to which they are affected by the Detailed Rules.

For companies in the healthcare services sector, the broader context of their establishment is that the healthcare service system suffers from numerous pain points, including an imbalance and uneven distribution of supply and demand for medical resources, inefficiencies in the service system, and information asymmetry among various stakeholders. Digitalization offers a viable solution to these challenges.

Specifically, digitalization primarily enhances the quality and efficiency of the healthcare service system from the following aspects.

At the most fundamental level, internet hospitals efficiently connect hospitals, doctors, and patients, enabling individuals to receive online medical consultations from the comfort of their homes. This even grants access to renowned specialists in major metropolitan areas such as Beijing, Shanghai, and Guangzhou, thereby reducing the time and transportation costs associated with repeated travel. Patients can also rate physicians or select them based on existing reviews, thus avoiding the “blind selection” often encountered during offline visits.

At this level, internet healthcare has optimized the efficiency of the medical service system and reduced information asymmetry to some extent. To date, online follow-up consultations, e-prescriptions, and home delivery of medications remain the most fundamental functions of internet healthcare.

At an advanced level, internet-based healthcare not only connects online resources but also begins to integrate offline medical institutions, particularly resources across all tiers within a specific region, ranging from tertiary hospitals to primary care facilities. Through digital platforms, regional medical resources achieve horizontal coordination and vertical integration, thereby enabling more orderly and optimized allocation.

At the next level, with digital infrastructure established by the preceding two layers, online and offline medical resources of all types and levels within a given region are integrated and reconfigured. While enhancing the quality and efficiency of healthcare services and improving regional health outcomes, this infrastructure also leverages capabilities such as big data analytics and intelligent monitoring to reduce costs for payers, ultimately gaining their recognition—particularly from health insurance payers.

For example, after establishing the Wuzhen Internet Hospital, WeDoctor expanded its internet hospital services across China. By implementing regionalized operations and securing medical insurance accreditation, it achieved platform-based operations within these regions, thereby transforming higher-level service models into reality within the frameworks of Medical Alliances and Medical Consortia.

In 2019, WeDoctor, leveraging the Taishan Internet Hospital for Chronic Diseases as its platform, collaborated with 17 public hospitals at or above the secondary level and 88 primary healthcare institutions in Tai’an, Shandong Province, to jointly establish an Internet-based Medical Consortium for Chronic Disease Management. This initiative provided follow-up consultations, medication procurement, and management services for local patients with chronic conditions, marking the first case in China where digital chronic disease management services were directly reimbursed by municipal medical insurance authorities.

In 2020, the Shandong Internet Medical Insurance and Digital Health Service Platform, initiated and operated primarily by WeDoctor, was launched. The platform integrates the entire process of internet-based healthcare, pharmaceuticals, and medical insurance—known as the “Three-Medical Linkage.” It is progressively establishing comprehensive digital health profiles covering residents’ entire life cycles, while laying the foundation for the integration of basic medical insurance and commercial health insurance by enhancing pre-event actuarial capabilities, in-event risk control capabilities, and post-event claims settlement capabilities.

In 2020, Tianjin launched the construction of a grassroots digital health consortium, led by Tianjin WeDoctor Internet Hospital and comprising 267 primary healthcare institutions. This model uses chronic disease management as an entry point to explore payment methods such as “disease-based and capitated bundled payments” under medical insurance. Under global budget management, an incentive and constraint mechanism of “retaining surpluses and not covering deficits” is implemented based on the assessment results of healthcare and health management quality.

In the Tianjin grassroots digital health consortium model, service providers, payers, and demand-side stakeholders share aligned objectives: to achieve higher quality medical services at lower costs, thereby improving residents’ overall health outcomes. Historically, healthcare reimbursement was predominantly fee-for-service, where charges for procedures, pharmaceuticals, and medical devices/consumables followed a “price-differential model,” often leading to overutilization of medical services. In contrast, the aforementioned model adopts an “outcome-differential model” that reimburses based on health outcomes. By establishing a novel health accountability mechanism, this digital health stewardship organization provides a reference framework for transforming the healthcare delivery system from a “disease-centered” approach to a “health-centered” one.

Currently, 18 of WeDoctor’s internet hospitals have been included in the national medical insurance payment system, making it the company with the largest number of such connections in the industry. It is reported that the revenue generated by WeDoctor’s internet hospitals in cities such as Tai’an, Jinan, and Tianjin has reached the scale of tertiary hospitals.

It is worth noting that throughout this development process, internet healthcare has consistently aligned with the demands of healthcare reform and fully leveraged digitalization to empower these efforts. In the initial stage, internet hospitals promoted the equitable distribution of medical resources; subsequently, internet-based medical consortia facilitated tiered diagnosis and treatment; and later, the establishment of digital health management organizations helped shift medical services toward a genuine “health-centric” model while supporting reforms in medical insurance systems. This evolution has also garnered support from payers, represented by medical insurance, for internet healthcare services.

In the pharmaceutical services sector, companies primarily drive the digitalization of stakeholders involved in drug distribution by building supply chain systems, thereby realizing their value propositions. The business operations of these platforms generally include: self-operated B2C and B2B businesses; platform-based services that allow pharmacies and other pharmaceutical e-commerce entities to establish a presence; and self-operated offline pharmacies of varying scales and quantities. Internet medical services are integrated into these business operations.

For the consumer market, pharmaceutical e-commerce platforms boast extensive geographic coverage and large sales volumes, granting them strong bargaining power in drug procurement and a pricing advantage for end consumers. These platforms enhance drug accessibility through convenient purchasing options, efficient delivery channels, and affordable, consumer-friendly prices.

For B-side pharmacies, the platform can leverage its traffic advantages to drive footfall to offline pharmacies, while providing access to online consultation and prescription services, chronic disease management, and customer relationship management (CRM) systems. This enhances the pharmacies’ comprehensive service and management capabilities, ensuring their services are not limited to single, low-frequency medication sales.

For pharmaceutical companies (B-side), the platform accumulates extensive consumer (C-side) user and sales data while connecting with physicians through its internet hospital services. By leveraging user profiles from both ends, it serves as a digital marketing channel for pharmaceuticals, enabling efficient and precise engagement with patients and doctors, thereby enhancing pharmaceutical companies’ brand awareness and influence among consumers and healthcare professionals. Furthermore, deep collaboration with pharmaceutical companies can also help reduce procurement costs.

For example, Dingdang Kuaiyao’s prospectus shows that its pharmaceutical and healthcare business is the core business, accounting for more than 95% of its revenue; its main business is subdivided into online direct sales, business distribution, and offline retail. Other service revenues include marketing services, listing fees, etc.

1. Leveraging its supply chain platform capabilities powered by big data and business intelligence, 111.com empowers B-side enterprises through digitalization to jointly serve C-end users, thereby establishing an S2B2C model while continuously strengthening its intelligent supply chain technologies, warehousing capabilities, and product category diversity.

Furthermore, platforms such as JD Health and Ali Health demonstrate the characteristic of leveraging digital services to serve individual consumers purchasing medications while empowering pharmaceutical companies and pharmacies on the business side, with the platforms themselves generating revenue in the process.

Currently, the payment model for C-end users purchasing medications is mature, but competition among platforms for these consumers is intensifying. Meanwhile, B-end services such as digital pharmaceutical marketing are still in their early stages, leaving substantial room for exploration.

These companies place greater emphasis on pre- and post-consultation services. Their consumer-facing (C-end) offerings primarily include medical science popularization, health education courses, health consumer products, online consultation and diagnosis, as well as screening and referral services. Meanwhile, they provide digital marketing services to business clients (B-end), which are not limited to the healthcare industry but also encompass a large number of health consumer product enterprises.

For example, DXY focuses on the “upstream” segment of healthcare services, expanding its target users to include healthy individuals and extending service scenarios to out-of-hospital settings such as daily life, work, and travel. In addition to online consultations, it has developed services and products in areas including patient education, preventive medicine, and public health.

Spring Rain Doctor has launched the Spring Rain Health Station, extending its services from online scenarios to offline settings. The Spring Rain Health Station is a small, intelligent health management center deployed in residential communities, schools, enterprises, and other environments. It integrates Spring Rain’s cloud-based doctor and hospital resources with local tertiary hospital medical consortia, providing residents, employees, and students with services such as health monitoring, cancer screening, family physician care, appointment registration and referral, medication delivery, and chronic disease management. It serves as a compact frontline interface for community healthcare and family health management.

In these models, enterprises have expanded their target populations, diversified service scenarios, and aggregated various types of traffic entry points. They can also form partnerships with companies outside the healthcare industry to generate revenue. However, although many lifestyle scenarios do not involve medical procedures, enterprises are still required to possess highly specialized medical knowledge to gain user trust and exert sufficient influence.

Although the newly released Detailed Rules are still in the public consultation phase, their provisions—such as prohibiting AI from replacing physicians in patient consultations, banning the practice of dispensing medications before issuing prescriptions, and forbidding pharmaceutical kickbacks—are critically necessary as they directly impact healthcare quality and safety. In conjunction with an analysis of several niche sectors, the Detailed Rules are expected to drive industry differentiation, manifesting in several distinct characteristics.

First, the red line between medicine and pharmaceuticals, and between technology and services, has become more distinct.

Prohibiting pharmaceutical kickbacks and banning AI from replacing physicians in patient consultations clearly delineate the boundaries between medical practice and pharmaceuticals, as well as between technology and healthcare services. While companies may integrate medical and pharmaceutical services to offer end-to-end care spanning diagnosis to medication, or extend into disease management, they must not orient their services around pharmaceuticals while merely supplementing them with medical care.

Meanwhile, enterprises can apply technology to enhance efficiency; however, regardless of the scale of patient volume or the scarcity of physician resources, technology must never completely replace the services provided by doctors.

Second, e-commerce platforms are returning to their core function, enhancing the efficiency of the pharmaceutical supply chain.

According to the "Detailed Rules," the boundaries between "medical services" and "pharmaceuticals" are more clearly defined, with e-commerce platforms focusing on improving efficiency for stakeholders in the pharmaceutical supply chain.

Leveraging JD Logistics’ extensive logistics network, JD Health not only provides convenient pharmaceutical services to consumer-end users but also offers supply chain services—including drug procurement, warehousing, and logistics—to business-end partners, thereby driving the digital transformation of the pharmaceutical and health product supply chain.

Third, health service enterprises have become a beneficial supplement to the medical and healthcare service system, providing convenience to users.

Such companies must ensure compliance in online consultations. Their core business focuses on out-of-hospital care and falls within the scope of internet-based medical information services, which serve as a complement to traditional medical services.

For instance, among the services provided by DXY, medical science popularization is used to widely disseminate relevant knowledge addressing common health and disease concerns prevalent among the majority of users; health issues that cannot be resolved through such educational content but do not require immediate hospital visits are handled via online consultations. The combination of these two approaches largely meets out-of-hospital healthcare needs.

Fourth, companies centered on medical services will continue to deepen their operations, strengthen service capabilities, and further create value for both demand-side stakeholders and payers.

The Detailed Rules emphasize medical quality through multiple provisions, including: the establishment of specialized departments to manage the medical quality, medical safety, pharmaceutical services, and information technology associated with internet-based diagnosis and treatment; and the implementation of performance evaluations for medical personnel based on criteria such as lawful practice, medical quality, medical safety, professional ethics and conduct, and patient satisfaction, along with the establishment of mechanisms for credentialing and exit.

These regulations have been strictly implemented in brick-and-mortar hospitals. Companies centered on medical services either engage in deep collaboration with brick-and-mortar hospitals or establish their service and management processes by referencing those of brick-and-mortar hospitals. For example, WeDoctor has launched 30 internet hospitals across China. In addition to building some of its own physical medical institutions, it extensively collaborates with public healthcare institutions at various levels and regions throughout the country, thereby ensuring tighter integration between online and offline service workflows and guaranteeing “homogenized” service quality.

In the future, these companies can leverage the Detailed Rules as an opportunity to continue upgrading service quality through digital infrastructure, establish digital health management organizations, and maximize the utility of limited medical resources to improve user health outcomes. This approach will reduce costs for users while helping control expenses for both public medical insurance and commercial insurers, thereby securing support from diverse payers.

Throughout this comprehensive analysis, it is evident that distinct development trajectories have emerged among various enterprises during the sectoral differentiation of the internet healthcare industry. Following the implementation of regulatory policies, all services have returned to their fundamental essence. Amidst the industry’s continuous expansion and progress, different types of companies are pursuing their respective paths, creating value in their unique positions and becoming indispensable participants in the ecosystem. However, the essential prerequisites to note are: user value as the guiding principle, regulatory compliance as the baseline, and safety and quality as the core standards.