Regulatory Overhaul Drives Internet Healthcare into Three Segments, with WeDoctor and Other Serious Medical Platforms Set for Long-Term Gains
Recently, the National Health Commission released the Detailed Rules for the Supervision of Internet-Based Diagnosis and Treatment (Draft for Comment), drawing significant attention from industry professionals and policy researchers. It is widely believed within the industry that the Draft will usher in an era of standardized regulation for internet healthcare, cutting off the pathway by which internet healthcare platforms have been diverted into tools for drug sales and patient referral.
In the era of standardized regulation, digital healthcare focused on delivering medical services will become the mainstream track for the development of internet-based healthcare. Meanwhile, extensive practical evidence from this sector demonstrates that digital healthcare services can not only achieve “hyper-speed” growth but also represent the inevitable path for China’s internet healthcare industry to successfully implement the Health Maintenance Organization (HMO) model.
As a highly pioneering and rapidly emerging business model, the segmentation of tracks and debates over the prospects of internet healthcare have long been contentious issues within the industry. With the release of the Draft Opinion, internet healthcare platforms across different segments are expected to converge toward the digital medical services track.
Based on industry analyses and media reports, existing internet healthcare platforms can be broadly categorized into three tracks: comprehensive digital health service platforms focused on serious medical care, such as WeDoctor and Haodf Online, as well as internet hospitals operated by individual physical hospitals; pharmaceutical e-commerce platforms primarily engaged in online drug retail, such as JD Health and Ali Health; and various online consultation platforms specializing in lightweight consultations and AI-assisted diagnosis and treatment.
The Draft Opinion sends a clear signal: internet-based diagnosis and treatment must return to the value orientation of “serious medical care,” achieving maximum alignment with physical medical institutions in terms of “equal quality and equal regulation.” In particular, deviant pathways that have emerged during the development of internet healthcare—such as “AI-driven diagnosis and treatment” and the online migration of the “drug-revenue-dependent” model—are no longer viable.
On the one hand, the Draft Opinion delineates the boundaries between medical services, pharmaceuticals, and technical services, ensuring that “medical practice remains medical, pharmaceuticals remain pharmaceutical, and AI remains technological,” thereby firmly eliminating any “gray areas” that have emerged in the development of internet-based healthcare. On the other hand, grounded in the seriousness of medical practice and aimed at safeguarding the safety and quality of medical services, the Draft Opinion encourages the development of rigorous digital healthcare services.
Therefore, the industry as a whole is expected to place greater emphasis on medical services themselves under regulatory oversight and accelerate its shift toward the digital health segment, which is often regarded as the “most challenging” path. Leading digital health service platforms in this space, such as Teladoc internationally and Weiyi in China, have already demonstrated through practice the growth potential and market prospects of the digital health services sector.
Industry research reports indicate that traditional pharmacy chains engaged in drug sales, such as Yifeng Pharmacy and Laobaixing Pharmacy, have price-to-sales (P/S) ratios of only 2–3x. Meanwhile, online pharmaceutical retail platforms that reach end users via the internet, such as Ali Health and JD Health, have seen their P/S ratios decline to 6–9x. The capital market has effectively begun to “vote with its feet” by valuing pharmaceutical e-commerce platforms using e-commerce platform valuation models; currently, JD.com and Alibaba have P/S ratios of only 1–4x.
Unlike pharmaceutical e-commerce platforms that sell standardized products and are valued by capital markets using e-commerce valuation models, digital health companies command higher price-to-sales (P/S) ratios in the secondary market due to their provision of healthcare services with higher entry barriers. For instance, Teladoc, a well-known international digital health platform, has a P/S ratio as high as 21x.
As a benchmark for overseas digital health service platforms, Teladoc recognized the immense potential of the telemedicine market at its inception in 2002 and rapidly expanded its digital health footprint. Public data shows that Teladoc achieved a compound annual growth rate (CAGR) of 61.8% in revenue from 2018 to 2020, with its overall digital health business reaching a globally leading scale.
Compared with leading international enterprises, China’s top digital healthcare service platforms have also demonstrated strong performance. Taking WeDoctor as an example, publicly available data show that its compound annual growth rate (CAGR) in revenue from 2018 to 2020 was higher than that of Teladoc, reaching 168%, which underscores the substantial growth potential and explosive momentum of China’s digital healthcare services market.
This is also beginning to reverse the industry’s entrenched perception of the digital health services sector as the “most difficult path.” On one hand, this most challenging route is precisely the one that best aligns with regulatory compliance; whereas other seemingly shortcut paths have been “restricted” by regulatory standards.
On the other hand, practice has also shown that once digital healthcare platforms overcome the initially challenging phase of building digital infrastructure, their rapid growth potential quickly becomes evident. According to media reports, by mid-2021, WeDoctor’s internet hospital revenue in multiple regions had reached levels comparable to those of Grade 3A hospitals.
The release of the Draft Guidelines has further bolstered confidence among leading platforms that focus on digital healthcare services and prioritize investment in digital infrastructure. The industry is also coming to a clear realization that only by moving toward standardization, normalization, and transparency can the internet healthcare sector embark on a path of integrated development. This trajectory is essential for the industry to establish Digital Health Maintenance Organizations (DHMOs).
Health Maintenance Organizations (HMOs) refer to a system that provides comprehensive medical services to actively enrolled populations in specific regions after collecting fixed prepaid fees. Internationally, UnitedHealth Group (UNH) is a typical representative of this model in building an integrated healthcare delivery system.
Digital healthcare platforms in China, aligning with domestic policies and market conditions, are exploring the development of a Chinese-style HMO model. WeDoctor’s establishment of digital health maintenance organizations through regional internet-based medical consortia serves as a highly representative example.
In 2020, WeDoctor established the Tianjin Primary Care Digital Health Community in Tianjin. This tightly integrated internet-based medical consortium, formed by the Tianjin WeDoctor Internet Hospital and 267 primary healthcare institutions in Tianjin, provides residents with end-to-end medical and health maintenance services. It also explores the implementation of a payment model based on bundled payments per disease type and per capita under the global budget framework of medical insurance. By deeply integrating “medical care, pharmaceuticals, and insurance,” this practice incorporates a sufficient number and diversity of industry chain participants, forming a closed-loop ecosystem driven by the dual engines of “payment and service delivery,” thereby establishing a Chinese-style Health Maintenance Organization (HMO).
The release of the Draft Guidelines will undoubtedly facilitate the establishment of Health Maintenance Organizations (HMOs). It is foreseeable that enhanced regulatory standards will raise industry entry barriers, significantly increasing market concentration in the internet healthcare sector and promoting the development of an integrated healthcare system. This lays a foundation for the standardized growth of HMOs and provides clear direction for the development of China’s internet healthcare industry.