Public Hospitals Accelerate Internet Hospital Rollout: Pathways to Win-Win Collaboration with Platform-Based Models

Public Hospitals Accelerate Internet Adoption, Rapidly Establishing Internet Hospitals Driven by Pandemic Control Needs

According to the list of internet hospitals compiled by VCBeat from public sources, including data from health commissions at all levels and mainstream media reports, 146 such hospitals were established between January and April this year. Among them, 110 were operated by public hospitals, while only 29 were third-party-led platform-based internet hospitals, indicating that public hospitals hold an overwhelming numerical advantage.

Physicians are the most critical resource for internet hospitals, where public hospitals hold a natural advantage. Most physicians on platform-based internet hospitals also come from public hospitals. As public hospitals increasingly establish their own internet hospitals, more direct competition for physician resources will arise between them and third-party platforms.

How should the internet healthcare industry respond to this phenomenon? Will the widespread launch of internet hospitals by public hospitals affect the development of third-party platform-based internet hospitals? What will be the relationship between the two? How will the inclusion of internet healthcare services in medical insurance reimbursement impact these two models respectively?

On May 19, the “VB Roundtable,” hosted by the Yinchuan Internet + Healthcare Association and co-hosted by VCBeat, explored these issues. The event featured discussions with Duan Tao, former president of Shanghai First Maternity and Infant Hospital and founder of Chuntian Medical Management; Wang Xiaocen, a well-known investor in the healthcare industry; and Wang Hang, founder and CEO of Haodf Online. The session was moderated by Chen Qiulin, Associate Researcher and Director of the Health Economics Research Office at the Institute of Population and Labor Economics, Chinese Academy of Social Sciences.

During this year's epidemic prevention and control period, driven by policy encouragement and urgent patient demand, internet hospitals have witnessed a surge in development. Public hospitals, which hold the majority of medical resources, have accelerated the launch of their internet hospital platforms.

“Observations and research in the internet sector reveal that traditional enterprises embracing the internet have significantly benefited from platform economy effects, primarily driven by the connectivity enabled by the internet. However, there are hardly any successful precedents of manufacturing or production enterprises establishing such platforms,” noted Chen Qiulin. He pointed out that for internet healthcare, the industry is inseparable from physicians; and within China’s medical system, any discussion of platform economy effects must inevitably involve hospitals.

So, what are the respective characteristics of public hospital-based internet hospitals and platform-based internet hospitals? What impact will the widespread launch of the former have on the latter? What will the future relationship between the two look like? Chen Qiulin first raised these questions to the guests.

Chen Qiulin, Deputy Research Fellow and Director of the Health Economics Research Office at the Institute of Population and Labor Economics, Chinese Academy of Social Sciences

Duan Tao believes that, in theory, public hospitals’ internet hospitals can also perform well by simply migrating existing patients to online platforms. If offline elements are deconstructed and reasonably reconstructed online, the results would be better and more efficient.

The issue, however, is that individual public hospitals have a limited patient base and physicians’ time is finite, causing overall resources to quickly reach their ceiling. As a result, while such operations can be executed well, they are difficult to scale up.

Platform-based internet hospitals can serve patients across China by leveraging servers, allowing for significant scale. However, due to the difficulty in securing medical resources, success is not guaranteed. To establish a viable business model, platform-based operators must endure a prolonged period of development; if they fail to overcome critical challenges during this process, they risk collapse.

Duan Tao, Former President of Shanghai First Maternity and Infant Hospital and Founder of Chuntian Medical Management

Duan Tao believes that completely liberalizing the establishment of internet hospitals could impact tiered diagnosis and treatment systems and community health institutions. This is because registration fees for general outpatient visits are similar across tertiary hospitals, secondary hospitals, and community health institutions, with other costs also being comparable. If patients can obtain prescriptions from top-tier (Grade 3A) hospitals without leaving home, along with online payment and medical insurance reimbursement options, they may be even less inclined to visit community health institutions. “Tiered diagnosis and treatment aims to direct initial consultations to the community level, referring complex and severe cases to Grade 3A hospitals. If all public hospitals operate internet hospitals, what value do community health centers retain?”

Regarding physician resources, Duan Tao’s view is that high-quality doctors at tertiary Grade A hospitals are limited in number. Once most public hospitals have established their own internet hospitals, hospital presidents will be reluctant to allow physicians to leave their platforms, which poses a challenge for platform-based internet hospitals.

However, Duan Tao also mentioned two aspects that may affect the construction of internet hospitals by public hospitals.

First, public hospitals face numerous restrictions. If online consultation fees are aligned with medical insurance reimbursement rates, they become very low. According to the National Healthcare Security Administration’s “Guiding Opinions on Improving Pricing and Medical Insurance Payment Policies for ‘Internet+’ Medical Services,” public medical institutions providing internet-based follow-up consultations must charge according to the standard outpatient consultation fee schedule, regardless of whether the services are delivered by medical personnel of different seniority levels. “Offline specialist appointments cost several dozen yuan, while regular appointments cost only ten-plus yuan. By comparison, operating an internet hospital is less financially viable.”

Secondly, if all public hospitals establish their own internet hospitals and create a closed loop between online and offline services, efficiency is indeed improved for patients who receive long-term care at these specific institutions. However, from the perspective of the entire industry, or when patients need to switch to a different hospital, the system proves inefficient. “For example, if you want to find a restaurant for dinner, and every restaurant has its own app, you might need to download dozens of apps just to find one you like. But if a platform aggregates restaurants, you only need to open a single app, such as Dianping. In this scenario, each restaurant building its own app would be a waste.”

Therefore, Duan Tao believes that the launch of internet hospitals by public hospitals is more of a negative factor for platform-based internet hospitals and for doctors, while it presents both negative and positive implications for the hospitals themselves.

Of course, public hospital-based internet hospitals and platform-based internet hospitals are not necessarily in an adversarial relationship; can the two form a complementary developmental relationship?

Wang Hang stated that internet-based healthcare played a significant role during the pandemic, including the allocation of medical resources, patient screening, serving as an online entry point for primary care, and improving the efficiency of medical consultations. According to statistics from the Yinchuan Internet + Medical Health Association, various internet healthcare platforms provided approximately 20 million consultations during the pandemic, cultivating patient habits on a national scale.

Wang Hang, Founder and CEO of Haodf Online

Among public hospitals that have established internet hospitals, some face underutilized offline capacity and seek to generate incremental growth through online channels. However, since online consultations are reimbursed at the same rate as standard outpatient visits under medical insurance, specialists lack sufficient incentive to participate. Furthermore, follow-up visits conducted online may lead to reduced revenue from diagnostic tests. Consequently, these hospitals find themselves in a dilemma: they are eager to explore new opportunities while simultaneously grappling with the risk of declining income.

“We see a point of collaboration here, as internet hospitals are not permitted to conduct initial diagnoses; they can only provide consultation and triage services for patients who have already received an initial diagnosis elsewhere,” said Wang Hang. Platform-based internet hospitals operate across geographical boundaries and can establish a neutral reputation system. Consequently, these platforms naturally attract a large volume of new patients. In the triage and distribution of these new patients, third-party platforms and public hospitals can form an upstream-downstream industrial chain relationship, enabling public hospitals to expand their channels for attracting patients through third-party platforms.

Therefore, Wang Hang believes that in the short term, public hospitals should establish their own internet hospitals, but in the long run, from the perspective of acquiring new patients, public hospitals will form collaborative partnerships with third-party platforms. In fact, such co-construction models already exist.

Furthermore, Wang Hang stated that the internet can facilitate the barrier-free flow of medical service information. When such information becomes readily accessible, the underlying structure of the healthcare delivery system will inevitably undergo transformation. Physicians, departments, and hospitals specializing in the treatment of specific diseases can leverage the internet to attract an increasing number of relevant patients, thereby further enhancing the quality of diagnosis and treatment. In this scenario, patients stand to benefit from more specialized care, leading to improved therapeutic outcomes and potentially shorter treatment durations.

When internet-based medical information is sufficiently abundant, it will promote specialization, reduce patient costs and health insurance expenditures, and achieve cost reduction and efficiency improvement.

Regarding the long-term relationship between public hospital-based internet hospitals and platform-based internet hospitals, Duan Tao proposed the OMO model, namely Online Merge Offline or Offline Merge Online. Duan Tao candidly stated that, as a former president of a public hospital, he prefers approaches that align with commercial principles, improve patients’ healthcare-seeking efficiency, and enhance the overall efficiency of the industry. This requires greater collaboration between platform providers and public hospitals, driven by a combination of administrative directives and commercial rules. “Of course, this is extremely difficult. It demands strong resource coordination capabilities from the platform providers.”

Since the emergence of the internet healthcare industry, medical insurance reimbursement has been available only in select regions and for a very limited number of internet hospitals. The absence of medical insurance payment mechanisms is considered a bottleneck restricting the industry’s development.

Since the outbreak, internet hospitals have accelerated their construction while medical insurance integration has also been rapidly implemented. According to public data compiled by VCBeat, as of April 30, a total of 49 internet hospitals across China had achieved online medical insurance settlement, with the vast majority being led by public hospitals. During this period, many other internet hospitals were in the process of integrating with the medical insurance system.

Chen Qiulin noted that health insurance reimbursement has become a key focus for the internet healthcare industry in recent times. So, is the demand for health insurance coverage in internet healthcare sufficiently urgent? Amid efforts to improve the health insurance payment system, where do the opportunities lie for third-party platforms? Furthermore, what impact will health insurance policies have on the industry?

Duan Tao believes that for tertiary hospitals, offline operations are already at full capacity. A shift to online services is acceptable if it does not increase the workload; however, if the workload increases, physicians’ motivation may be insufficient.

For the National Healthcare Security Administration, online consultation records are easier to trace, facilitating better control of healthcare expenditures. Moreover, as public hospitals are more readily regulated, there is a strong incentive to enable health insurance reimbursement for services provided by these institutions.

Wang Hang noted that after the opening of medical insurance payments to internet hospitals, the share accessible to third-party platforms remains minimal. To capture a larger share, these platforms must lower prices while simultaneously enhancing user experience. Competitive strategies prevalent in the internet sector are likely to be adopted in the internet healthcare field in the future.

“However, patient needs exist at different levels. The platform may divide its services into two domains: one to meet the aforementioned basic healthcare needs, ensuring maximum efficiency and minimum cost; the other focusing on commercial healthcare, which demands higher-quality medical resources and offers greater choice,” said Wang Hang. He noted that if the commercial healthcare segment proves viable, opportunities for commercial health insurance will emerge, allowing it to cover services not included in public medical insurance.

Wang Hang believes that with such a combination, the cost of basic medical insurance has been reduced, and there is room for commercial health insurance. In the future, this trend is likely to develop.

Wang Xiaocen noted that the inclusion of internet-based healthcare services in the national medical insurance scheme benefits both public hospitals and internet hospitals by facilitating patient acquisition. However, from a profitability perspective, the impact on platform-based internet hospitals is limited, as medical insurance coverage cannot meet the increasingly diverse healthcare demands. True value-added services depend on a comprehensive evaluation of the platform’s service models and content offerings.

Wang Xiaocen, a renowned investor in the healthcare industry

“We have observed that some insurers are already investing in IT infrastructure tailored for commercial health insurance. This encompasses not only underwriting and claims adjudication, but also mid-process and post-event monitoring,” said Wang Xiaocen. Therefore, the implementation of basic medical insurance provides a foundation for expanding commercial health insurance coverage, exerting a positive promotional effect on the sector. The entry of commercial health insurers into internet hospitals is thus an inevitable trend.

Despite the rapid development of internet healthcare within just a few months this year, driven by further policy support, greater participation from public hospitals, and continuous business model innovations by enterprises, the industry as a whole remains in its early stages, with many aspects still requiring improvement.

Some time ago, the National Development and Reform Commission (NDRC) mentioned in a document the “exploration and promotion of an initial consultation system for internet-based medical services under medical insurance coverage.” Although the term “initial consultation” in this context differs from the concept of “initial consultation” in internet healthcare, it still sparked widespread discussion within the industry. This underscores the significance of this seemingly simple term for the sector’s development.

Chen Qiulin proposed that the key issues currently drawing industry attention include: How to define initial consultations in internet-based healthcare? How should such initial online consultations be viewed? What further policy breakthroughs are needed?

Duan Tao believes that “first visit” is merely a vague term. For instance, a patient may be visiting Hospital A for the first time, but has already had a consultation at Hospital B without informing the physician at Hospital A. Does this constitute a “first visit” from Hospital A’s perspective? “Currently, there are no official documents providing a sufficiently clear definition of ‘first visit,’ making implementation difficult.”

From Wang Hang’s perspective, the industry is broadly divided into “conservatives” and “eager advocates” regarding the issue of initial consultations. The “eager advocates” hope to open up initial consultations as soon as possible to expand their scope of business, while the “conservatives” believe that initial consultations carry significant risks and should under no circumstances be permitted.

“I believe neither approach is reasonable.” Wang Hang argued that the industry should return to a pragmatic stance: conditions suitable for low-cost online initial consultations should be handled online, while those unsuitable must strictly exclude online initial consultations. For instance, high-definition cameras are sufficient for physicians to assess simple dermatological issues. However, conditions such as headaches differ significantly, as they may stem from various causes and necessitate in-person hospital visits. Of course, medical experts should define which specific diseases are appropriate for online initial consultations. Therefore, the issue of initial consultations should be approached with caution, taking into account differences across medical specialties and disease types.

In fact, the primary reason why initial consultations have not been permitted in internet-based healthcare is to ensure medical safety. Under current conditions, how can the safety and quality of internet-based healthcare be guaranteed?

Duan Tao proposed that systems, regulations, and methodologies should be improved in accordance with the characteristics of online services. “However, it cannot be concluded that safety and quality issues are more likely to occur in online settings, as misdiagnoses also occur in offline practice; the global misdiagnosis rate is approximately 30%–35%, which is attributable to the inherent nature of diseases themselves.”

Wang Hang candidly admitted that, driven by capital in recent years, the industry has undertaken considerable innovation but has focused heavily on rapid expansion and market capture, with little attention paid to improving the quality of medical services.

“Therefore, the Yinchuan Internet + Medical Health Association calls on all stakeholders to join forces in advocating for the establishment of standardized norms, leveraging internal, small-scale standards to promote the regulated development of the industry,” said Wang Hang. He emphasized that safety and quality issues must not be overlooked; safety incidents in other industries serve as cautionary tales, and safety lapses could deal a devastating blow to the entire sector.

Discussions on the development of internet healthcare cannot bypass the topic of business models. Wang Hang stated that the healthcare industry must approach issues from the supply side, where the most significant variable lies with physicians. It is essential to incentivize them by enabling the adoption of their own business models, transforming previous illicit income into transparent consultation fees, and increasing their earnings through service quality and professional expertise.

Duan Tao, however, believes that while the internet has already established clear business models in other sectors, and such models remain less defined in the healthcare industry at present, he remains optimistic about its prospects over the medium to long term.

Whether on third-party platforms or in public hospitals, the core offering is essentially a consumer-facing service—a doctor-patient interaction platform—that must also serve physicians well. Therefore, it is crucial to slow down and devote thoughtful effort to creating genuine value for both patients and doctors.

2014 was the inaugural year of internet healthcare, with startups and capital flooding into the sector.

Chen Qiulin has observed that following the surge in investment interest in internet healthcare, a large number of startups have entered the market. However, from the perspective of professional research, the authenticity of data presented by individual projects—particularly data on online physicians—is difficult to verify. So, does a bubble exist in the internet healthcare industry? And how should we view the current investment fervor in this sector?

According to statistics from Wang Xiaocen, approximately RMB 160 billion has been invested in the internet healthcare sector from 2014 to the present. “These funds have primarily been allocated to infrastructure development, trial-and-error expenses, market education, and customer acquisition costs.”

In Wang Xiaocen’s view, the current epidemic has served as a major test for the internet healthcare industry. Products previously regarded as high-quality have revealed issues such as insufficient depth in functional development during the outbreak, highlighting areas where companies need to make improvements.

However, during the pandemic, user inquiries, out-of-hospital prescription volumes, and GMV all experienced explosive growth. Wang Xiaocen reviewed data for some of the projects he participated in investing in: The chronic disease management project saw user growth exceed threefold and GMV grow more than tenfold in Q1; platform-based projects witnessed a 20-fold year-on-year increase in online consultations in Q1, while out-of-hospital prescription volume surged by over 40 times year-on-year, with even more substantial growth in prescription transaction value. “Localized perceptions may not be so obvious, but the macro-level statistical results are quite astonishing.”

Wang Xiaocen candidly stated that after investing substantial funds previously, the role of internet healthcare as infrastructure was finally evident in this major test.

In addition, Wang Xiaocen has also compiled investment data from the internet healthcare industry over the past few years:

In 2014, there were over 100 projects with a total funding of RMB 11.3 billion, 70% of which was invested in angel and Series A rounds;

In 2015, the investment community placed its greatest emphasis on internet healthcare. Throughout the year, there were 548 projects, with total funding reaching RMB 31.4 billion, primarily concentrated in rounds from angel to pre-Series B. The amount raised in Series A rounds was four to five times that of 2014.

In 2016, there were 477 projects with a total funding of RMB 31 billion. However, these figures began to decline from 2017 onward, experiencing a precipitous drop in 2018. After cooling off over the past two years, the total investment amount has decreased by approximately four-fifths compared to previous levels.

“Since the pandemic, internet healthcare has once again attracted the attention of the capital market. Significant amounts of capital, potentially very large in scale, will continue to flow into key areas,” said Wang Xiaocen. He noted that this funding would be more rational and focused on leading projects. “We have seen estimated statistics indicating that approximately 70% of new users acquired during the pandemic favored top-tier platforms, demonstrating that these leading projects have already established strong reputations.”

During the pandemic, the stock price of Livongo, a U.S. chronic disease management company, more than doubled, with its market capitalization rising from $2.5 billion to $5.6 billion, despite corresponding revenues of only $170 million. This indicates that the secondary market has fully recognized the value of such ventures, thereby driving a certain capital effect.

Wang Xiaocen also noted that the various segments of internet healthcare were integrated during the pandemic. How will commercial health insurance be integrated in the future? What would hospital information infrastructure based on commercial health insurance look like? What are the development directions for insurtech? These niche areas deserve close attention. The penetration rate of internet healthcare remains low, currently in the single digits, leaving substantial room for growth compared to products at the scale of WeChat, Weibo, and Douyin. Only when the user base increases by dozens of times will there be a genuine opportunity to unlock the health market.