Gains and Losses Among Product, Service, and Payer Stakeholders: China's Healthcare Sector Navigating the Transition Period

China’s healthcare sector has long been undergoing distortion, pain, and struggle, while continuously striving for change. Each new policy rollout signals the government’s commitment to reform, and every wave of industrial and entrepreneurial innovation represents bold attempts by market participants to seize the opportunities of the times.

The above text (See the article: “Two Decades of Turbulence in China’s Healthcare Sector: Struggles and Innovations Amidst Macro Trends”) primarily discusses the distortions and struggles that emerged in the first phase of the healthcare industry, while the second part will explore the main trends gradually taking shape during the transition period and their impact on the future. The following is the main body of the article:

Since the launch of China’s new healthcare reform in 2009, continuous exploration, repeated adjustments, and occasional policy reversals within the industry and regulatory landscape have fully demonstrated the complexity of the healthcare sector. During this exploratory period, at least dozens of bold reforms were attempted. After nearly a decade of policy experimentation and internal stakeholder maneuvering, three minor trends have quietly evolved into the main branches of the industry, becoming irreversible and unshakable.These three main threads not only explain many of the changes in the industry over the past five years, but also outline a clear blueprint for China’s healthcare sector over the next decade.：

Main Thread 1 (Product Side): Further compress the profit margins of product manufacturers and distributors to achieve the separation of pharmaceuticals from medical services;

Main Thread 2 (Service Providers): Comprehensive Promotion of Tiered Diagnosis and Treatment. Multi-site practice, the abolition of public institution staffing quotas, and telemedicine all contribute to advancing tiered diagnosis and treatment.

Theme 3 (Payers): Payers—The status of medical insurance is rising, with its influence gradually strengthening, guiding the healthcare system to evolve toward “improving efficiency and controlling costs.”

The logic behind the aforementioned reforms is already very clear. They are primarily a potent remedy for the first issue stated in Part I: “the dominance of service providers, the weakness of payers, and the subordination of product manufacturers to service providers.” These reforms also align with the overarching framework of the coordinated development of the pharmaceutical industry, medical insurance, and healthcare services (the “Three Medicals” linkage). The three reform initiatives will be implemented simultaneously and complement each other. Their effects may manifest sequentially in the order of one, two, and three, with the third initiative being the core.

Regarding the government-led institutional mechanisms mentioned in some statements, no short-term changes are anticipated. The government’s stance is that healthcare, as a matter of public welfare, is primarily its responsibility, with private institutions playing a supportive and supplementary role. Future reforms in human resources, such as the abolition of bianzhi (staffing quotas) for public institutions and changes to promotion and evaluation systems, will determine talent mobility and shape the market space for privately run healthcare services. As these developments remain unclear, we shall wait and see.

The first main line is to reshape the product side., thereby laying the groundwork for the structural reshaping of the healthcare system. The goal is to swiftly sever the interest chain linking product providers and service providers (currently, two pathways exist; see detailed analysis below). The first approach yields immediate results, with effects manifesting most rapidly; however, it does not address the root cause. If service providers remain unconstrained, they will inevitably form alternative interest chains to compensate themselves and suppress demand-side stakeholders.

The second main thread emphasizes the reshaping of the service provider's own structure.. The healthcare sector is implementing reforms to establish a tiered diagnosis and treatment system, enhancing overall medical efficiency and curbing the rapid expansion of public hospitals. This shift aims to transition service providers’ objectives from a self-interest-driven framework to one focused on improving efficiency and controlling costs. These measures are also intended to increase the overall supply of medical services and alleviate the difficulty of accessing medical care.

The third main thread emphasizes the reshaping of systemic mechanisms.By integrating medical insurance and expanding its authority and industry positioning, it can truly fulfill its role as the advocate for the demand side, thereby balancing the system and fostering collaboration and strategic interaction among payers, patients, and product providers. This will also align the objectives of these three parties around the goals of the payer (i.e., the demand side), establishing a patient-centered objective framework that returns healthcare to its fundamental essence. This approach aims to resolve the long-standing issue of fragmented perspectives, where the government, hospitals, patients, and pharmaceutical companies each operated with divergent agendas.

From another perspective, we can observe that the core issues in healthcare lie primarily on the supply side. The initial step of supply-side reform is predominantly structural, and the three aspects mentioned above can all be regarded as structural reforms. In the long run, discussions will likely continue to focus on reforms aimed at enhancing effective supply, such as expanding the training of medical students, improving the professional environment and social status of physicians, establishing talent promotion systems following the abolition of bianzhi (staffing quotas) in public institutions, and leveraging technology to significantly boost productivity.

At that time, a wave of charitable foundations may emerge to invest in building genuine non-profit hospitals and cultivate more medical talent, much like Rockefeller’s establishment of Peking Union Medical College Hospital. These reforms, which aim to increase the total supply and shape the long-term environment, are even more exciting; we will have the opportunity to discuss them later. For now, let us return to the impacts stemming from the three main threads that run through the transition period and the coming years.

Let us now discuss the opportunities and innovations facing industries along the three main threads outlined above.

Regarding Main Line 1, the product side is under pressure: In light of the overarching goal to further compress pharmaceutical prices, squeeze out channel profits, and achieve the separation of prescribing from dispensing, two implementation pathways can be identified.First RouteThis is achieved by suppressing drug prices, akin to removing the firewood from under the cauldron, directly compressing the entire profit chain to eliminate kickbacks and separate prescribing from dispensing.

On the Hospital Side, the government has sought to eliminate hospitals’ incentive to profit from products by controlling the proportion of pharmaceutical expenditures in public hospitals and abolishing drug markups.At the channel level, the government implemented the "Two-Invoice System" reform, which standardized the supply chain by reducing the number of distributors in the pharmaceutical sales process from seven or eight to just one. This measure curtailed the operational space for non-compliant commercial enterprises. On the other hand, the standardization brought by the Two-Invoice System made the entire industry process more transparent and easier to regulate. The previous industry practice of pharmaceutical manufacturers issuing low-price invoices to distributors has shifted to issuing high-price invoices, thereby retaining a significant portion of sales cost margins within the pharmaceutical companies rather than with the distributors as before. This adjustment allows regulatory oversight to focus more precisely on pharmaceutical manufacturers, enabling more targeted enforcement actions.

Finally, atPharmaceutical Company Side, finally implemented the highly impactful measures of "Consistency Evaluation" and the "4+7 Volume-Based Procurement" policy, aggressively suppressing drug tender procurement prices by replacing traditional models with volume-based procurement. This approach enabled capable enterprises to exchange price for volume. On one hand, it significantly compressed profit margins for pharmaceutical companies, forcing substantial cuts in gray-income interests and corresponding marketing expenses. On the other hand, as it was directly backed by substantial hospital procurement volumes, it also reduced the motivation and necessity for pharmaceutical companies to engage in relationship-building efforts with hospitals.

Through the implementation of the aforementioned policies, supply chain transactions have been rendered transparent, significantly weakening pharmaceutical companies’ sales capabilities and incentives. Public hospitals are also proactively curbing “illicit revenue” from drugs and medical supplies, replacing it with profitable, insurance-approved income from therapeutic and service-based offerings. By aligning employee compensation with these legitimate revenue streams, hospitals have achieved a smooth transition from gray-income practices to standardized performance bonuses. These interlocking policy measures have yielded commendable results.

Another PathwayIt is a policy attempt to directly separate hospital pharmacies from hospitals. Pilot programs for pharmacy trusteeship in previous years ended in failure, but recently, many regions have again proposed policies for the direct "spin-off of outpatient pharmacies." In terms of effect, doctors are issuing generic prescriptions; if pharmacies are spun off, prescriptions will inevitably flow out to retail enterprises or pharmaceutical e-commerce platforms, effectively severing the chain of interests (though attention must also be paid to the benefit-transfer relationships between hospitals and pharmacies located at hospital entrances).

However, this measure also has drawbacks. For instance, the quality of medications in retail pharmacies is generally inferior to that in hospitals, and issues such as non-compliant operational practices and the recycling of expired drugs are common. On the other hand, the professional competence of hospital pharmacists remains significantly higher than that of their counterparts in retail enterprises; a large-scale outflow of prescriptions may therefore lead to fluctuations in the overall standard of medication use. Thirdly, inpatient care will undoubtedly continue to rely on hospital-based medication services, and the volume of medications used in inpatient settings typically exceeds that of outpatient care. Despite these potential challenges, the advantages outweigh the disadvantages. It is expected that various localities will actively promote pilot programs to implement this policy.

Therefore,These two approaches are highly likely to be pursued simultaneously., leading to a significant compression of overall revenue and profits across pharmaceutical manufacturers, drug distributors, retail pharmacies, and hospital pharmaceutical sales. This aims to return healthcare to its fundamental purpose. Meanwhile, a critical issue that requires special consideration is that a substantial proportion of physicians will experience a decline in income as a result of this reform. It may therefore be necessary to simultaneously adjust the pricing of medical services or provide subsidies to physicians through alternative mechanisms.

Amid such clear trends, what opportunities will we face?

Opportunity 1—Retail Pharmacies: One such opportunity may lie in the retail pharmacy sector. As prescription outflow accelerates, the market share of retail pharmacies—previously accounting for 20% of total pharmaceutical distribution volume—is poised to increase substantially. Furthermore, the government is actively promoting a classified and tiered management system for retail pharmacies, which, in a sense, aligns with the emerging opportunities presented by potential prescription outflow.

Retail pharmacies in China are relatively fragmented, with a low level of market concentration. As the classification and grading system reshapes the value proposition of high-quality pharmacies, the entire industry is facing a clear trend toward consolidation. From a micro perspective, it is imperative for pharmacy chains to integrate, as this will help them enhance their management capabilities, procurement bargaining power, information systems, and online service capabilities.

In recent years, in addition to the listed chain pharmacy giants, Hillhouse Capital, CPE Yuanfeng, and Ali Health have all begun large-scale acquisitions and consolidation of retail pharmacies. Among them, the number of pharmacies controlled by Hillhouse Capital may have reached over 10,000, potentially ranking first nationwide. However, another aspect that cannot be overlooked is that the overall suppression of drug prices has eroded profit margins across the entire supply chain. As pharmaceutical companies no longer have sufficient profit margins to provide incentives to physicians, the profit margins at the retail end are further compressed. Even though a significant volume of prescriptions is shifting out of hospitals, how much profit can actually be released remains uncertain.

Opportunity 2 – Pharmaceutical E-commerce: In addition to retail pharmacies presenting an opportunity, pharmaceutical e-commerce will once again be propelled into the spotlight by the same logic. If the outflow of prescriptions becomes a clear trend, pharmaceutical e-commerce is bound to welcome a significant development opportunity. Although pharmaceutical e-commerce holds no particular advantage in convenience or service compared to China’s relatively dense network of offline pharmacies, its strength lies in non-prescription products such as OTC drugs, health supplements, and consumer healthcare services, which can benefit from traffic diversion through major e-commerce platforms like Taobao and JD.com, while also offering price advantages.

Prescription drugs require careful consideration of expanded usage scenarios, specifically how to offer more prescriptions across different scenarios and integrate these prescriptions with pharmaceutical e-commerce platforms. This business segment appears better suited for e-commerce giants such as Alibaba and JD.com.To secure a foothold in the retail market, it is essential to significantly reduce delivery times, create a superior purchasing experience and more competitive pricing compared to traditional retail pharmacies. On the other hand, value-added services such as telemedicine, remote pharmacist consultations, and chronic disease management must be integrated into the service platform, with a focus on effectively implementing these services at the operational level.Make online medication purchasing a convenient and high-quality service experience, while enabling the integration of front-end online and offline consultations, online chronic disease management services, and pharmaceutical distribution.

# On Main Thread II: Tiered Diagnosis and Treatment: The implementation of the tiered diagnosis and treatment policy will, on one hand, lead to increased national investment in building primary care and county-level medical institutions; on the other hand, it will foster closer referral and collaborative relationships through assistance provided by tertiary A-grade hospitals. The overarching goal is to reinforce the gatekeeper role of primary care, achieve appropriate patient triage by disease type, and optimize the utilization of specialist resources at tertiary A-grade hospitals.

Intuitively, the development of primary healthcare institutions requires support in several key areas: drug formularies, physician training, health insurance reimbursement rates, specialist consultations, and collaboration with top-tier (Grade 3A) hospital brands. Currently, policy measures have provided support in terms of drug formularies and health insurance reimbursement rates. Additionally, public hospitals, driven by administrative mandates and their own patient-referral needs, are also extending some support to primary care. Nevertheless, the advancement of tiered diagnosis and treatment remains somewhat challenging.

This reflects that the core issue in grassroots healthcare development does not lie here, but rather in the fact that public institutions offer established staffing quotas (bianzhi), administrative ranks, and a promotion system centered on teaching and research. Physicians remain within a distinct promotion and evaluation framework; as individuals naturally seek upward mobility, primary care settings rarely constitute a rational choice for ambitious doctors.

From my perspective, the promotion of multi-site practice is not intended to facilitate public hospital experts engaging in unauthorized freelance work at private institutions, but rather to ensure the smooth implementation of tiered diagnosis and treatment. Although the abolition of staffing quotas (bianzhi) for public institutions is currently being explored, the deeply entrenched talent evaluation and promotion system within the medical community remains largely self-contained. Future adjustments are still necessary to encourage physicians to voluntarily participate in primary care services.

Given the difficulty of making short-term adjustments to the existing system, another approach to revitalizing primary healthcare is to fully open this market segment to private medical providers. While theoretically feasible, in practice, it appears that policymakers have not yet fully demonstrated the intent and resolve to unleash this portion of market potential.

Therefore, it remains unclear whether investing in the clinic sector is worthwhile. As previously discussed regarding mid-tier clinics, positioning them entirely as out-of-pocket services is highly challenging. A more viable direction to explore may be offering affordable, high-quality medical services. Breakthroughs are needed in several key areas: a payment mix of medical insurance and employer-sponsored coverage, talent pipeline development, public sector support, and strategic location planning that differentiates from public hospitals while integrating with community-based care.

Opportunity 3 – Empowering Tiered Diagnosis and Treatment: For tiered diagnosis and treatment, the more critical issue is how to empower existing primary healthcare institutions. For exampleRetail Pharmacies, Third-Party TestingIn terms of support for primary care clinics in pharmaceuticals, laboratory testing, and radiology, the General Office of the National Health Commission issued the “Notice on Launching Pilot Programs for Community Hospital Construction” in March 2019. This notice left room for enhancing laboratory and pathology capabilities at primary care institutions and for collaborating with external third-party providers. As primary care continues to develop, these two areas are expected to see further growth.

For instance, the current application of POCT (Point-of-Care Testing) devices in primary care settings, scenarios requiring high portability, and emergency medicine. Examples include internet-based B2B diagnosis and treatment, imaging support, or B2B2C models providing support to primary care institutions or county-level hospitals., which can significantly expand the scope of patient intake and enhance the diagnostic and treatment capabilities of primary care and county-level hospitals. Furthermore, it enables the exploration of a division of labor in chronic disease management, wherein tertiary Grade A hospitals handle diagnosis while primary care institutions manage follow-up visits and rehabilitation.

ForB2B Support in Emergency Care, it is also possible to explore the use of remote video support and standardized preliminary procedures to provide timely responses to time-sensitive conditions such as stroke and heart disease in primary care and county-level hospitals in remote areas. In addition to B2B remote consultations, companies like WeDoctor and Alibaba are exploring empowerment solutions for medical consortia primarily composed of tertiary Grade A hospitals. The ultimate goal is to enable primary care institutions and pharmacies within these consortia to serve as initial diagnosis platforms. Some cases can be resolved through online consultations, while patients from pharmacies or primary care hospitals may require diagnostic testing before receiving a diagnosis and prescription. When necessary, upward referrals should be established. Follow-up visits and offline treatments for some patients of tertiary Grade A hospitals can be completed online or at the primary care level.

Furthermore, the B2C model of remote consultations will partially assume the role of primary care gatekeepers. However, the current state of internet healthcare is such that neither the B2C nor the B2B model possesses a standalone, viable profit structure. Throughout the entire service chain, there is a persistent lack of payers: neither public medical insurance nor commercial insurance covers these services, and patients exhibit a lower willingness to pay for remote care, making it difficult to establish a sustainable business model based on high-priced specialist consultations. Although healthcare institutions have some incentive to directly procure services—for instance, tertiary hospitals face pressure to transform their objectives and enhance their performance, as well as to expand the effectiveness of medical consortia, while primary care institutions are motivated to improve their viability—their willingness to pay remains weak (at least in the near term, though long-term incentives may strengthen). Even when payments occur, they tend to be one-off transactions. Subsequent operations and revenue generation remain predominantly centered within the traditional hospital system, leaving internet healthcare platforms in a persistently disadvantaged position during implementation.

Overall, B2B projects that directly serve enterprise clients, such as remote consultation and remote imaging, will have considerable market potential in the long term as the three main pillars of healthcare reform are gradually implemented. However, their near-term revenue generation capabilities will remain limited.

With future technological advancements, the overarching trend is that our lives will become increasingly technology-driven and data-centric, enabling on-demand access to services. In the near future, we anticipate that most health-related tasks—including data extraction, tracking, recording, analysis, prevention, behavioral guidance, and assisted treatment—can be completed at home or in nearby locations. Moderately complex treatments, rehabilitation, and remote consultations can be handled at the community level, while truly critical and severe cases will receive specialized care at tertiary hospitals.

Healthcare is expected to follow a "decentralized" development path, similar to other retail and service industries, albeit at a slower pace. Consequently, the market for small-scale medical devices will garner increased attention, playing an enhanced role in datafication, customization, intelligence, and remote care at the household and community levels.

Regarding Main Theme 3: The Dominance of Medical Insurance:The third main trend is that payers, primarily represented by medical insurance schemes, will become more dominant. Recent organizational changes within the National Healthcare Security Administration (NHSA) illustrate this shift. As a vice-ministerial-level institution directly under the State Council, led by a former Vice Minister of Finance, the NHSA has integrated responsibilities previously held by multiple agencies: urban employee and urban resident basic medical insurance and maternity insurance from the Ministry of Human Resources and Social Security; the New Rural Cooperative Medical Scheme (NRCMS) from the former National Health and Family Planning Commission; drug and medical service price management from the National Development and Reform Commission; and medical assistance duties from the Ministry of Civil Affairs. This consolidation achieves the “integration of three insurance schemes.” Furthermore, the NHSA’s mandate includes formulating and overseeing the implementation of centralized procurement policies for pharmaceuticals and medical consumables, as well as continuing to supervise and regulate the service behaviors and medical expenses of healthcare providers covered by medical insurance.

It can be said that the National Healthcare Security Administration (NHSA) currently wields both substantial financial resources and significant regulatory authority, gradually emerging as the dominant party among service providers, product manufacturers, and payers. Demonstrating both intent and decisive action, the NHSA swiftly implemented the “4+7 Volume-Based Procurement” policy following its establishment, leading to a dramatic reduction in drug procurement prices. Furthermore, the 2019 “Supporting Documents for the 4+7 Policy” explicitly stipulated further price reductions for non-selected drug varieties and introduced corresponding performance assessment mechanisms for hospitals.

Overall, medical insurance is expected to gradually assume the role of patient advocate and play an increasingly significant part. It is believed that the growing strength of payers will not merely erode some of the interests of existing stakeholders; more substantively, it will drive all three parties to genuinely engage in strategic interactions within a unified framework aimed at “returning to the essence of healthcare.” As a result, the entire healthcare system may undergo more positive and healthy transformations, which, in the long run, could prove beneficial to every stakeholder involved.

What potential opportunities and innovations will arise from the growing dominance of payers?

The impact of payers’ bargaining power on the pharmaceutical sector has been discussed above. Beyond the pharmaceutical sector, it is believed that in the future, aspects related to service providers and product manufacturers will also be affected.Projects and models that help control costs and improve efficiency will be increasingly accepted by payers., and will transmit greater assessment pressure to service providers and product manufacturers.

On the other hand, internet healthcare and medical innovation face three distinct challenges: user traffic, value creation, and monetization. While user traffic and monetization are relatively straightforward, “value” refers to the ability to deliver sufficient long-term benefits and sustained engagement incentives to all stakeholders. In typical internet projects, these three elements are often integrated into a unified model. However, in the healthcare sector, due to the distorted market dynamics analyzed above, they tend to be decoupled. Consequently, it is quite challenging for a project to achieve early success; this usually requires excelling in all three areas and effectively integrating diverse business resources.

For example, in typical remote consultation projects, initial traffic may have been generated through subsidies or by aggregating physicians, thereby satisfying the first criterion. In terms of value creation, some value was delivered to patients, and certain physicians received subsidies; however, the magnitude of this value was insufficient to enable direct monetization through lightweight consultations, revealing a notable shortfall. Regarding monetization, several approaches were attempted: driving offline patient volume via online channels (which proved inadequate to sustain offline revenue due to the inherent regional nature of healthcare services); charging for membership cards (to which users exhibited high price sensitivity); and collaborating with pharmaceutical e-commerce platforms (constrained by regulations on online prescription issuance). None of these strategies yielded a robust and sustainable monetization model.

Another slightly adjusted example, “Ping An Good Doctor,” presents a markedly different scenario. First, in terms of user traffic, Ping An did not have a first-mover advantage but still managed to attract a certain volume of users by building its own team of physicians. More importantly, multiple subsidiaries within the Ping An Group directly purchased medical services from Ping An Good Doctor as part of their insurance offerings. By combining these two factors, Ping An Good Doctor has firmly secured the top position in the industry for user traffic; relying on either factor alone would not have been sufficient.

Second, in terms of value, the services Ping An provides to patients are essentially no different from general telemedicine. However, by predominantly employing its own physicians, the platform can focus solely on the patient side without needing to cater to doctors’ preferences. Additionally, it seeks to deliver greater value to customers through its self-built e-commerce and consumer healthcare marketplace, but these efforts are clearly insufficient; this remains a current pain point for Ping An Good Doctor.

Third, in terms of monetization, the company benefits from its affiliation with Ping An Insurance, which provides substantial insurance procurement volume. Furthermore, this insurance procurement has stimulated subsequent e-commerce monetization services, enabling Ping An’s online e-commerce business to thrive—a performance that surpasses that of most other enterprises.Ping An Good Doctor’s three core strategies are its self-built physician team, e-commerce, and group insurance procurement.. The third element served as the first domino, activating external demand. Meanwhile, the procurement of insurance was not merely a transfer of benefits but established a certain win-win synergy with the insurance sector. Of course, group procurement cannot grow indefinitely; how to create long-term, stable value for customers is the next challenge for Ping An Good Doctor.

Based on the above cases, we can hypothesize that in the long term, many healthcare initiatives—such as telemedicine or chronic disease management combined with wearable devices—are likely to be incorporated into medical insurance reimbursement within certain regulatory frameworks. This would enable a large number of products that deliver various values to patients or hospitals to monetize directly through their services. However, in the short to medium term,Medical Innovation May Still Require the Following Three Characteristics, to lay the groundwork for the long-term flourishing of this sector:

First, it is necessary to integrate several business segments. Some of these segments can drive traffic and deliver value, while others provide channels for monetization.

Second, relying solely on a single star feature is unrealistic for providing sufficient incentives and value to relevant stakeholders in new medical innovations. Instead, it may require the synergy of several sectors to create compounded value for customers and foster stronger stickiness.

Third, due to the above two points, the opportunities for independent startups in internet healthcare may be relatively limited; comprehensive platforms are required to integrate resources from multiple platforms and achieve a virtuous cycle.

Here is an example: If an internet, healthcare, or insurance company with resources were to undertake this initiative, one possible approach could be:

1. Utilize the “pharmaceutical e-commerce B2B + B2C platform + pharmacies” model as a monetization channel, leveraging online resources and promotional efforts to drive traffic for OTC drugs, health supplements, and consumer healthcare services to the platform.

2. Channeling prescriptions to pharmaceutical e-commerce platforms through telemedicine services. The focus is on building more scenarios to enable customers to obtain greater value, while also generating more prescriptions.

Scenario 1: B2C online hospital consultations and follow-up visits for chronic disease patients;

Scenario 2: Online consultation, with triage and referral to offline partner hospitals;

Scenario 3: Online consultation, followed by corresponding examinations at primary care facilities (or possibly at workplaces or pharmacies), then returning to the online platform for diagnosis and prescription issuance;

Scenario 4: Patients consult, receive diagnoses, and obtain medications through the employer portal and the pharmacy’s remote interface.

Scenario 5: Establish an online B2B and B2B2C teleconsultation/telemedicine platform tailored for primary care clinics to empower grassroots healthcare, while enabling electronic transmission of prescriptions issued at the primary care level.

Scenario 6: Empowering Medical Consortiums by assisting tertiary hospitals in building online platforms, establishing mechanisms for bidirectional referrals and consultations within their systems, and channeling a portion of the resulting prescriptions to online e-commerce channels.

3. Strategic Layout for Chronic Disease and Rehabilitation Management: Given that Scenario 1 is the core focus, consideration should be given to developing chronic disease management solutions. The development strategy should target a physician-facing chronic disease management system, aiming to achieve clinical validation and inclusion in medical insurance coverage. Failing that, the goal would be to gain physician endorsement and facilitate promotion, thereby driving more B2C patients into Scenario 1.

4. Consider investment in physical pharmacies as part of the offline strategy, for several reasons: 1) They serve as the O2O fulfillment channel for the e-commerce operations mentioned in point 1; 2) With the support of remote pharmacists and telemedicine services, pharmacies are evolving into integrated pharmacy-clinic hubs, which can act as B2B2C traffic entry points as described in point 2; 3) Pharmacies will increasingly take on the responsibilities of accommodating prescription outflows, facilitating chain consolidation, and supporting tiered diagnosis and treatment systems.

5. Three key areas of support that can either be developed internally to form core competencies or pursued through partnerships:

1) Delivery speeds for both B2C e-commerce and O2O models must be significantly enhanced to establish rigid demand. Companies with logistics resources will find it easier to achieve this; increasing speed requires a greater number of pharmaceutical warehouses. Currently, it appears that implementing this is more challenging for B2C than for O2O, thus O2O retains an advantage in rapid delivery.

2) How can rapid testing be implemented? Since we aim to generate prescriptions through multi-scenario diagnostics, and online diagnosis—except for follow-up visits and chronic disease management—primarily hinges on the ability to conduct laboratory tests, WeDoctor Group is currently leveraging an integrated portable testing device to handle certain parameters, such as blood pressure, blood glucose, urinalysis, skin examination, throat examination, and electrocardiogram (ECG). However, complete blood count (CBC) testing, due to its numerous parameters, has become a bottleneck in the development of telemedicine. In the future, several options are available: first, continue to strengthen the development and application of portable point-of-care testing (POCT) devices; second, enhance collaboration with third-party laboratory testing institutions; third, engage specialized organizations to undertake rapid sample collection at primary care facilities, pharmacies, or even via home visits, send samples to third-party laboratories for testing, and transmit results back online.

3) The construction and interoperability of electronic medical record (EMR) systems. The service quality and user experience of telemedicine largely depend on the application of EMRs and their integration with hospital-side EMR systems. If profitability does not lie in the system infrastructure itself, consider developing a free EMR system to attract a larger base of users and hospitals.

6. In the medium to long term, consideration can be given to building big data analytics systems, healthcare cost containment systems, and anti-fraud systems for local medical insurance agencies, similar to the current work of Guoxin Health and Ping An Medical Insurance. Additionally, strategic investments can be made in AI-related technologies, such as clinical decision support systems and AI-based medical imaging. Smart hospital initiatives are also a hot spot; leveraging IoT solutions may offer significant value in improving the quality and efficiency of hospital management.

The above examples illustrate the integration of internet healthcare with offline innovations. Although the state is currently piloting B2C models for enterprise-run internet hospitals,It is believed that the telemedicine system composed of physical Grade-A tertiary hospitals and medical consortia will remain a key focus of national development in the future. Once such a system is established, the integration of online and offline services, access to expert resources, and brand credibility will make it more competitive than standalone internet-based models. In this context, under the layout of medical consortium-based telemedicine, internet companies will primarily generate profits through auxiliary businesses, namely the construction of information systems and pharmaceutical e-commerce. At that time, the main force of internet healthcare will continue to be driven by the public-sector-dominated system. The core application of future telemedicine will still lie in further promoting tiered diagnosis and treatment using existing public healthcare resources.。

In the long run, as stronger bargaining power is established on the payment side, the entire healthcare system will gradually return to its core essence. Centered on patient needs, the system will increasingly encourage cost-effective and efficacious products that can substantively manage diseases. This also includes innovative medical service offerings, which may give rise to new service types or forms of healthcare institutions. Particular emphasis will be placed on areas that were previously difficult to implement, such as chronic disease management, health management, mental and psychological care, and nursing and rehabilitation services. Additionally, this encompasses innovative medical devices (products with relatively high customization and interactivity used in treatment or screening processes) and innovative diagnostic and laboratory testing products.

The core question to consider for various types of projects is:

1. Is there a payer? (Medical insurance, commercial insurance, employers)

Second, do all participants have the motivation? (Patients, hospitals, physicians, payers, government)

China’s healthcare system reform has adopted an evolution path dominated by government-led supply. During the adjustment process, the industry has exhibited a distorted status quo characterized by “dominant public hospitals, weak health insurance, and subordinate medical products.” The entire system and resources remain firmly controlled by government-led stakeholders, including “regulatory authorities, public institutions with established staffing quotas, medical schools, public hospitals, and health insurance agencies,” leaving very limited room for market participation. Looking ahead, China’s healthcare industry remains a widely recognized blue ocean with substantial room for improvement. Where there is room for growth, there is change; where there is change, there are opportunities.

Since 2009, the three main trend lines targeting “pharmaceuticals–medical services–health insurance,” which have been repeatedly refined through the new healthcare reform, have become increasingly clear. If the main theme of healthcare in the past was “Pharmaceuticals, Equipment, Expansion”, then the main theme for the next decade will be “Control Costs, Improve Efficiency, Reduce Expenses”. They will create new opportunities, but it remains unclear how much of this space will be left to the market and how much will be addressed by government agencies.

Author:Liu Mochao, Deputy General Manager of Capital Medical Aiyuhua Women’s and Children’s Hospital. VCBeat has made additions and deletions without altering the author’s original intent; the views expressed in this article represent solely those of the author.