Why Managed Care's Spring Is Coming, Replicating U.S.-Style PBM Is a False Proposition, and DRG Will Drive Healthcare Reform? [VB100 Insights]

On December 18, the “2018 Top 100 Future Healthcare” Forum, hosted by VCBeat, Eggshell Research Institute, and Future Healthcare Academy, and co-hosted by Legend Capital, BV Baidu Venture Capital, KPMG China, and Health Intelligence Valley, grandly opened at the Renaissance Beijing Capital Hotel. As an annual flagship event organized by VCBeat, it fostered active collaboration among innovative healthcare institutions and guests, with attendance exceeding 2,500 participants.

The conference featured a parallel forum on innovative health insurance, where prominent industry experts discussed hot topics related to public medical insurance and commercial health insurance.

Within the public sector, the establishment of the National Healthcare Security Administration has ushered in the era of “Super Medical Insurance” for healthcare fund management. By fully leveraging the payment adjustment function of the “purse strings,” reforms in healthcare payment methods have been implemented, exerting a profound impact on the industry.

Outside the public system, driven by the introduction of several favorable policies, heightened insurance awareness among residents, and increased consumer spending power, commercial health insurance has become the fastest-growing segment in the insurance industry over the past few years.

However, it should also be noted that the reform of medical payment methods faces numerous challenges, and systematic development remains a long-term endeavor. Health insurance suffers from low penetration rates, a small market scale, and an unbalanced product structure. Service capabilities are also relatively inadequate, as evidenced by weak cost containment abilities and insufficient provision of health management services.

Opportunities and Challenges Coexist: What Lies at the Core of Future Health Insurance Reforms, and How Can Commercial Insurance Break Through Layered Barriers? Guests Share Their Insights and Answers.

Guests and Topics of the Sub-forum:

Hao Chunpeng, Deputy Secretary-General of the China Health Insurance Research Association

Topic: Improving the Construction of the Medical Insurance System to Boost Innovation in the Health Industry

Liu Chang, Asia-Pacific Director of i-SOCIAL

Innovation Trends and Challenges in China’s Commercial Health Insurance Sector

Wu Yiyu, Deputy General Manager of ZhongAn Technology

Building an HMO with Chinese Characteristics Through Fintech

Shi Mengmeng, General Manager of Medtronic China

Subject: PBM Localization to Boost the Development of Health Insurance

Yang Zhe, CEO of Daxiang Insurance

Title: Customized Development of Insurance Products Based on Big Data Analysis and Artificial Intelligence

Huolong Huo, Chairman of Jindou Data

The Transformation of Healthcare Payments Driven by Technology

This article is compiled from the guest’s sharing, with edits and abridgments. The main text follows.

Topic: Improving the Construction of the Medical Insurance System to Boost Innovation in the Health Industry

Hao Chunpeng, Deputy Secretary-General of the China Healthcare Security Association

Let us first review the evolution of medical insurance system reform. The pilot program in Zhenjiang and Jiujiang was launched in 1994. In 1998, the Decision on Establishing the Basic Medical Insurance System for Urban Employees was issued. In 1999, reforms were advanced simultaneously in two key areas. Full-scale implementation commenced in 2000. The New Rural Cooperative Medical Scheme was initiated in 2003. This progression continued until 2018, when the National Healthcare Security Administration was established, strengthening the governance framework and ushering in a new chapter for the development of the medical insurance system.

Over the past two decades, China has established a multi-tiered healthcare security system primarily composed of Basic Medical Insurance for Employees and Basic Medical Insurance for Urban and Rural Residents. In addition, the system includes civil servant subsidies, enterprise supplementary insurance, coverage for special populations, and commercial health insurance.

In terms of coverage, the combined number of enrollees in Basic Medical Insurance and the New Rural Cooperative Medical Scheme totaled 1.35 billion, constituting the world’s largest medical security network. The scale of insurance funds has also been growing steadily; in 2017, the annual revenue of urban basic medical insurance funds reached RMB 1.7932 trillion, with expenditures amounting to RMB 1.4422 trillion.

Benefit levels have continued to rise. For employee basic medical insurance, the average annual contribution per active employee is RMB 5,240, with the fund reimbursement rate for inpatient expenses within the policy scope reaching 81.7%. For resident basic medical insurance, the average per capita funding is RMB 605, including fiscal subsidies at all levels totaling RMB 439. The fund reimbursement rate for inpatient expenses within the policy scope at secondary and lower-tier medical institutions has reached 71.0%.

The Report to the 19th National Congress of the Communist Party of China also put forward new requirements for our entire social security system, including medical security. It emphasized that we must ensure and improve people’s livelihoods in the course of development, by securing basic needs, weaving a dense safety net, and establishing robust mechanisms. The goal is to fully build a multi-tiered social security system that covers all citizens, integrates urban and rural areas, features clear rights and responsibilities, provides appropriate levels of protection, and is sustainable. This includes the full implementation of the universal participation plan, improving the unified basic medical insurance system and critical illness insurance system for urban and rural residents, and establishing a nationally unified public service platform for social insurance.

In the pharmaceutical sector, adjustments to the reimbursement scope have supported innovation within the industry. The 2017 update of the National Reimbursement Drug List (NRDL) prioritized new drugs with significant technological innovation value and those backed by evidence-based medicine demonstrating clear therapeutic efficacy and advantages in specific indications. Of the 44 drugs included in price negotiations, 36 were successfully negotiated. In 2018, 18 oncology drugs participated in NRDL price negotiations, with 17 achieving successful outcomes. This mechanism will continue in the future, establishing a dynamic adjustment framework for the drug list.

In the future, commercial health insurance will also play a significant role. For instance, multi-tiered system planning helps define the positioning of commercial insurance; the gradual expansion of coverage scope and benefit levels stimulates innovation in commercial insurance; supply-side reforms in healthcare enhance the influence of commercial insurers; the “strategic purchasing” mechanism serves as a model for commercial insurance; the procurement of commercial insurance services promotes the integrated development of basic medical insurance and commercial insurance; and the application of new technologies drives technological advancements in the commercial insurance sector.

Certainly, there are still some shortcomings and obstacles, such as insufficient total supply of medical services, structural imbalances, a long-standing seller’s market, and inadequate bargaining power on the part of buyers. Insufficient standardization of medical services has led to unnecessary medical expenditures crowding out room for the development of new drugs and technologies. The positioning of commercial health insurance remains unclear, with an ambiguous direction for industry development, failing to provide robust supplementation to basic medical insurance.

The future direction is to advance supply-side reform of the pharmaceutical and healthcare services market, leverage the decisive role of the market in allocating medical resources, utilize the “strategic purchasing” mechanism, and promote complementarity and coordination within a multi-tiered medical security system.

Topic: Innovation Trends and Challenges in China's Commercial Health Insurance

Liu Chang, Director of Asia-Pacific Region at iShengkang

The presentation is divided into five parts, covering: challenges facing healthcare service delivery and coverage systems in the Asia-Pacific region; the current status and opportunities for commercial health insurance in China; highlights and illustrative models of innovation in China’s commercial health insurance sector; future development trends and challenges for commercial health insurance; and an introduction to iShukang and the Fudan Health Finance Research Lab.

First, regarding the challenges: one is population aging, which will bring healthcare service demands different from those in the past, requiring adjustments on the supply side; two is the pressure already faced by the healthcare system, with overcrowding and structural imbalances that fail to meet demand; three is the relatively low level of funding, with even lower health insurance coverage, leaving significant room for improvement.

Current Status of Commercial Health Insurance in ChinaWe begin by examining the policy landscape, which is extensive. Key policies include the "Several Opinions on Accelerating the Development of Commercial Health Insurance." This year, the National Healthcare Security Administration and the China Banking and Insurance Regulatory Commission were officially established. These developments have created a new framework for the multi-tiered medical security system, effectively addressing issues such as the fragmentation of medical security policies and inefficient coordination among various levels within the medical insurance system.

Commercial health insurance actually serves as a central hub, closely interconnected with various stakeholders in the industry. For social security systems, it leverages the advantages of commercial health insurance to meet people’s multi-level and diversified health protection needs. For healthcare institutions, it fulfills a payment function, improving the medical experience, fostering harmonious doctor-patient relationships, and enhancing the accessibility of medical services. For pharmaceutical companies, it drives increased sales of specialty drugs and creates demand for patient medication management (including efficacy tracking and patient behavior monitoring). Naturally, this also requires support from health insurtech companies.

In recent years, the share of commercial health insurance in China’s total health expenditure has continued to rise, from 1.86% in 2015, to 2.2% in 2016, and jumping to 2.51% in 2017. By product type, critical illness insurance and medical insurance dominate, while long-term care insurance has developed very slowly, and disability income insurance is virtually nonexistent, reflecting an imbalance in the structure of the health insurance market.

Below are some highlights and models of innovation in China’s commercial health insurance sector, beginning with the coordination between commercial health insurance and basic medical insurance:1. Administration of Basic Medical Insurance: In 2017, commercial insurance institutions newly managed funds totaling RMB 26.538 billion, covering 489 million people. Cumulatively, they disbursed RMB 63.211 billion in claims and compensations for 46.9017 million beneficiaries.2. Provision of Critical Illness Insurance: By the end of 2017, critical illness insurance had achieved comprehensive coverage. Commercial insurance institutions operated critical illness insurance programs in 31 provinces, autonomous regions, and municipalities directly under the central government, covering a population of 1.08 billion, with total premiums reaching RMB 39.6 billion.3. Information Interconnectivity: China has established an information platform for policy registration and management, as well as a commercial health insurance information platform. Meanwhile, insurance companies have developed specialized health insurance business systems tailored to their operational needs, yielding significant progress in informatization.

More non-traditional players are entering the commercial health insurance sector, bringing in a diverse array of “new” insurance entities, including internet insurance companies, insurance brokerage firms, insurtech companies, tech giants such as BAT (Baidu, Alibaba, and Tencent), big data companies, pharmaceutical distribution platforms, and healthcare service groups. Meanwhile, there is also a wide variety of upstream and downstream partners, such as insurance brokers, insurtech firms, medical big data companies, third-party platforms like patient communities, pharmaceutical distribution platforms, healthcare service groups, pharmaceutical companies, health management companies, and technology firms.

Of course, the new model also encompasses data connectivity and cost containment. Currently, insurance institutions and third-party medical fintech platforms are leveraging fintech solutions—such as big data, artificial intelligence, cloud computing, and blockchain—to build interconnected platforms linking commercial health insurers with hospitals. By enabling efficient connectivity and effective collaboration among all stakeholders in healthcare services, they are continuously cultivating a new ecosystem that is precise, rational, and convenient.

It also enables automated operations for commercial insurance claims and online settlement and payment for both social health insurance and commercial insurance, thereby optimizing the patient experience and reducing the operational burden on insurers. By overcoming the limitations of traditional ex-post underwriting and claims processing, it facilitates involvement in the design and operation of diagnostic and treatment protocols for various diseases at pre-event and intra-event stages, achieving effective cost containment.

Furthermore, innovation in insurance products enables service to a broader population through the innovative development of offerings tailored to individuals who are already ill, those requiring treatment, and those at risk of developing diseases. The operational mechanism is also entirely new, featuring pilot initiatives for chronic disease management that encourage proactive personal health management. This approach fosters cross-sector integration between health management services and insurance coverage, adopting a "pay-for-performance" philosophy to alleviate financial concerns and bolster patient confidence. It provides insurance compensation for patients who fail to achieve a cure after completing their medication regimen. Combined with early screening, this model facilitates precise underwriting, allowing individuals to select products based on factors such as gender, age, living environment, dietary habits, and specific areas of physical discomfort. While critical illness insurance typically provides coverage for a specified term, single-disease health insurance offers lifetime coverage.

In terms of the future development trends of commercial health insurance, there are four directions. First, it will break away from traditional business models, including those of traditional life and property insurance lines, and form an ecosystem linkage with various stakeholders in the healthcare sector. Second, it will assist the government in advancing healthcare reform by actively cooperating with relevant government departments, participating in the reform of the medical system, better achieving cost containment within the basic medical insurance framework, and optimizing the patient care experience.

Third, integrate upstream and downstream information and data by establishing comprehensive connections in data, systems, and customers with hospitals, pharmaceutical companies, and health service providers to foster collaborative development. This aims to enhance customer experience, alleviate doctor-patient tensions, optimize insurance actuarial practices and product design, control healthcare costs, and improve the quality of medical care. Fourth, actively promote cooperation with high-tech enterprises and integrate innovative advanced technologies to vigorously advance chronic disease management, early screening, and intelligent assisted diagnosis, thereby achieving leapfrog development.

Innovation also faces challenges, such as integration with social health insurance, scaling and risk pool establishment, real-time data connectivity, and the demonstration of genuine cost-control effectiveness.

Topic: Building an HMO with Chinese Characteristics Using Fintech

Wu Yiyu, Deputy General Manager of ZhongAn Technology

First, let us introduce what an HMO is. The full name is Health Maintenance Organization (HMO). Its core characteristic, driven by the need for cost control, is the integration of insurance institutions and healthcare providers, featuring a strict stepwise referral system from general practitioners to specialists, with an emphasis on prevention and a comprehensive closed-loop health management system. It comprises three key elements: comprehensive insurance, a prepaid payment system, and a healthcare organization capable of ensuring high-quality service delivery.

HMOs in the United States are relatively mature and have developed year by year. In 1988, traditional insurance models accounted for 73%, while HMOs accounted for 27%. By 2007, HMOs had risen to 92%.

Why We Say HMOs Are Imperative in China: In the past, China’s basic medical insurance achieved broad coverage, while public healthcare institutions developed independently. These institutions held an overwhelmingly dominant position in the healthcare market, with revenue maximization as their primary objective. This environment led to uneven distribution of medical resources, weak primary care capabilities, a shortage of general practitioners, inadequate informatization in healthcare facilities, and information silos in medical data.

This has placed significant pressure on China’s national basic medical insurance funds. In response, the state is encouraging the development of commercial health insurance, while the government is increasingly prioritizing comprehensive improvements in healthcare quality and health management. The growth of internet hospitals and the health management sector has cultivated a substantial pool of professional talent. Meanwhile, the rise of fintech companies has served as a natural bridge connecting healthcare providers with commercial insurers. As of May 2018, there were 12,145 public hospitals and 19,461 private hospitals in China. The high level of acceptance of commercial insurance among private hospitals has accelerated the deep integration of healthcare and commercial insurance.

Years of practical experience have progressively laid the foundation for managed care. By leveraging data pipelines and standardized processing, we are accelerating the deep integration of healthcare and commercial insurance. This is reflected in several key areas: establishing seamless medical information channels between healthcare institutions and commercial insurers to break down information barriers; providing structured and standardized medical information services to enhance data governance capabilities; reducing operational costs and improving efficiency for commercial insurers while elevating the customer experience; and fostering the deep convergence of healthcare, insurance, and technology.

Breaking down medical data silos is an urgent imperative that benefits hospitals, insurance companies, and patients alike. Hospitals can attract high-quality commercial insurance clients, optimize their patient mix, alleviate operational pressure at service counters, improve operational efficiency, and enhance their social influence and patient satisfaction. Commercial insurers, through direct online integration with medical data, can improve the accuracy of claims information, reduce data collection costs (such as manual digitization and adjustment), enable rapid claim settlements, and boost customer satisfaction. Patients are spared the hassle of compiling paper documents, enjoy faster claim reimbursements, experience reduced financial burden, avoid losses from lost or missing invoices, and minimize overall inconvenience.

Data interoperability is also a core function of ZhongAn Technology, which provides comprehensive coverage of the health and medical data required by commercial insurance. Currently, ZhongAn Technology has connected with over 700 hospitals across China and three regional health information platforms. Its health examination platform covers more than 90% of private check-up institutions, while integration with public hospital check-up systems is underway.

ZhongAn Technology leverages big data analytics to develop scenario-based medical insurance solutions, enhancing comprehensive coverage for patients through the integration of social health insurance and commercial insurance, while simultaneously reducing doctor-patient disputes. It provides insurers with services including data collection, modeling and analysis, product design, and pricing model support. Insurers, in turn, design insurance products for hospitals, handling underwriting, policy administration, customer service, and claims settlement. Hospitals conduct needs assessments, review historical data, evaluate cost requirements, and perform volume forecasting.

Zhongan Technology has also developed a data visualization management system for medical institutions. This system enables real-time monitoring of overall hospital traffic via the hospital command center dashboard and provides analysis of outpatient, emergency, and inpatient information—including patient demographics, bed utilization, revenue, costs, service quality, drug regulation, high-incidence and critical diseases, and infectious diseases—thereby facilitating refined hospital management. Department managers can monitor their department’s resource load through large medical data screens, while real-time surgical status dashboards visualize surgical progress, keeping patients and their families informed throughout the procedure. Additionally, the rational cost-control system identifies abuse and fraud, the risk control engine visualizes risk alerts, and AI-powered healthcare solutions support clinical decision-making and scientific research.

The closed-loop ecosystem of managed care has been initially established. We believe that the spring of managed care is imminent, as it: first, effectively alleviates the pressure on medical insurance and gradually achieves cost containment in healthcare; second, channels high-net-worth clients to optimize the patient structure of medical institutions; third, establishes a managed care system integrating prevention, treatment, rehabilitation, and commercial insurance payment; and fourth, realizes a win-win mechanism for patients, hospitals, commercial insurers, and society.

This also depends on further improvements in the environment, such as clarifying policies for the interoperability and sharing of healthcare data, encouraging innovation among data- and technology-driven companies, strengthening supply-side capabilities, and significantly enhancing the contribution of commercial insurance to the social security system.

Topic: Localizing PBM to Boost the Development of Health Insurance

Shi Mengmeng, General Manager of Medtronic China

First, let us introduce PBM. Pharmacy Benefit Management (PBM) is a management and coordination entity situated among insurance providers, hospitals, pharmacies, and pharmaceutical manufacturers. It enhances clinical outcomes, optimizes medication costs, and improves operational efficiency.

PBMs have a wide range of core responsibilities. For instance, PBMs establish retail pharmacy networks, allowing insured members to enjoy discounts when purchasing medications at designated pharmacies. For patients with chronic conditions, whose prescriptions tend to remain relatively stable, PBMs offer mail-order pharmacy services that deliver prescription medications directly to patients’ homes without requiring face-to-face consultations with pharmacists. Additionally, PBMs develop formularies for reimbursable drugs through committees composed of independent physicians, pharmacists, and other clinical experts, thereby encouraging the use of medications that are clinically necessary, appropriate, and cost-effective.

and by consolidating all purchasing power, PBMs negotiate substantial discounts with pharmaceutical manufacturers, thereby reducing welfare costs for clients and consumers; they also keep abreast of and update FDA drug information in a timely manner to provide users with the latest medication counseling. PBMs employ various tools, such as drug utilization review, disease management, prior authorization (PA) reviews, and step therapy, to standardize physicians’ clinical practices and encourage the adoption of the most cost-effective clinical treatment regimens.

PBMs provide insurance companies with consulting services for insurance product design. When physicians issue prescriptions, the PBM engine recommends the safest, most effective, and most cost-efficient medication regimens to physicians through a unified e-prescribing platform. Direct insurance billing is achieved through system configurations and engines within insurance products, supplemented by necessary manual intervention.

MedImpact is the largest independent pharmacy benefit manager (PBM) in the United States and the only global PBM. Founded in 1989 by pharmacists and other healthcare professionals, MedImpact is the largest privately held PBM that does not sell any pharmaceutical products. Eight of the top ten insurance companies in the U.S. have chosen MedImpact as their pharmacy benefit manager. The company serves over 50 million insured members, manages $18 billion in prescription drug expenditures, and processes more than 400 million claims reviews annually.

In 2011, Medidata began preparing to enter the Chinese market. Over the following three years, it established a comprehensive database covering diagnoses, prescriptions, and data on more than 170,000 pharmaceutical products. Meanwhile, it collaborated with insurance companies, healthcare institutions, and dental clinics to explore and pilot its Pharmacy Benefit Management (PBM) services.

Currently, Meideyi’s business operations in China primarily consist of four segments: hospital-based rational and compliant healthcare solutions, dental benefit solutions, localized PBM services, and one-stop pharmacy benefit services for Chinese nationals overseas. Among these, the localized PBM services mainly encompass modules such as cost containment, quality and safety oversight, and reporting and analytics.

Below is a case study illustrating Medex’s exploration in FWA (Fraud, Waste, and Abuse) review. The purpose of early warning is to identify prescriptions that exceed the dosage limits stipulated by medical insurance regulations or fall outside the scope of reasonable use. Based on these findings, claims are flagged as either violations of medical insurance policies or as suspicious cases of fraud, waste, or abuse. Judgments are made based on factors such as drug name, specification, prescription quantity, and dosage instructions.

The other is prior authorization review, a refined audit process for applications involving high-cost, high-toxicity/side-effect, or controlled pharmaceuticals and medical devices. The core of the review involves evaluating detailed patient information—including diagnosis, medication history, physical condition, and test results—to determine whether to approve the application, while providing specific guidance or reasons for denial.

After years of exploration, Meideyi has emerged as a pioneer in localized PBM services, covering pharmacy network management, formulary development and prior authorization review, medication appropriateness, FWA (fraud, waste, and abuse) prevention, insurance rule audits, and support for health management.

Topic: Customized Development of Insurance Products Based on Big Data Analysis and Artificial Intelligence

Yang Zhe, CEO of Daxiang Insurance

Here is a brief introduction to Daxiang Insurance. Positioned as an internet insurance advisory platform driven by big data and artificial intelligence, Daxiang Insurance envisions making peace of mind accessible to all. By leveraging “insurtech services,” Daxiang Insurance provides comprehensive, family-centric insurance protection solutions for China’s middle-class users.

Daxiang Insurance possesses proprietary big data models and the technical capability for rapid implementation. Its insurance product teams are composed of professionals from leading traditional insurance companies in the industry, bringing extensive experience in insurance products, in-depth expertise in internet business research and operations, and strong capabilities in insurance business innovation.

Let us now review the development of internet insurance and the chaotic phenomena within the industry: It began to take root in 1997, when the first professional Chinese website catering to the insurance market and the internal information management needs of insurance companies—the Internet Insurance Company Information Network—was launched at the end of that year. In 2012, the sector entered a phase of comprehensive development. During this period, various insurance enterprises conducted internet-based businesses through multiple channels, including official trust websites, insurance supermarkets, web portals, offline business platforms, and third-party e-commerce platforms, gradually exploring management models for internet insurance operations.

2015–2017 marked a period of comprehensive expansion, during which the untapped potential of mobile business development sparked a new wave of growth in internet insurance. This phase centered on conducting comprehensive insurance operations via mobile devices, encompassing product sales, premium payments, mobile marketing, and customer maintenance services. However, this period also witnessed significant market irregularities: wealth-management-oriented products, driven by promises of high commissions, deviated from the fundamental protective nature of insurance. Internet insurance essentially became a tool for agents, characterized by large-scale offline-to-online traffic redirection, illicit traffic siphoning, and traffic swapping, resulting in overall market chaos.

By 2018, the internet insurance industry had entered a phase of stable development. Following a series of stringent regulatory measures and policy adjustments, chaotic practices within the sector were effectively curbed. Business models that previously relied on extensive, offline operations gradually transitioned toward refined and standardized management. Companies that weathered this wave by focusing on compliant innovation in industrial model applications gained greater room for growth. However, unresolved issues remain, including the complex and fragmented policies governing agent platforms. Furthermore, platform-led cashback and discount campaigns have intensified unhealthy competition, trapping the industry in a vicious cycle of subsidizing customer acquisition.

Internet health insurance welcomes a new “surge window,” as premiums for the largest online life insurance product and the second-largest annuity insurance product both declined year-on-year, while health insurance premiums surged by 85.9%.

Let’s also introduce some of Daxiang Insurance’s practices. First, Daxiang has a B2C product system, featuring a consumer-facing product matrix: a multi-dimensional product portfolio that comprehensively serves online users, enabling efficient and personalized access to insurance coverage; it integrates the entire online insurance product library, offering users objective and neutral product recommendations, comparisons, and customization services; and adopts a content-driven approach, leveraging insurance education, reviews, and guides to drive insurance services, thereby building user reputation and stickiness.

Furthermore, technology has been leveraged to empower insurance services. In 2016, an AI & Big Data Laboratory was established, leading to the deployment of a series of application products in areas such as actuarial model optimization, big data-based risk control, intelligent customer service, smart underwriting, and precision marketing. This has resulted in a distinctive set of insurtech capabilities and a comprehensive product ecosystem.

and the creation of a comprehensive health ecosystem integrating “healthcare + insurance services.” Leveraging medical big data and deeply integrating with healthcare scenarios, we customize and develop health insurance products, medical liability insurance products, and related services tailored to specific populations and scenarios, thereby deepening the industrial chain of the comprehensive health ecosystem.

We are also witnessing new opportunities, such as insurance-enabled hospitals and pharmacies. In recent years, with the deepening penetration of internet technologies in the insurance sector, health insurance has experienced rapid growth. In the first nine months of 2018 alone, health insurance premiums exceeded RMB 400 billion, giving rise to numerous new business scenarios and opportunities that integrate insurance with pharmaceuticals. By building an integrated health ecosystem, medical care, health management, and elderly care services act as service providers. While the overall growth rate of over-the-counter (OTC) drugs has slowed, value-added service platforms based on pharmaceutical retail scenarios can introduce insurance services through joint scenario innovation, thereby driving incremental business for pharmacies.

Big Data and New Retail Empower the Industry, Raising the Business Ceiling. The Elephant Smart Pharmacy Management Platform is an integrated operational management system that combines drug procurement, sales, inventory, statistical analysis, and marketing management. It leverages big data for precision marketing, enhances user stickiness, increases average transaction value, and deeply explores the commercial value within the broader health sector.

Daxiang Insurance also collaborates with insurance companies to drive customized product innovation. Examples include the first insurance product covering hepatitis C medications—“Gan Yu Bao”; the first insurance for intensive diabetes treatment—“Intensive Diabetes Treatment Allowance Insurance”; as well as insurance for expired medications, medication reimbursement, and medication safety.

Topic: Technology-Driven Transformation in Healthcare Payments

Huo Lilong, Chairman of Jindou Data

# Technological Drivers of Transformation in Healthcare PaymentLet us begin by analyzing the macroeconomic environment to examine the evolutionary trends in healthcare payment policies and the social landscape: a shift from fragmented multi-payer systems to the integration of three basic medical insurance schemes; a transition from retrospective payment models to prospective payment systems; and an expansion of coverage from essential care to consumer-driven healthcare services.

In the healthcare payment industry chain, the primary issue to address is the source of funds—namely, national health insurance, out-of-pocket payments by patients, and commercial insurance. The next consideration is the payment mechanism—whether fee-for-service or bundled payment. Indirectly, this also involves determining whether payment should be made at all, taking into account factors such as fraud, medical quality, and safety.

Payment Reform Drives Healthcare System Transformation. Previously, hospitals served as the dominant providers with a strong core position, while health insurance acted as the primary payer. In the future, the National Health and Family Planning Commission will establish clinical standards and oversee regulation; pharmaceutical and medical device manufacturers will become product suppliers, and patients will transition into users.

Changes in payment methods have had a significant impact on hospital management. Prior to 2014, the retrospective payment system was in place, with the care process as follows: patient consultation → admission → physician diagnosis → medical record archiving → discharge payment/commercial insurance reimbursement. From 2014 to 2020, the prospective payment system was adopted, with the care process as follows: patient consultation → admission → physician diagnosis/medical record grouping → discharge payment/commercial insurance reimbursement. With the reform of payment methods, the healthcare delivery process will also undergo corresponding changes.

The impact of payment method reforms on hospital management is also reflected in revenue. In the past, hospitals relied on "drug markups to subsidize medical services." Due to inadequate compensation for medical services, government-set pricing for service fees, and the absence of clear application and management mechanisms for the use of pharmaceuticals and high-value medical consumables, hospitals were incentivized to induce consumption, prescribe excessively, overuse high-value consumables, and order unnecessary tests and examinations, thereby generating higher revenue.

Following the reform of payment methods, with reimbursement pricing based on DRG costs and clinical practice standardized according to clinical pathways, hospitals must implement refined cost accounting and performance evaluation. This is essential to enhance operational efficiency, thereby boosting competitiveness and profitability.

Changes in payment methods also impact the management of health commissions, such as standardizing medical record front page documentation, disease classification coding, surgical procedure coding, and medical terminology.

Accordingly, payment reform also brings changes for payers themselves, requiring the integration of macro- and micro-level perspectives, the alignment of medical service delivery with costs, the linkage of healthcare quality with medical expenditures, the combination of online and offline services, and the coordination between basic medical insurance and commercial health insurance.

integration, etc.

With the establishment of the National Healthcare Security Administration, China has entered the era of “Big Medical Insurance,” which presents both opportunities and challenges. The core policy shift involves the consolidation of four key powers into a single authority, positioning the National Healthcare Security Administration as the largest healthcare payer. The opportunities lie in the increasingly comprehensive and diverse functions of medical insurance; the universal health insurance system not only pools disease-related risks across the population but also influences the allocation of healthcare resources, improves health system performance, and promotes population health. The challenges center on addressing fraud, waste, inappropriate expenditures, and inefficiencies within the medical insurance fund.

There are numerous cases of healthcare payment reform. Here, we examine Sanming’s exploratory efforts: Since 2012, Sanming City has implemented comprehensive reforms centered on the “Three-Medical Linkage,” integrating pharmaceuticals, medical insurance, and healthcare services. First, it streamlined the leadership structure by centralizing unified management across the domains of healthcare delivery, medical insurance, and pharmaceuticals, thereby breaking away from fragmented multi-agency oversight and achieving genuine coordination among the three sectors through institutional and mechanistic innovations.

The integration of the “Three Insurances” (basic medical insurance for urban employees, basic medical insurance for urban residents, and the New Rural Cooperative Medical Scheme), the establishment of the Healthcare Security Administration, and the strengthening of its regulatory functions. Sanming became one of the first national demonstration cities for comprehensive reform of public hospitals. It reported on its progress at the 21st meeting of the Central Leading Group for Comprehensively Deepening Reforms and received full affirmation at the 27th and 33rd meetings of the group.

Healthcare payment reform is a progressive process. The first stage involves fee-for-service payment; stages two, three, and four gradually explore and implement various forms of bundled payments, such as capitation, per-hospitalization-unit payment, and per-hospital-bed-day payment, starting from simple single-disease conditions.

Payment transitioned to complex single-disease payment; it was not until the fifth stage that it truly shifted to DRG-based payment.

The issues that need to be addressed in the reform of healthcare payment methods include standardization of medical data, localization of payment standards, controllability of healthcare quality, normalization of clinical management, and rationalization of medical practices. Among these, the core responsibilities of Diagnosis-Related Groups (DRG) are the standardization of medical coding and healthcare services.

DRG is inherently a standardized tool. Within the same DRG group, clinical processes (including disease diagnosis, treatment procedures, and individual patient characteristics) are similar, and resource consumption is comparable, ensuring good comparability among cases in the same group. Across different DRG groups, varying “weights” are applied to perform “risk adjustment,” enabling reasonable comparisons between cases in different groups. In summary, the essence of “homogenization” combined with “risk adjustment” endows DRG with “scientific rigor” and “fairness.”

Jindou Data’s business focus is also centered on the reform of healthcare payment methods. As one of the earliest teams in China to specialize in medical big data technology and accumulate industry expertise, Jindou boasts ten years of experience in medical data analysis and the research and development of disease coding application and conversion products, as well as eight years of experience in product R&D for health insurance cost containment and payment method reform. The company has accumulated more than 120 data analysis models and related algorithms, and has filed patents for certain core technologies.

The Jindou Coding Conversion System standardizes medical coding and aligns with national standards. It is currently the only product on the market capable of one-click conversion across 12 versions of disease diagnosis and procedure codes. Additionally, the DRG Performance Evaluation System provides a scientific and comprehensive performance evaluation framework. It standardizes metrics for case (DRG group) assessment, fully accounting for clinical practice and resource utilization, thereby enabling horizontal comparisons across different cases to reasonably evaluate healthcare output.

Performance analysis results can also be presented to hospital leadership in chart form, providing an intuitive and clear basis for managerial decision-making. The analytical dimensions primarily cover Major Diagnosis Categories (MDC), composite performance indices for departments and physicians, medical service capacity, medical service efficiency, case volume, health insurance profitability, and surgical grading. Performance operational evaluations of assessment units are conducted from the perspectives of medical professionalism and specialty development, thereby informing management decisions and resource allocation.

Jindou features an independent surgical classification system that reflects real-world clinical practice, thereby enabling the evaluation of surgical capabilities across medical institutions, clinical departments, and individual physicians. Surgeries are categorized into four levels, with the proportion of Level 3 and Level 4 procedures performed by a hospital serving as an indicator of its surgical proficiency.

It also includes a DRG cost analysis system. Annually, it co-hosts national training workshops on medical service pricing and cost monitoring with the Health Development Research Center of the National Health and Family Planning Commission, covering more than 1,300 medical institutions across China, 70% of which are tertiary hospitals. Jindou is also exploring applications of big data in commercial health insurance, such as underwriting, coverage, claims processing, and cross-selling.