Entering the Era of 'Wild Growth': The Future Trajectory of Medical Groups in China

By Huang Fanzhi

Good morning, everyone! Fenxiang Investment is a typical domestic venture capital firm. We are currently the sole investor in Dr. Zhang Qiang’s Doctor Group and have recently invested in an imaging physician group. As one of the earliest investors in physician groups in China, we have been closely monitoring the development of this sector.

My primary purpose in being here today is to learn from all of you. At the same time, at the invitation of the organizers, I would like to share some insights on how investors view the development of physician groups.

Let us first review how physician groups have evolved. In fact, by summarizing the key pain points in healthcare services—issues that are likely familiar to everyone—we can identify several critical challenges. Primarily, due to certain systemic flaws within our healthcare framework, difficulties such as limited access to medical care and high costs have long plagued the general public.

It is precisely because there are pain points that there is demand. How can this demand be addressed? First, we must recognize that physicians themselves are the most core productive force and the most essential factor of production in the medical field. Therefore,To break away from existing institutional inefficiencies and address pain points, restructuring must begin with physicians as a key factor of production; physician groups represent the monetization model of this factor restructuring.As mentioned earlier by several government officials and leaders of the non-public healthcare association,Currently, the social environment and policy regulations for physician groups have evolved from scratch to gradually establish a relatively comprehensive institutional framework suited to their development, which is also of great importance.

As fellow professionals, you may have deeper insights than we do, so we will not elaborate on these pain points.

Regarding factors of production, physicians in China were historically concentrated within the public sector, with high-quality medical resources largely centralized in large public tertiary hospitals. These factors of production were not truly market-oriented within the state-run system. As a result, their social value, operational efficiency, and intrinsic worth were not fully realized, leading to widespread complaints and dissatisfaction among the general public regarding healthcare services.The rise of physician groups aims to deliver better services to society and the public by reorganizing this key factor of production. Through physician groups, the efficiency and quality of medical services are enhanced, thereby maximizing the social value of physicians as a critical factor of production.

We have witnessed physician groups evolve from a fledgling initiative, pioneered by Dr. Zhang Qiang in 2014 as the first mover, into a widespread and dominant force today.It can be said that today’s physician groups have entered an era akin to the Spring and Autumn Period, characterized by the rise of numerous contenders and untamed, rampant growth.

The introduction of these policies has not been entirely smooth sailing; at times, we have taken one step forward only to retreat one step back. Nevertheless, reforms have continued to advance. In particular, the 19th National Congress of the Communist Party of China explicitly encouraged private investment in healthcare. As Duan Tao remarked recently when announcing his own entrepreneurial venture, “The current landscape is encouraging, impelling, and waits for no one.” Therefore, it is essential to seize this favorable window of opportunity. I believe that for physicians embarking on entrepreneurial endeavors, the present circumstances are highly promising and the timing is apt.

Let me elaborate on this commercial ecosystem. What do we mean by a commercial ecosystem? It signifies that physicians’ entrepreneurial ventures are not isolated events. As is well known, physicians require medical practice licenses and healthcare institutions; they need collaborative platforms, technological tools, insurance support, and regulatory backing. Therefore, the construction of an entire ecosystem is essential. We are currently observing that as marketization across various sectors in China continues to deepen, commercial systems in all areas are gradually becoming more robust. Although physician groups have emerged only in the past couple of years, we see that their level of maturity and the speed of their development are both remarkably rapid.

Below, I will explain why we chose to invest in physician groups. Many people have asked,What is your rationale for investing in Dr. Zhang Qiang’s Doctor Group?

Many people question whether physician groups, akin to law firms and accounting firms, can establish a viable business model and achieve significant scale. Where lies the investment rationale? If we are to invest in physician groups, we must clearly assess their market potential and future growth trajectory. As physician groups are a novel concept in China with no domestic benchmarks to reference, it is essential to examine more mature models overseas.

"Undoubtedly, Kaiser Permanente and Mayo Clinic in the United States are two benchmarks."

Kaiser Permanente essentially operates on a model dominated by the integration of physician groups, hospital systems, and health insurance. In contrast, the Mayo Clinic primarily follows a model combining physician groups with healthcare service institutions. In China, the mainstream model in terms of quantity is currently akin to the Mayo Clinic’s approach, exemplified by Dr. Zhang Qiang and various entrepreneurial physician groups present here today. There are isolated cases resembling the Kaiser model, such as Ping An Insurance, which has built a healthcare group somewhat similar to Kaiser. However, I believe that the Kaiser model is unlikely to become the dominant paradigm in China.

Because insurance companies in China face significant regulatory constraints, large insurers such as Ping An Insurance find it relatively easier to develop medical groups once they reach a certain scale. As for the model in which most physician groups partner with insurance companies, I believe this model will certainly emerge in the future, but it will not become mainstream in the near term.

Take Kaiser Permanente as an example: it operates 38 hospitals and more than 600 medical centers, employs nearly 20,000 physicians, generates $60 billion in annual revenue, and achieves a profit of nearly $4 billion—roughly equivalent to the combined revenue scale of over 60 large Grade A tertiary hospitals in China. Mayo Clinic has more than 4,000 physicians, with $10 billion in revenue and approximately $600 million in profit.These two benchmarks clearly illustrate the vast potential for physician groups. Given China’s population and the scale of its healthcare services market, it is inevitable that China will produce its own equivalents of Mayo Clinic and Kaiser Permanente in the future.

Let's take another look,Currently, I categorize these domestic physician groups in China into one vertical and one horizontal dimension,First, we can categorize them horizontally into two major groups. The first group consists of physicians within the public healthcare system who have established physician groups. As mentioned earlier, some of these groups are founded by renowned academic authorities and key opinion leaders. From an investor’s perspective, their ventures do not constitute complete or full-fledged startups, as they primarily remain within the public system, holding various official positions while simultaneously operating their own physician groups. The second group comprises individuals like most of you here today, who have truly left the public system behind and are fully committed to entrepreneurship.

From an investor’s perspective, we would undoubtedly prefer the latter option. Entrepreneurship is inherently a high-risk endeavor with slim odds of survival; it demands your full commitment, yet success is never guaranteed, and the failure rate remains exceptionally high. Moreover, attempting to straddle both worlds—seeking to enjoy the benefits of employment within the public system while simultaneously pursuing substantial commercial gains—is a strategy we view with skepticism. Consequently, we are not optimistic about such physician groups.

From a vertical perspective, we can categorize them as either online-oriented or offline-oriented. Currently, most physician groups primarily provide offline medical services, while some internet healthcare platforms are also offering online medical services.

In practice, the most viable and well-implemented initiatives that generate cash flow and establish sustainable business models remain largely offline. This is likely determined by the inherent nature of healthcare.As for these online medical institutions, we do not believe they are necessarily without prospects; however, mobile healthcare services should not be viewed through the lens of consumer internet thinking focused on individual consumers (2C). A sound business model in the future should achieve a dynamic balance, integrating online and offline operations as well as asset-heavy and asset-light approaches.

Below, let us discussChallenges Facing Physician Groups, time constraints prevent us from elaborating on each point.

I have summarized them into the following categories,One category faces challenges in resource integration.This resource integration encompasses identifying patient sources and addressing our funding requirements for development. It also involves determining how to provide ongoing support and security for physicians who have left the public healthcare system, from an academic perspective. Furthermore, it includes establishing connections with basic medical insurance and commercial insurance providers, as well as securing assistance and support from government and social resources. These tasks present certain challenges for us physicians.

The Second Capability Building,Capacity building begins with a role transition for physicians. Many physician entrepreneurs were formerly senior leaders, such as department heads, who stepped out of the comfortable environment of the public healthcare system. Even if one has the courage to make this leap, success is not guaranteed. The transition from a clinical role to an entrepreneurial and managerial role presents a significant challenge.

Furthermore, entrepreneurship is not a solo endeavor; it is a team effort., whether it is effective to quickly build a well-established team is also very important.

Also, the iteration of the model., we observe that although today’s physician groups are in a state of unregulated, wild growth with considerable operational freedom, most have not yet established truly effective business models. In my view, the majority are still on their journey. Even Dr. Zhang Qiang, who is undoubtedly at the forefront, has been continuously and dynamically adjusting his model over the two years since our investment, making it more mature and scalable. I consider this ability to be a rare and valuable strength of Dr. Zhang.This iterative capability is a hurdle that all physician group entrepreneurs must overcome.

and build a brand,I believe that some physician groups have already established a certain brand presence; however, these brands still have a long way to go before they can support platforms comparable to those of Mayo Clinic or Kaiser Permanente, and continuous strengthening is required.

Finally, it is a matter of balancing interests.In any commercial endeavor, stakeholder interests are inevitably involved—whether among platforms, teams, partners, or collaborators both within and outside the established system. We have also observed the emergence of physician groups; while some members have left the public healthcare system to devote themselves fully to entrepreneurship, others remain within it. I believe this hybrid model has its merits.

For individuals like Zhang Qiang, who have completely detached from the system, the path may be lonely and arduous, and they are entirely ineligible for the benefits inherent to the public healthcare system. They must build their practices from the ground up on their own. In contrast, most physicians within the public system adopt a dual-track approach, as I have described—“keeping one foot in each camp.” While this strategy may generate income, it is unlikely to facilitate the scaling of a medical group into a major enterprise. However, integrating resources from both the public and private sectors could be a worthwhile endeavor from an investment perspective.

Regarding the assessment of physician group capabilities, I will provide a brief overview based on our internal summary. As investors not only in medical groups but also in all entrepreneurial teams, we believe this formula holds reference value across the board. It addresses how high-quality startups demonstrate their value and how they are perceived by investors.

Don’t we often discuss the basis for valuation? How high can a valuation go? Why are some founders valued at billions right from the start? For instance, when we invested in iCarbonX, its initial valuation was already RMB 6 billion. Why did we still choose to invest? Conversely, why do we decline to invest in others even if they ask for only tens of millions? I believe that your value is a reflection of your capabilities: your service delivery, your market development skills, and your management prowess. Management capability, first and foremost, demonstrates an entrepreneur’s leadership, their ability to build and unify a team, their willingness to share, as well as their vision and magnanimity.

Finally, let me share our views on the future trends of physician groups. As mentioned earlier by one of our guests,We believe that China's Future Doctor Group will inevitably transition from specialized care to multispecialty, and even to general practice.

Second, it will gradually expand from a regional to a national scale.

Third, it will evolve from a purely online or offline model to a balanced state of online-offline integration.

Fourth, transform from merely providing physician services and relying on clinicians’ skills to becoming a platform and a comprehensive conglomerate.This encompasses our medical services, including our offline medical institutions, our hospital management group, AI and big data services, as well as insurance and other offerings. In essence, large physician groups may evolve into platforms in the future.

No.5. The role of venture capital in this industry will increase.Through the use of capital instruments, mergers and acquisitions will inevitably become increasingly frequent.

In this regard, I suggest that founders of physician groups examine the development trajectory of China’s health checkup industry, as I believe their paths will be quite similar. Meinian Onehealth was established in 2004. In 2011, it merged with Northeast Rich Health Checkup; previously ranked third and fourth in the industry respectively, the two entities became the industry leader following the merger. In 2012, Meinian acquired Shenzhen Regal Health Checkup, and in 2014, it merged with Ciming Health Checkup, thereby becoming a national leading company. In 2015, Meinian went public through a reverse merger with Jiangsu Sanyou. After its listing, the company completed acquisitions of overseas entities New New Health and Meizhao Health Checkup.

Now, let’s examine the widening gap between Meinian Onehealth and iKang Guobin, the industry’s second-largest player. This trend offers a valuable lesson: in the future, well-regarded brands with strong management capabilities and physician groups boasting high visibility will increasingly take over and acquire various underperforming regional specialized medical institutions.

Furthermore, horizontal expansion will undoubtedly occur, as will vertical integration across the upstream and downstream segments of the industry.