Five Critical Questions Interrogating Internet Healthcare: Achievements, Challenges, Solutions, Trends, and Vision

By Wu Chong

Since the establishment of Chunyu Yisheng (Spring Rain Doctor) in 2011, internet healthcare has exactly completed five years of development. Although, under a broader definition, the founding of DXY.cn in 2000 could be regarded as the starting point of internet healthcare, 2011 is more widely recognized as “Year One of Internet Healthcare” in terms of conceptual awareness and the continuous influx of capital. At this juncture, we examine internet healthcare through the following five questions.

In a nutshell: Connecting everything in healthcare.

1. Doctor-Patient Connection: Online light consultation models such as Chunyu Doctor, Haodf Online, and Ping An Good Doctor; expert “flying knife” surgical models such as Mingyi Zhudao and Huizhenbang; and mobile outpatient models for traditional Chinese medicine consultations;

2. Hospital-Patient Connectivity: Online appointment and consultation models such as Guahao.com and Jiuyi160, followed by public hospital apps and WeChat official account models;

3. Doctor-to-doctor connections: physician community models such as DXY and Medlinker;

4. Patient-to-Patient Connection: patient mutual aid communities such as Kangai Weishi and Shuidi Huzhu;

5. Hospital-to-Hospital Connectivity: Cloud-based consultation models such as region-wide healthcare;

6. Pharmaceutical Company-Patient Connection: B2C pharmaceutical e-commerce models such as Jianke.com and Kangaiduo;

7. Hospital-Pharmaceutical Company Connectivity: SaaS models such as LinkCare Information and Drug Terminal Network.

Following connectivity, there has been a rapid surge in traffic and the emergence of unicorn companies valued at over $1 billion. Among them, WeDoctor has nearly 120 million users, Ping An Good Doctor has close to 100 million users, and Chunyu Doctors has approximately 90 million users. Daily online appointment registrations exceed 700,000, daily online consultations for minor ailments surpass 500,000, and annual sales in pharmaceutical e-commerce approach RMB 8 billion. Companies such as Ping An Good Doctor, WeDoctor, and Chunyu Doctors have all achieved valuations exceeding $1 billion, becoming the first internet healthcare giants.

Two Major Challenges: The Capital Winter and the Constraints of the Public Healthcare System.

This round of the capital winter began in the second half of 2015, triggered by the collapse of China’s domestic stock market. As capital tightened, startups lost their funding sources, making the earlier frenzied cash-burning model—particularly prevalent in the O2O sector—unsustainable. Layoffs, pivots, and even dissolutions became key themes for startups. Internet healthcare companies were naturally not immune. However, in terms of total industry financing, the amount raised in Q3 2016 had already surpassed the full-year total of 2015, indicating that the healthcare sector, being counter-cyclical, was less affected. Nevertheless, during this downturn, capital flocked to star enterprises: Ping An Good Doctor raised $500 million in its Series A round, Chunyu Doctors secured RMB 1.2 billion in its Series D round, and 111.com obtained RMB 1 billion in its Series D round. As resources concentrated on these leaders, startup innovation activity declined. Judging by the number of newly established companies receiving investment—a key indicator of entrepreneurial vitality—the harsh reality of the capital winter was evident: only 20 new internet healthcare startups secured financing from January to August 2016, compared to 178 and 144 for the full years of 2014 and 2015, respectively.

Constraints imposed by the public healthcare system constitute the core challenge for investment in the medical services sector, centered on the “triple lock-in” of “public-hospital physicians–national health insurance–public hospitals.” Human resources, funding, and infrastructure are all under government control. Although marketization has been steadily advancing with the growth of private healthcare, 80% of medical services remain within the public healthcare system. The development of internet healthcare over the past five years was capital-driven, prioritizing user traffic over profitability and monetization. Amid the capital winter, most startups have lost access to follow-on funding, while consumer payment habits have yet to take hold (by analogy with the online video industry, which began developing in 2004 but only entered the paid-content era in 2015). Furthermore, as the largest single payer, the national health insurance scheme is not readily integrated into payment channels for internet healthcare. On the other hand, the “triple lock-in” of “public-hospital physicians–national health insurance–public hospitals” means that services offered by internet healthcare are often derisively labeled as “light healthcare outside hospital walls,” making it significantly more difficult to deepen service-based monetization.

Two Major Directions: Building a Closed-Loop System and an Open Platform.

The establishment of a closed-loop development path is driving internet healthcare companies to transition from asset-light to asset-heavy models. A typical example is WeDoctor’s “Medical-Pharmaceutical-Insurance” Accountable Care Organization (ACO) model, which involves building proprietary internet hospitals, integrating with pharmacies (both offline brick-and-mortar stores and e-commerce platforms), and offering health insurance products to provide users with an integrated healthcare service ecosystem. Another representative is DXY, which has established its own offline general practice clinics, independently recruits and trains general practitioners, connects with both national medical insurance and commercial insurance schemes, and integrates online and offline medical services, with the future goal of creating a nationwide chain of general practice clinics. As these entities directly provide core treatment services, their revenue streams are straightforward and well-defined; long-term profitability will depend on cost efficiencies achieved through scale.

The development trajectory of open platforms has driven internet healthcare companies to adopt asset-light models. A typical example is Chunyu Doctor, which announced the launch of its open consultation platform in August 2016, providing free access to its online consultation services for hardware manufacturers, apps, websites, and WeChat official accounts in need. Users can enjoy online consultation services on any platform integrated with Chunyu Doctor’s system without downloading its standalone app. By securing key traffic entry points, its revenue model resembles Baidu Search’s advertising model, with future profitability relying further on referral-based advertising income for medical consultations and pharmaceuticals. Another representative category comprises light-consultation platforms focused on maternal and child health, such as “Yuer Wen Yi Wen” (Parenting Ask), which offers lightweight consultation capabilities to online maternal communities and offline maternal-and-child stores, generating revenue through B-side payments.

Tiered diagnosis and treatment, and B2B SaaS (Software as a Service).

Tiered diagnosis and treatment emerged in 2016 as a breakthrough in China’s top-level healthcare reform design, becoming a focal point for innovation in internet-based healthcare. A typical example is Chengyi Health, which has pioneered a tripartite consultation model that connects specialists with physicians at municipal- and county-level hospitals, providing patients with efficient and high-quality consultation services during their local hospital visits. Another example is Quanyu Medical, which introduced the first precision cloud radiotherapy solution. It offers municipal- and county-level hospitals a comprehensive suite of solutions for the construction and operation of precision radiotherapy, including remote information-based quality control platforms, remote collaboration platforms, remote training platforms, and multi-center research platforms, thereby striving to elevate the overall level of radiotherapy treatment in China. Most other innovative, specialty-focused internet healthcare companies are similarly dedicated to improving primary care capabilities. Due to their clear value proposition, these efforts have been relatively successful in securing direct payments from both patients and hospitals.

Finally, it is worth noting that broad-spectrum internet technologies and artificial intelligence (AI) became the darlings of capital and technology circles in internet healthcare when DeepMind entered the field of medical imaging diagnosis in 2016. The application of AI in China is bound to achieve breakthroughs in improving diagnostic capabilities at primary care levels within the framework of tiered diagnosis and treatment. Startups operating in this space include Jiufeng Medical and Dashu Yida.

B2B SaaS solutions, which provide efficiency-enhancing and other value-added services to enterprises and charge corporate clients directly, have attracted significant investor attention amid the current capital winter. A typical example is Linkcare Information, which developed the “e-Kanya SaaS Dental Cloud Platform” for market-oriented private dental clinics. This platform offers SaaS products such as a dental clinic management system, an electronic medical record (EMR) management system, a supply chain management system, and commercial insurance payment integration. Similar projects exist in other specialized fields, such as traditional Chinese medicine and ophthalmology.

We remain firmly optimistic about the future of internet healthcare, believing that over the next 5–10 years, it will evolve through the continuous integration of online and offline services, alongside the expansion of commercial health insurance, which will further drive the consolidation of medical services.

If the first five-year period from 2011 to 2015 is characterized as “Connected Healthcare,” then the second five-year period from 2016 to 2020 will be defined as “Integrated Healthcare.” During this phase, internet healthcare will further break down hospital barriers, integrate online and offline medical services, reshape diagnosis and treatment workflows, and enhance healthcare efficiency and quality. In alignment with the national tiered diagnosis and treatment policy, patients at the primary care level will gain access to higher-quality localized medical services.

What about the period after 2020? A visible trend is the rise of commercial health insurance (with optimistic estimates suggesting its market size could reach RMB 1 trillion by 2020). At that time, the single-payer system dominated by national basic medical insurance will transition into a multi-tiered, multi-payer landscape. The development of commercial health insurance carries a strong imperative for cost containment, leading to deep integration between insurance and internet healthcare to achieve “controllable healthcare.” The two current giants in internet healthcare, Ping An Good Doctor and WeDoctor, have already strategically positioned themselves in the insurance sector, proposing integrated health insurance models based on HMO (Health Maintenance Organization) and ACO (Accountable Care Organization), respectively.

The author of this article is Wu Chong, an investment manager at Lian Fund. The views expressed herein do not necessarily reflect those of VCBeat (WeChat Official Account: vcbeat). This article was exclusively premiered by VCBeat after editorial review; please cite the source when reposting. If you have additional insights or perspectives on internet healthcare, we welcome you to share them with us.