The Billion-Dollar Question: Can Internet Healthcare Really Work?

By Wuzi

The healthcare industry is a field particularly prone to controversy, where everyone feels entitled to weigh in as an expert, making it difficult to reach a consensus. Consider two examples: some argue that high healthcare costs are undesirable, while others counter that human life is priceless and ask what could be more important than medical care. They further contend that even if the government and social insurance schemes bear a larger share of the burden, it merely amounts to shifting money from one pocket to another, as taxes and social insurance contributions are ultimately paid by the public. Others suggest that the goal of healthcare services should be patient satisfaction, yet critics point out that patient satisfaction often correlates negatively with actual clinical outcomes. Doctors who excel at placating patients may not necessarily be effective at treating diseases; indeed, medical studies have shown that hospitals with higher patient satisfaction rates can have higher mortality rates. Quite chaotic, isn’t it?

In an industry rife with debates ranging from granular operational issues to top-level design, the entry of “Internet Plus” has not provided a definitive resolution; on the contrary, it has ignited even greater controversy. Within the public system, there are state-led healthcare reform efforts; outside it, private hospitals, commercial health insurers, and physician groups act as various “rebel forces.” In this landscape, what significance does internet healthcare truly hold?

Admittedly, BAT and major venture capital investors have placed substantial bets on internet healthcare. The injection of tens of billions in funding has spawned multiple unicorn-level internet healthcare companies and fostered more than 3,000 startups in the sector. These companies are as numerous as carp crossing the river, eagerly seeking breakthroughs and hoping to capitalize on significant systemic arbitrage opportunities. However, a crowded field does not necessarily indicate the right direction; until a viable business model is proven, no one can claim victory. Meanwhile, periodic cold spells have swept through the hearts of investors and entrepreneurs alike, prompting each to question whether the tens of billions of RMB in real money were indeed invested in the right direction.

News from the front is equally discouraging: Backed by significant investment from the Alibaba Group, AliHealth first saw its drug regulatory code business revoked and then faced a suspension of online drug sales. Chunyu Doctor, another industry leader, was publicly criticized by a renowned hospital president at a conference with the remark, “IT companies attempting to practice medicine will find this path blocked,” and was further disoriented by a widely circulated, illogical old article titled “The Fall of Chunyu Doctor.” As for WeDoctor Group, which has been aggressive in securing financing, its heavily promoted “Internet + Tiered Diagnosis and Treatment” model has not yet been fully validated. While internet hospitals have proliferated, their revenue performance remains lackluster, resulting in the awkward situation of receiving critical acclaim but failing to achieve commercial success.

Thus, there seems to be an intriguing coincidence: this billion-dollar question is resurrected every September and October. To cut a long story short, does internet healthcare actually work?

Here is the conclusion of this article:Internet Healthcare Is the Fundamental Force in Solving the Challenges of China’s Healthcare System. Of course, if this article were to cite national policy trends or invoke a string of high-profile names such as Jack Ma, Zhang Lei, Guo Guangchang, Pony Ma, and Bob Xu to substantiate this viewpoint, it would likely still fail to convince the broader audience. Therefore, this article will adopt a different perspective, demonstrating the validity of this argument from a macroeconomic standpoint.

However, this article will not rush to extol the advantages of “Internet+” healthcare, nor will it enumerate the pervasive pain points of the traditional medical system. Such rhetoric is merely “PPT language”—useful for fundraising, but incapable of delivering order-of-magnitude improvements in efficiency and user experience, or significant cost reductions, in real-world practice. It is these tangible benefits that drive large-scale user migration and serve as the source of disruptive innovation.

In fact, we must first acknowledge that the traditional hospital-centric healthcare model possesses a “super moat” mechanism, which remains formidable today. Whether internet-based healthcare has the potential to become a foundational transformative force depends on its ability to dismantle this mechanism. Let us first examine what this “super moat” actually is. A brief review of The Innovator’s Prescription, a classic work on healthcare reform, reveals that the business model of the “hospital” has existed for only about 300 years. The hospital’s eventual dominance, enclosing both physicians and patients within high walls to reap excessive profits, can be attributed to merely three reasons:

Since the Renaissance, the development of Western medicine has accumulated a vast body of medical knowledge. Increasingly specialized medical divisions have led to hundreds of specialties, resulting in a highly fragmented healthcare service landscape. This has created decision-making difficulties for patients, who often struggle to determine which specialty to consult and which physician is best suited to treat their condition. Hospitals with comprehensive specialty offerings effectively function as “stock exchanges” that match supply with demand, thereby reducing transaction costs.

Modern medicine is increasingly reliant on expensive medical equipment. These assets require substantial capital investment and must be operated by trained professionals, making them unaffordable for individual physicians. The existence of hospitals enables doctors to share these facilities, thereby improving utilization rates and spreading costs. Consequently, both physicians and patients must converge at hospitals for medical services to be delivered.

The healthcare industry is characterized by significant information asymmetry, where physicians effectively assume a god-like role within their professional domains, leaving patients unable to evaluate or choose among providers. The hospital business model, in essence, serves as a market-driven mechanism to correct this information asymmetry. Patients can “trust the temple rather than the monk,” relying on institutional reputation as a proxy for individual physician competence. To some extent, this dynamic incentivizes hospitals to strengthen management and enhance both medical quality and service standards, thereby reducing the decision-making costs for patients.

These three factors constitute the “super moat” of the hospital model, enclosing doctors and patients within high walls and forming a “centralized” care delivery model. Centralization inevitably leads to congestion, resulting in the widely criticized difficulties and high costs associated with accessing medical care. In contrast, the essence of the internet is “decentralization,” enabling direct connections between any two points. Consequently, we observe internet-based healthcare initiatives emerging from various angles: starting with triage mechanisms has given rise to numerous “light consultation” services; leveraging shared equipment has led to services such as cloud-based Hospital Information Systems (HIS), remote medical imaging, and remote pathology; and incorporating physician evaluations has spawned doctor-patient community platforms similar to Dianping.

In fact, internet healthcare is the only mechanism among the external forces of systemic change capable of comprehensively dismantling the “super moat.” The other three “rebel forces”—private hospitals, commercial health insurance, and physician groups—remain constrained by lower-level property rights arrangements, a legacy debt of China’s healthcare system from the pre-internet era. While a fair distribution of the pie can certainly incentivize greater overall production, it pales in comparison to the supply avalanche and precise matching enabled by decentralization. As seen in other industries, this shift will simultaneously drive down prices and improve quality, achieving disruptive innovation.

Given the immense potential of internet-based healthcare, why do current digital health products remain confined to the periphery of hospitals, failing to produce a truly integrated solution? Fundamentally, this stems from the high overall complexity of medical services. Addressing any individual patient’s needs involves numerous stages. Isolated services that tackle single pain points—such as lightweight online consultations, cloud-based Hospital Information Systems (HIS), and physician rating systems—offer limited value to patients on their own. Meaningful progress will only emerge when these disparate elements are connected into a cohesive continuum; therefore, achieving this integration will require more time.

Undeniably, none of the current mainstream internet healthcare products have truly validated their business models or thoroughly addressed user pain points. One day, it is claimed that Jack Ma misjudged the sector; the next, predictions are made that Chunyu Doctor will collapse; and the day after, Haodf.com is mocked for treading water. However, it is all too easy to ridicule an infant who is just learning to walk for not being able to run. The true source of strategic resilience lies in discerning the future from emerging trends. Regarding the common skepticism toward internet healthcare in the market, we can summarize the criticisms into several key points and address them one by one:

The outrage of the woman in white at Guang’anmen Hospital has become a symbol: Why can you secure appointments with top specialists when I cannot? The logic of the critics is as follows: If internet healthcare companies evolve into a nationwide network of scalpers, transforming resource allocation from “voting with one’s feet” to “voting with banknotes,” high-quality medical resources will become even scarcer, thereby depriving impoverished patients in need of their right to healthcare. In reality, the market is neutral. Some critics cannot simultaneously champion marketization and anticipate long-overdue property rights reforms in medical institutions, while also treating the already-emerging market-based pricing of diagnostic and treatment services as a dire threat. Let what belongs to God be given to God, and what belongs to Caesar be given to Caesar. It is the role of the market to ensure that specialist medical services receive fair valuation; it is the government’s responsibility to subsidize demand-side access so that impoverished patients in need can afford care. Even if we concede, for argument’s sake, that such platforms operate as scalper networks, profit maximization would inevitably drive a more rational model: directing high-quality resources to markets with higher marginal returns and lower marginal costs. Specialists from Beijing would serve provincial capitals, and those from provincial capitals would serve prefecture-level cities, thereby maximizing benefits. Isn’t this model, rephrased, precisely the “tiered diagnosis and treatment” system vigorously promoted in the current round of healthcare reform? Moreover, this spontaneous downward flow of high-quality resources, driven by profit incentives, possesses strong vitality—something that administrative mandates alone struggle to achieve.

Many also question the legality of physicians providing medical services independently of their affiliated institutions. Admittedly, most internet healthcare products aim to help physicians achieve “decentralization,” breaking free from hospital control and enabling market-based pricing. Whether this logic holds water depends on the legality of physicians’ multi-site practice. The current momentum in advancing multi-site practice policies is characterized by explicit support from the central government (with the General Office of the State Council issuing documents twice to promote it), procrastination by local governments (with most provinces yet to release implementation measures), and strong opposition from public hospitals. It is worth noting that until the new national regulations were introduced last month, all levels of government—from central ministries to local authorities—refused to concede any legitimacy to the online ride-hailing industry and suppressed it through strict law enforcement. In contrast, the policy environment for physicians’ multi-site practice is undoubtedly much more favorable. With official central government documents providing cover, local governments that hold actual regulatory authority have effectively turned a blind eye. Although physicians’ employing hospitals strongly oppose the practice, they have few effective means to counter it. The case of online ride-hailing eventually gaining legal status teaches us that change does not come from begging policymakers for leniency; more importantly, it requires building a high-quality product that truly benefits users. Reasonableness will ultimately lead to legitimacy.

In the internet venture capital sector, where exaggeration has become rampant, there are indeed many data points that are difficult to comprehend. However, this is entirely irrelevant to outsiders, as they have not invested a single cent. Whether business data is authentic or fabricated is subject to due diligence and verification by investors. Deception may succeed temporarily but never indefinitely; companies that dare to falsify data will not go far, and any ill-gotten gains will inevitably be forfeited. A likely explanation for the incomprehensible data is that, during the early stage of market cultivation, excessive cash-burning subsidies artificially stimulated demand, leading to an abnormal surge in business volume. Once genuine market demand takes hold and subsidies cease, real demand stabilizes, and business metrics return to normal levels.

In short, on the journey of internet healthcare, the “super moat” of the traditional medical model will remain a formidable barrier for quite some time. Facing a healthcare service industry valued at trillions, the fruits of victory will only be reaped by those with sufficient patience and a genuine commitment to diligent work. All skepticism serves as the best stepping stone in the process of progress.

Author’s pseudonym: Wu Zi. This article is a submission by the author and does not represent the views of VCBeat (WeChat Official Account: vcbeat). After editing by VCBeat, this article is exclusively published here; please cite the source when reprinting. If you have more ideas and perspectives on internet healthcare, we welcome you to share them with us.