Who Will Consolidate the Healthcare Market in the Next Five Years?
At the beginning of August, Didi and Uber officially announced their “merger,” sparking a wave of predictions about the future of the internet. Such forecasts are hardly new; similar narratives, albeit in different forms, emerged during the mergers of Didi and Kuaidi, 58.com and Ganji, Meituan and Dianping, as well as Ctrip and Qunar. The fact that the moves of one or two companies can ignite widespread speculation about the future is itself an achievement.
These companies have been in existence for as little as four or five years, and as long as over a decade. Having closely followed the internet healthcare startup sector for so long, one cannot help but wonder: Given that internet healthcare has also been developing for roughly five years, could a merger between any two companies in this space yield an impact as profound and far-reaching? If not now, which enterprises will possess the industry-consolidating prowess of Didi, 58.com, Meituan, and Ctrip in five years’ time?
Looking back on the five-year journey of internet healthcare, those who possess resources in terms of physicians, patients, and hospitals are likely to dominate the future landscape. The current industry leaders have largely emerged based on this logic. However, the flaw in the reasoning from five years ago was that the pace of transformation in this sector was not as rapid as anticipated. As a result, investors who have poured significant capital into the field but remain unable to achieve commercialization or exit are now cynically declaring that they will no longer invest in internet healthcare. This has made fundraising particularly challenging for entrepreneurs.
Once again, we find ourselves at a juncture where we must forecast the trajectory of the internet healthcare sector over the next five years. Experience from the past five years demonstrates that while “resource-driven” strategies enjoyed a period of prominence, their impact has been remarkably limited. So, what will be the key factors shaping the healthcare market five years from now?
Let’s return to a slightly more pressing topic. In the current internet healthcare sector, are there any companies that could fundamentally reshape the industry landscape through mergers or consolidations? Drawing on experiences from other industries, the criteria for fundamentally reshaping the healthcare landscape typically boil down to achieving dominance in one of three key metrics: number of users, number of physicians, or number of hospitals.
In terms of sheer numbers, there is no shortage of such companies in the internet healthcare sector (data are based on official announcements from each company). For instance, in terms of user base, Ping An Good Doctor has nearly 80 million users, Chunyu Yisheng has 92 million, and Xunyi Wenyaowang has over 100 million registered users. In terms of physician coverage, DXY covers 2 million physicians (out of a total of approximately 3 million physicians in China), Medlinker has 400,000, and Apricot Forest has 200,000. Regarding hospital partnerships, Guahaowang partnered with 1,900 hospitals by the end of 2015; Jiuyi 160 served 2,700 hospitals as of March 2016; and Health Road reached 4,500 hospitals.
As can be seen, given the current landscape, any merger between two of the aforementioned companies would confer a near-absolute numerical advantage in their respective domains. However, such mergers have not only failed to materialize to date, but also appear to hold limited strategic rationale.
The primary reason no mergers have occurred is that such consolidation cannot alter the current state of the internet healthcare industry. A clear distinction can be drawn with companies like Didi and Uber, or 58.com and Ganji: their mergers allowed them to secure absolute market share and eliminate costly subsidy wars. For those companies, reducing expenditure on cash-burning promotional campaigns directly translated into profitability.
However, in the field of internet healthcare, these changes may not occur at all.
First,Although the vast majority of companies in the internet healthcare sector subsidize physicians, they have largely ceased burning cash to acquire users.Early experience has shown that it is difficult to acquire users in the healthcare sector simply by burning cash, as users acquired through such subsidies are fundamentally different from those with genuine medical needs, compounded by the prohibitively high cost of customer acquisition. Therefore, in the field of internet healthcare, the tangible benefits expected from mergers do not materialize.
Second, a merger cannot resolve existing issues.Taking Guahao.com and Jiuyi 160 as examples, the number of hospitals covered by the two platforms reached 4,600 after their merger. With only 13,000 public hospitals nationwide in China, these two platforms account for one-third of the total. However, the problem is that even so, the difficulties and high costs associated with seeking medical care will not change as a result. Hospitals where appointments remain unavailable will continue to be inaccessible. The current state of medical services is difficult to alter.
Third, the issue of commercialization remains unresolved.The most established business models to date have been pharmaceutical advertising and patient referral for private hospitals. However, Baidu’s experience demonstrates that the referral model carries significant risks. Meanwhile, the potential for pharmaceutical advertising is limited due to restrictions on electronic prescriptions. Moreover, the core issue remains that internet healthcare cannot monetize through its services alone, making it persistently difficult to establish a sustainable business model.
Additionally, there are some more pragmatic reasons,For instance, startups in the internet healthcare sector generally have relatively low valuations, which remain modest even after mergers. Furthermore, the healthcare industry exhibits strong regional characteristics; many companies thrive by serving just a single province, city, or even one hospital. This extremely low level of industry concentration provides ample room for numerous startups to survive and potentially endure for a long time. This trend is already evident in the traditional healthcare informatics sector, where market shares are fragmented, yet most players maintain healthy operations.
Image source: Guojin Securities
But if that is the case, why are we discussing integration? Because the current state of internet healthcare—characterized by small scale, fragmentation, and weakness—is unsustainable in the long run.
The primary challenge stems from traffic issues.In addition to traffic acquisition costs, internet healthcare also incurs high upfront costs for market education. Furthermore, given the inherently low frequency of medical demand, companies must invest in retaining and activating users after acquisition, all of which entail significant expenses. These substantial costs pose a major threat to startups in the internet healthcare sector, ultimately resulting in a widespread lack of user base.
At present, it seems that there is no better solution to the traffic problem than aligning with BAT (Baidu, Alibaba, and Tencent). However, the issue is that BAT cannot dominate the entire market. Moreover, the demographics of the internet user base are shifting, with an increasing number of vertical niche groups emerging. This trend has spurred the growth of many startups targeting these niche audiences and subcultures, which in turn poses a challenge to the traffic dominance of large platforms.
Moreover, both comprehensive platforms and vertical-specific domains face their own respective dilemmas.With the emergence of integrated consultation platforms such as Chunyu Yisheng and Ping An Good Doctor, there is virtually no room left for companies with similar business models to grow in this sector. This explains why a large number of new startups subsequently emerged in vertical specialties, as these niche areas enable the creation of closed-loop service ecosystems. This approach has also gained widespread recognition from many investment institutions. Essentially, the second wave of startups has been focused on vertical medical fields, including diabetes, oncology, respiratory diseases, hepatology, nephrology, neurology, and gastroenterology.
However, vertical sectors face a paradox.
The target users of vertical-domain applications are patients, a group far more complex than the healthy population. First, diseases progress along a spectrum from mild to severe; internet-based solutions can typically manage only patients with relatively mild conditions, while those with severe diseases often fall outside the scope of effective management. Second, various diseases frequently present with complications, which vertical applications are largely ill-equipped to address. These two factors significantly diminish the efficacy of vertical applications and substantially shrink the size of the population they can serve.
The greater contradiction lies in the fact that, although vertical applications can easily form a closed loop, this loop fails at its most critical stage: the patient segment.Because even if a patient suffers from a certain type of chronic disease, they will still have other diseases or health needs to address, which cannot be resolved by a specific type of vertical application.
Just like the healthcare service system, specialized hospitals are often large, high-tier institutions, while grassroots facilities tend to be more comprehensive. The types of services provided by medical institutions become increasingly comprehensive at the grassroots level. Moreover, grassroots physicians and family doctors are predominantly general practitioners, capable of providing residents with comprehensive health management services. However, applications such as internet-based healthcare, which are designed to closely integrate with patients’ daily lives, are instead beginning to segment by disease type and medical specialty—a approach that is difficult to justify both logically and in practice.
Therefore, as internet healthcare reaches this stage, we must clearly recognize that the successful “resource-based” and “vertical-focused” strategies of the past five years are largely no longer viable, and new pathways for integration must be explored.
Where is the new integrated pathway?
In the early days of internet healthcare, there was an ongoing debate over whether success hinged on securing doctors or capturing users. Practice has demonstrated that without delivering high-quality medical services, it is impossible to compel users to pay; conversely, amassing a large pool of physicians without effectively serving patients makes commercial monetization difficult. Recent practices indicate that regardless of whether early-stage startups initially accumulated physician resources or hospital partnerships, their common strategic choice when planning commercialization is now to provide services directly to patients.
Therefore, whether in traditional healthcare or internet-based healthcare, the core logic of “patient-centeredness” should remain consistent. This serves not only as a service-oriented logic but also as a business logic. Centered on delivering medical services to patients, three integration pathways toward the future can be identified.
Channel Integration
Simply put, a “channel” refers to the pathway that delivers medical services directly to patients (or users), enabling them to access care whenever needed. Channel integration means that whoever controls the most extensive and powerful channels reaching patients (or users) is likely to emerge as the industry consolidator within five years.
The conventional approach has been to leverage smartphones as the primary channel. The underlying logic is that since people carry their phones with them at all times, they can easily access doctors by opening an app whenever health issues arise. However, as previously mentioned, the cost of acquiring users to install healthcare apps is prohibitively high. Compounded by the low frequency of medical needs, the cost of retaining these apps on users’ devices is even higher. As a result, when individuals actually encounter health problems, they often find no healthcare apps installed on their phones and ultimately have no choice but to visit a hospital.
This channel should achieve two breakthroughs: first, transcending the boundaries of medical apps. Many scenarios involve healthcare needs, such as fitness and travel; indeed, some companies have already begun exploring cross-industry collaborations. Second, moving beyond the convenience of smartphones. In theory, any tool capable of information transmission can be connected to healthcare services. Thus, we observe many companies attempting to use telephones, video calls, and television to connect doctors with patients, rather than relying solely on mobile apps.
These channels are not necessarily the final form; rather, they aim to accommodate individuals with varying preferences for different scenarios within the context of online consultations. Once online consultations become a habitual practice, new issues can be considered in five years’ time. Incidentally, clinics themselves constitute a type of channel. This is particularly evident in many new types of clinics operating under internet-based models, such as DXY Clinic, Chunyu Clinic, and Johnson Clinic. To some extent, these physical clinics serve as the foundation that enables online consultations to proceed smoothly.
Data Integration
Channel integration stems from the perspective of patient (user) demand, whereas data integration originates from the perspective of patient (user) supply. In other words, patients (users) are the primary source of big health and medical data. Data integration refers to the ability to collect, store, and apply healthcare data. Similarly, the greater the volume of data, the stronger the integration capability.
In fact, people are already very familiar with the value of big data in healthcare. The most prominent application is undoubtedly artificial intelligence. It is reported that an AI-powered robot recently diagnosed a rare case of leukemia in just ten minutes. Other applications include establishing health records for patients, assisting physicians in making accurate disease diagnoses, providing better treatment plans, and enabling targeted precision marketing. However, the initial step—data collection or acquisition—remains highly challenging, as hospitals with the largest data volumes are difficult to engage in collaboration. Based on current attempts, there are three exploratory pathways:
One isDirect Collection Type, a more familiar approach to data collection is through smart hardware. Recently, however, data acquisition via medical imaging has gained significant traction. Since medical images are often essential for consultations, many startups have leveraged the demand for consultations between large hospitals and primary care facilities to accumulate case data at this intermediary hub, or even directly engage in medical image data mining within hospitals. Of course, this serves merely as an entry point into hospitals.
Another isData Transmission Type, such startups neither engage in data collection nor in data application; instead, they transmit data by establishing information networks. A typical example in this regard is Quyi Network (QuYi Wang), which enables medical information to circulate within the network across an entire region by setting up regional information networks, thereby forming a medical data transmission hub.
The third isTechnical Detection Type, commonly known as in vitro diagnostics (IVD). Although the primary objective of IVD is not data acquisition, the medical data it generates are no less substantial than those obtained through other means, and often exhibit even higher precision. A particularly representative example is genetic testing, which serves as the foundation for the comprehensive digitization of human physiological data.
Payment Integration or Financial Integration
The third perspective focuses on patient (user) behavior. Whether from the demand or supply side, payment is an indispensable component whenever a healthcare service transaction occurs. Although payment serves merely as a link and a tool—neither holding data nor controlling channels—its most significant characteristic is its universal application across all medical transactions.
Alibaba and Tencent actually identified this trajectory early on. For a time, Alipay and WeChat engaged in a nationwide race to secure partnerships with hospitals. However, they later realized that this approach was flawed. Even if they partnered with numerous hospitals, patients would not adopt these services without integration into the national health insurance system. Once they recognized this, they shifted their focus to integrating with health insurance—a significantly more challenging endeavor. To date, Shenzhen remains the only successful case.
But will the future of payments necessarily be dominated by Alibaba and Tencent? Not necessarily. To some extent, payment systems cannot exist in isolation; they require a comprehensive healthcare ecosystem. Within the current healthcare system, social insurance is the largest payer. However, tapping into the social insurance market is exceedingly difficult. Therefore, the growth rate of payment solutions actually depends on the growth and openness of both the insurance and healthcare sectors. If Alibaba’s AliHealth or Tencent’s TengAi Doctor were to grow and strengthen, then Alipay and WeChat Pay might indeed have a promising opportunity.
Of course, payment does not necessarily mean spending money; it can also involve reducing expenditures, as exemplified by Pharmacy Benefit Managers (PBMs) in the United States. The underlying logic is the same: where there are parties seeking to collect payments, there are others aiming to minimize costs. To some extent, PBMs are part of the payment process, with their primary role being cost containment. While PBMs may become an essential component of every healthcare service system, this presupposes the prior development of a market-driven healthcare sector; otherwise, PBMs will remain marginalized.
However, it is important to note that these three integration pathways will not dominate the landscape within five years; rather, they will merely advance us to the next stage beyond our current position. We welcome everyone to share and discuss any new ideas.
By Liu Yong
Source: 36Kr