How Internet Healthcare Companies Are Tapping into the RMB 450 Billion Grassroots Medical Market
In March 2014, Premier Li Keqiang first proposed “improving the tiered diagnosis and treatment system” in the Government Work Report. In September 2015, the General Office of the State Council issued the Guiding Opinions on Promoting the Construction of a Tiered Diagnosis and Treatment System. Subsequently, the implementation of tiered diagnosis and treatment rapidly expanded across central ministries, local governments, hospital systems, and the healthcare market. Among the 16-character principle established by the state for tiered diagnosis and treatment—“initial consultation at primary care institutions, two-way referrals, separate management of acute and chronic conditions, and coordination between upper- and lower-level facilities”—primary healthcare bears multiple critical responsibilities, including initial consultations, referrals, diagnosis and treatment of chronic diseases, and health management. Undoubtedly, it will present vast entrepreneurial and investment opportunities in the coming years as the nation accelerates the promotion of tiered diagnosis and treatment. This article reviews the latest tiered diagnosis and treatment policies from the central government and selected provinces and municipalities, exploring the magnitude of opportunities in primary healthcare, identifying specific areas where these opportunities will emerge, and examining how internet healthcare companies can better capitalize on this significant market trend.
Central Policy Framework Establishes the Gatekeeper Role of Primary Healthcare Institutions
According to the Outline of the National Healthcare Service System Plan (2015–2020) released in March 2015, primary healthcare institutions mainly include township health centers, community health service centers (and stations), village clinics, infirmaries, outpatient departments (and clinics), and military primary healthcare institutions. From a market or capital perspective, they can also be categorized into state-owned primary healthcare institutions, private clinics, and clinics funded by investors from Hong Kong, Macao, Taiwan, or overseas.
In conjunction with the Outline of the National Plan for the Healthcare Service System (2015–2020), the central government’s key policies on primary healthcare also include the Guiding Opinions of the General Office of the State Council on Promoting the Establishment of a Tiered Diagnosis and Treatment System, issued in September 2015; the Guiding Opinions on Further Standardizing the Management of Community Health Services and Improving Service Quality, released in November 2015; and the Key Tasks for Deepening the Reform of the Pharmaceutical and Healthcare System in 2016, published in April 2016. Overall, the policy intentions and development orientations for primary healthcare are primarily as follows:
Guideline 1: Primary Care Institutions Bear the Responsibility for Initial Outpatient Consultations
“Outline of the National Plan for the Medical and Health Service System (2015–2020)” proposes to control the scale of general outpatient services in public hospitals, support and guide patients to prioritize seeking care at primary healthcare institutions, and gradually enable primary healthcare institutions to assume responsibility for general outpatient, rehabilitation, and nursing services previously provided by public hospitals;
“Guiding Opinions of the General Office of the State Council on Promoting the Construction of a Tiered Diagnosis and Treatment System” proposes that the construction of grassroots medical and health personnel teams, with general practitioners as the focus, has been strengthened, and the proportion of diagnoses and treatments conducted by grassroots medical and health institutions in the total number of diagnoses and treatments has significantly increased.
Direction 2: Comprehensively Enhance the Service Level of Primary Healthcare Institutions
“Guiding Opinions of the General Office of the State Council on Promoting the Construction of a Tiered Diagnosis and Treatment System” proposes to improve the tiered diagnosis and treatment service system with a focus on strengthening primary care.
The Outline of the National Healthcare Service System Plan (2015–2020) proposed promoting the decentralization of high-quality medical resources to the grassroots level; the Key Tasks for Deepening the Reform of the Medical and Health Care System in 2016 proposed enhancing grassroots service capacity and continuing to strengthen the capacity building of grassroots medical and health institutions and county-level hospitals, so as to facilitate the flow of medical resources to grassroots and rural areas.
Guideline 3: Encourage the establishment of a division-of-labor and collaborative system between primary healthcare institutions and public hospitals
The Outline of the National Plan for the Medical and Health Service System (2015–2020) proposes to establish and improve a tiered diagnosis and treatment model, develop mechanisms for division of labor and collaboration among hospitals at different levels, between hospitals and primary healthcare institutions, and between hospitals and post-acute care institutions, enhance the network-based operational mechanism for urban and rural primary healthcare services, and gradually achieve initial consultations at the primary level, two-way referrals, coordination between upper- and lower-level institutions, and separate management of acute and chronic conditions.
Public hospitals shall support and guide primary healthcare institutions with which they have established a division-of-labor and collaborative relationship, through various measures such as technical support, personnel training, and management guidance, so as to enhance their service capacity and quality.
Establish a regional online appointment registration platform, whereby public hospitals provide referral-based appointment registration services to primary healthcare institutions, and prioritize diagnosis, treatment, and hospitalization for patients referred by these institutions.
Primary Care Visits to Account for Over 65% of Total Volume; Primary Healthcare Market May Reach RMB 450 Billion
Following the introduction of relevant policies by the central government, local governments have responded actively. According to a recent review by Xinhua News Agency, 22 provincial-level regions across China have issued implementation plans to advance the construction of a tiered diagnosis and treatment system. These regions are Hebei, Shanxi, Liaoning, Shanghai, Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi, Henan, Hubei, Guangdong, Shenzhen, Guangxi, Hainan, Chongqing, Sichuan, Yunnan, Shaanxi, Heilongjiang, Qinghai, and Xinjiang. Meanwhile, six other provincial-level regions—Jilin, Shandong, Tianjin, Hunan, Guizhou, and Ningxia—are gradually launching pilot programs for tiered diagnosis and treatment.
In the implementation plans issued by local governments, most have set clear policy targets for family doctor contract signing rates and primary care consultation volumes. Regarding the family doctor contract signing rate, the "Key Tasks for Deepening Medical and Health System Reform in 2016" proposed that by the end of 2016, the coverage rate of family doctor contract services in urban areas should reach over 15%, with the coverage rate for key populations exceeding 30%. Most local governments have set a target of achieving a 30% family doctor contract signing rate in urban areas, while Guangdong Province and Shenzhen have further proposed coverage rates of 60% and 80%, respectively, for key populations.
In terms of clinical visit volume, the central government has not set specific targets, while most local governments have proposed achieving a rate of over 65%, with Shenzhen aiming for more than 70%:
Gansu: By 2017, consultations at primary healthcare institutions accounted for more than 65% of the total number of consultations;
Fujian: The proportion of visits to primary healthcare institutions accounts for ≥65% of the total number of medical visits;
Hebei: The proportion of visits to primary healthcare institutions accounts for ≥65% of the total number of medical visits;
Jiangsu: Primary medical and health institutions account for over 60% of total clinical visits;
Guangdong: By 2017, consultations at primary healthcare institutions accounted for 65% of the total number of medical consultations;
Shenzhen: The proportion of consultations at primary healthcare institutions accounts for over 70% of the total number of consultations.
A rough estimate of the market impact driven by an increased share of primary care visits suggests that the primary healthcare market is poised to exceed RMB 450 billion. According to the "2014 Statistical Bulletin on China's Health and Family Planning Development" released in November 2015, primary healthcare institutions recorded 4.36 billion patient visits (accounting for 57.4% of total visits), with an average outpatient cost of RMB 92.3 per visit. If the proportion of primary care visits rises to 65% of the total, assuming the average outpatient cost remains unchanged at the 2014 level of RMB 92.3, the annual outpatient expenditure in primary care would reach RMB 455.7 billion. This figure would be even higher if inpatient expenses incurred at primary healthcare institutions are included.
Primary Care Institutions to Exhibit a Diversified Coexistence Landscape; Private Clinics Hold Strategic Entry-Point Value
Envisioning the landscape of primary healthcare in the coming years, public primary healthcare institutions will likely continue to hold a significant position; however, the strategic value of private clinics as offline medical entry points will become increasingly prominent. This is because the operational efficiency of public institutions is heavily constrained by systemic factors, staff competency, and incentive mechanisms, whereas private clinics benefit from flexible structures and an efficiency-driven approach, offering substantial potential for improvement in internal management, team building, and market expansion.
From a functional perspective, private clinics are primarily categorized into Western medicine, traditional Chinese medicine (TCM), and specialized sectors such as medical aesthetics and dentistry. In terms of consumption levels, in addition to domestically grown private clinics, some overseas clinics are also actively expanding into the high-end healthcare market in mainland China. As the industry environment for specialized clinics in fields like medical aesthetics and dentistry has long been relatively market-oriented, their growth potential has already been partially realized. In contrast, general practice clinics in both Western medicine and TCM were previously constrained by the public hospital system and failed to achieve full development. General practice clinics, particularly those specializing in Western medicine, may assume the critical role of providing initial consultations at the primary care level in the future, thereby becoming strategically valuable offline entry points for healthcare services.
From the perspective of national and local policies, there is strong encouragement for social capital to establish private clinics, as evidenced by measures such as liberalizing establishment approvals, removing restrictions on planning and layout, advancing pilot programs, and encouraging government procurement of services.
The “Outline of the National Plan for the Healthcare Service System (2015–2020)” proposed relaxing licensing restrictions on the establishment of private individual clinics, stipulating that the setup of individual clinics and other primary healthcare institutions shall not be subject to planning and layout constraints, and shall be managed through market-based regulation.
“Guiding Opinions of the General Office of the State Council on Promoting the Establishment of a Tiered Diagnosis and Treatment System” proposes vigorously advancing privately run medical institutions, simplifying approval procedures for individual medical practice access, and encouraging qualified physicians to establish individual clinics to provide services to grassroots populations locally and in nearby areas;
The “Key Tasks for Deepening the Reform of the Medical and Health Care System in 2016” proposed piloting the liberalization of regulations to allow attending physicians and above, whether currently employed or retired from public hospitals, to practice or establish studios at primary healthcare institutions;
The “Key Tasks for Deepening the Reform of the Medical and Healthcare System in 2016” also proposes encouraging localities to actively explore providing subsidies for basic medical and healthcare services delivered by primary-level medical and healthcare institutions run by non-governmental entities, through government purchase of services.
Local governments have also introduced corresponding supporting policies around the time of the release of central government documents. For instance, Shanxi Province recently rolled out policies to encourage private investment in healthcare, proposing to delegate approval authority for facility establishment, shorten approval timelines, and broaden market access. These measures encourage social capital to invest directly in areas with scarce resources and those that meet diverse healthcare needs, while also integrating eligible private medical institutions into the local “120” emergency medical services network.
Guangdong Province, in its recently issued “Implementation Plan for Accelerating the Development of a Tiered Diagnosis and Treatment System,” proposed simplifying the approval procedures for individual medical practice licenses and encouraging qualified physicians and nurses to establish individual clinics and nursing stations at the primary care level.
Shenzhen started earlier and has gone further in marketizing primary healthcare. As early as January 2015, Shenzhen issued the Policy Measures for Shenzhen’s “Three Famous Projects” in Healthcare, which focused on introducing and cultivating renowned doctors (and specialties), famous hospitals, and well-known clinics, while encouraging non-governmental entities to establish high-level tertiary general or specialized hospitals. In March this year, it was further proposed that non-governmental entities be encouraged to operate community health centers, with restrictions on the number and site selection distances of such centers lifted. These privately operated community health centers are to enjoy equal policies as government-run ones in areas such as government-purchased services, talent support, appointment-based referrals, and medical insurance agreement management. Shenzhen also proposed improving the mechanism for government purchase of basic medical services, stipulating that by December 2016, subsidies would be provided for basic medical services delivered to insured individuals by non-public medical institutions included under social medical insurance agreement management.
Four Major Opportunities in Primary Healthcare
Based on an analysis of the future industry landscape and central and local government policies, it is evident that beyond seizing the strategic offline healthcare entry point represented by private clinics, there are six additional areas of market opportunity.
Opportunity 1: Healthcare Informatics in Primary Medical Institutions
Central policy proposes:
At the provincial (autonomous region, municipality) level, coordinate the development of information management systems for community health service institutions, and further integrate various related business systems, including those for maternal and child health care, family planning, immunization, infectious disease reporting, and severe mental disorders.
Promote the effective integration of community health information platforms with comprehensive community public service information platforms, facilitating the organic convergence and systematic integration of community health services with other community public services, convenience-oriented services, and volunteer mutual-aid services;
Continuously improve the functions of the community health service information management system, and gradually realize application functions such as appointment scheduling, registration, diagnosis and treatment, referral, public health services, as well as fee collection, medical insurance settlement, laboratory testing, and drug management;
Strengthen the construction of regional health information platforms to promote interconnectivity and resource sharing between community health service institutions and other medical and healthcare institutions within the region;
Leverage modern information technologies, such as mobile internet, smart clients, and instant messaging, to strengthen doctor-patient interaction, improve patient experience, and enhance service efficiency.
In terms of informatization, local governments have also formulated corresponding supporting policies for implementation. Guangdong Province recently proposed that by 2017, the national health informatization construction projects would basically cover all secondary and tertiary hospitals and more than 80% of community health service centers and township health centers; a hierarchical diagnosis and treatment management information system would be established, basically covering all secondary and tertiary hospitals and more than 80% of township health centers and community health service centers.
From a market perspective, there are already many companies whose primary businesses are hospital HIS systems and regional healthcare informatization, resulting in intense competition. However, according to observations by VCBeat, medical SaaS is gradually emerging and may achieve significant breakthroughs first in the market-driven private clinic sector.
Opportunity 2: The market for medical devices, equipment, and consumables driven by enhanced primary healthcare service capabilities
Central policies propose:
Strengthen the capacity of township health centers to deliver essential medical services, enhancing their capabilities in emergency resuscitation, routine surgeries below Level II, normal childbirth, screening for high-risk pregnant and postpartum women, and pediatric care.
Encourage the use of facilities and equipment such as self-service registration, electronic queue calling systems, self-service printing of laboratory test results, and health self-assessment tools.
To enhance their service capabilities, primary healthcare institutions will generate substantial procurement demand for medical devices, equipment, and consumables. Public primary healthcare institutions will primarily adopt government-led centralized tendering and procurement, while private clinics present significant market opportunities through B2B e-commerce platforms and SaaS-enabled supply chain integration.
Opportunity 3: Telemedicine with Primary Care Institutions as the Entry Point
Central policies propose:
Encourage secondary and tertiary hospitals to provide remote services such as teleconsultation, remote pathology diagnosis, remote imaging diagnosis, remote electrocardiogram (ECG) diagnosis, and remote training to primary healthcare institutions; encourage regions with appropriate conditions to explore effective models of “primary-level examination and upper-level diagnosis.”
Advance the development of telemedicine systems and provide remote medical services, including remote consultations, medical imaging, and electrocardiogram (ECG) diagnosis.
In the promotion of telemedicine, primary healthcare institutions have become a critical component due to their heavy responsibilities in managing chronic diseases. Related information systems, electronic devices, and services may present significant market opportunities.
Opportunity 4: Nursing Rehabilitation, Chronic Disease Management, and Elderly Care Services
Central policy proposes:
By 2020, the number of beds in primary healthcare institutions per 1,000 permanent residents reached 1.2, with a focus on strengthening the provision of nursing and rehabilitation beds;
Community health service institutions shall enhance their capacity for the diagnosis and treatment of common diseases, frequently occurring diseases, and chronic diseases;
Primary healthcare institutions, rehabilitation hospitals, and nursing homes (hereinafter collectively referred to as “chronic disease medical institutions”) provide treatment, rehabilitation, and nursing services to patients with clearly diagnosed and stable chronic diseases, those in the rehabilitation phase, elderly patients with age-related conditions, and patients with advanced-stage tumors.
Focusing on diseases such as hypertension, diabetes, and tuberculosis, establish a communication platform connecting general practitioners with specialists in public hospitals to strengthen division of labor and collaboration, facilitate vertical integration between primary and tertiary care, and explore the implementation of community-based first-contact diagnosis and a two-way referral system;
Primary healthcare institutions may collaborate with secondary and tertiary hospitals, chronic disease management facilities, and other entities to provide services such as geriatric care, home nursing, community-based care, mutual aid care, home hospital beds, and medical rehabilitation for patients with chronic diseases, age-related conditions, and other illnesses.
Encourage community health service institutions and elderly care service institutions to engage in diverse forms of cooperation, strengthen coordination with relevant departments, and collaboratively promote the integrated medical and elderly care service model.
Currently, a critical component of nursing and rehabilitation is missing from China’s healthcare system, and primary care institutions are well-positioned to assume this responsibility. Furthermore, chronic disease management and elderly care services represent emerging markets with substantial growth potential. As diagnostic and treatment capabilities improve, and as technologies such as the internet, the Internet of Things (IoT), medical wearables, and point-of-care testing (POCT) are comprehensively adopted, primary care institutions will play a significant role in these three market segments.
Tiered diagnosis and treatment is a key healthcare reform direction strongly promoted by the Chinese government, ushering in significant growth opportunities for sectors represented by primary care. VCBeat will continue to monitor developments in primary care and identify entrepreneurial and investment opportunities. Feel free to add WeChat ID yeyurenlei for further discussion and exchange.