Prospects and Challenges in the Development of Medical Groups: Insights from Industry Leaders

On Thursday, May 19, 2016, the inaugural session of the “Tide Resonance” Series Think Tank Salon, co-hosted by VCBeat and Cheung Kong Graduate School of Business (CKGSB), was held at CKGSB in Beijing. This salon was a special event themed around “Physician Groups,” aiming to conduct an in-depth analysis of the future trends and investment opportunities in the physician group sector through case reviews of relevant enterprises.

VCBeat will summarize the event content and compile the highlights from the speakers as follows:

Mr. Li Datao, Founder of VCBeat

Healthcare at a New Starting Point That Requires Reimagining the Future

A book titled *The Future of Healthcare*, authored by a American medical futurist, highlights a core thesis: the integration of emerging technologies—such as novel data sources and virtual reality (VR)—with healthcare has the potential to reshape the entire medical system. Does the rising incidence of doctor-patient conflicts indicate that the current healthcare environment is beyond remedy? VCBeat believes that, guided by new technologies, our world will become a better place.

We are currently facing a complex healthcare environment and prominent doctor-patient conflicts. With the introduction of this new technology, we will be ushered into a new healthcare system and a new realm of doctor-patient relations.

A surge in the number of physicians and physician groups, coupled with a continuous influx of capital into the sector, means that such new technologies may restore professional dignity to doctors, liberate them from existing constraints and shackles, and grant them greater autonomy. Meanwhile, in the new era of the Internet of Everything (IoE), these developments may help shape a doctor-patient environment that truly aligns with our vision.

Mr. Zhang Qiang, Founder of Dr. Zhang Qiang Medical Group

Three Problems with Traditional Healthcare Systems

In the current healthcare system, patients are dissatisfied, doctors are dissatisfied, hospital administrators are dissatisfied, and the government is also dissatisfied; yet this system persists. To address this, we must first understand the specific problems inherent in the previous system.

First, doctors do not acknowledge that healthcare is a service.

This was a widespread perception within the public healthcare system in the past: that physicians lacked a service-oriented mindset. As a result, internet companies, investment firms, and other entities that engage with doctors often perceive them as aloof or overly idealistic.

Second, doctors place little importance on their personal brands.

There are two reasons for this. On one hand, the continuous strengthening of hospital branding in the past has led to the decline of physician branding, which is also why many physicians find it difficult to leave their current positions. The dominance of hospital brands can result in insufficient intrinsic motivation among physicians to provide high-quality services. Physicians may believe that patient treatment outcomes are not directly related to their individual efforts. Furthermore, as long as they practice within the platform of a strong-brand hospital, physicians may feel less pressure to excel technically, since patients prioritize the hospital’s brand reputation over the individual physician’s technical skills.

Third, “funding healthcare through drug sales” is the most lethal institutional feature.

When physicians do not derive their income through transparent, standardized, and legal channels, where do their incentives lie? For instance, stents are sometimes implanted in surgeries where they are not medically indicated; internal fixation plates are installed for patients who do not require them; and while only two screws may be necessary, three to six are often inserted, ultimately imposing greater financial burdens on patients. Since the majority of these costs are covered by medical insurance, the state fiscal budget also bears a heavier load. At the national level, this is precisely why the existing medical insurance fund fails to meet the demands of developing high-tech healthcare.

Ms. Jiang Yanye, Executive Director of Honghui Capital

Three Key Points for Investing in Physicians or Physician Groups

1. The physician’s own influence。

In other words, the prerequisite for investing in a physician is that they must be a renowned doctor. The term “renowned doctor” carries a two-fold meaning: first, they possess exceptional clinical expertise; second, beyond their strong academic background and professional capabilities, they have established personal brand recognition among patients, independent of the hospital’s reputation.

Second, the core leader.

Most physician groups are named after their founding physicians, such as the Zhang Qiang Group founded by Dr. Zhang Qiang, the Song Donglei Group founded by Dr. Song Donglei, and the Gong Xiaoming Physician Group. These entities require a highly prominent leader to establish and strengthen the brand. If a physician group is formed by doctors without strong personal brands, it will need endorsement from other established brands to support its credibility.

Third, operational capabilities and experience。

Currently, most physicians operate as solo practitioners, focusing primarily on clinical diagnosis and treatment. Therefore, physician groups require a team with a commercial mindset. In essence, physicians or physician groups need a partner with strong operational capabilities to provide business management support.

Director, Clinical Management Department, Third Military Medical UniversityMr. Zhou Feng

Two Factors Driving the Development of Physician Groups

Compared with the past, there has been a fundamental shift in mindset and philosophy within the current healthcare sector.

First, the comprehensive support for healthcare services across the entire lifecycle has provided significant room for the development of physician groups.。

For instance, physician groups specializing in general practitioners will emerge in the future. Currently, United Family Healthcare is the leading player in this field in China, having adopted a general practitioner model for initial consultations and treatment.

Secondly, the treatment process has undergone a fundamental transformation, shifting from a singular, disease-centric approach to a cyclical model encompassing the entire health journey of diagnosis and treatment.。

This shift has created numerous opportunities for the refinement of medical specialties and clinical workflows, while also providing another catalyst for the development of physician groups. More granular demands and finer industry specialization are fostering a greater number of top-tier professionals, including highly accomplished physicians in the field of electrophysiology. Emerging changes in patient psychology, driven by the intersection of societal and medical factors, will in turn propel the growth of physician groups. This is due to increased demand, more diverse perspectives, and higher expectations, further amplified by the internet’s integration of information, which continues to narrow the gap between physicians and patients.

Visiting Assistant Professor of Strategy and Innovation, Cheung Kong Graduate School of BusinessMr. Wang Yanbo

The partnership model will be a major direction for the future development of physician groups.

Physician groups are particularly significant in the current era. From the perspectives of entrepreneurship and systemic reform, this represents a “zero-to-one” process, akin to the emergence of private entrepreneurs in the early 1980s against the backdrop of a planned economy, evoking a refreshing sense of change. While there are inevitably certain drawbacks and limitations, physician groups represent an epochal development. Stakeholders within the healthcare system aspire to transition toward a new model characterized by competition, direct dialogue between patients and physicians, and a patient-centered approach.

Meanwhile, physician groups should explore other initiatives. Although the partnership model is not the primary direction, it will constitute a significant one. There will undoubtedly be an increasing number of healthcare institutions adopting collaborative, innovation-driven partnership structures. This trend is dictated by the inherent characteristics of the healthcare industry. To a large extent, the medical profession shares substantial similarities with accounting and law; becoming a proficient practitioner in these fields ultimately relies on the long-term accumulation of experience, enhancement of individual skills, and development of professional networks.

When setting aside the institutional framework, the focus shifts to the individual level. The traditional healthcare system in China was hospital-centric, which differs fundamentally from the U.S. model. In the United States, patients seek care from physicians; in China, they historically sought care from hospitals. However, the situation has improved. In the past, there was significant information asymmetry between patients and physicians. Under such circumstances, how could one determine whether high-quality care would be received? In reality, judgments were not based on firsthand experiences shared by other patients, but rather on hierarchical allocations derived from institutional evaluation criteria. In this context, it is highly meaningful for stakeholders to transcend the existing institutional constraints and explore new models, whether through partnership arrangements or other innovative approaches.

Director, Hospital Administration Office, Peking Union Medical CollegeMr. Wang Haitao

Errors and Complexity Both Signal Opportunities

China’s healthcare environment is plagued by systemic flaws. Traditional Chinese Medicine (TCM) was originally quite effective, but its development has been severely constrained, primarily due to the dominance of Western medicine. Western medicine arrived in China on the heels of the Eight-Nation Alliance’s military invasion, with Peking Union Medical College serving as a prime example of its introduction. Once established, Western medicine exerted considerable influence, marginalizing TCM. Despite TCM’s strengths in philosophy, culture, techniques, and pharmaceuticals, it has been devalued under the pressure from Western medicine.

The reasons are as follows:

First, the policy landscape at that time hindered the industry’s development.

Second, the government lacks the funds to invest in this sector. Objectively speaking, despite decades of reform and opening-up, government spending on healthcare has remained insufficient to this day.

Third, there are issues with the pricing system.

What is a pricing system? For instance, physicians themselves hold intrinsic value: how much should a consultation cost, and how much should a surgical procedure cost? This value belongs to the individual physician. Yet, while some medical institutions charge merely five yuan per registration ticket, others charge three hundred yuan. Such disparity clearly distorts this inherent value. Compounded by repeated rounds of healthcare reform—oscillating between public-welfare orientation and market-driven approaches—the frequent changes have hindered the formation of a stable and coherent pricing structure.

In a complex, flawed system, everyone strives to do the right thing, yet all feel the strain amid conflicting pressures and intricate interest groups. The primary challenge facing this sector today is how to effect transformation, foster innovation, or drive disruption within such a dysfunctional framework. Healthcare represents the most complex socio-organizational system worldwide, and China’s flawed system is particularly intricate. However, every situation has two sides; within this highly complex system lie even greater opportunities.