Entrepreneurial Opportunities Under China's Tiered Medical Treatment Policy: A Prospectus Overview

I have heard industry colleagues discuss tiered diagnosis and treatment more than once. Everyone agrees that it represents a significant market opportunity with considerable potential for impact, and some have already made substantial progress. Yesterday, a friend from Shanghai engaged me in an in-depth discussion on this topic. His product, positioned for tiered diagnosis and treatment, is already under development and expected to launch soon. While the vision is appealing, reality has proven less cooperative. As product development has progressed, he has encountered increasing challenges, to the point where he is nearly ready to give up. I believe many others share similar sentiments. There is widespread uncertainty and a strong desire for clarity. Therefore, I would like to explore this topic further, hoping to offer some insight and hope.

What Exactly Is Tiered Diagnosis and Treatment??

The common perception of tiered diagnosis and treatment is that patients receive care based on their condition severity and are referred between hospitals, specifically through a policy of transferring patients from smaller hospitals and clinics to higher-level institutions. However, this is not the original intent behind the national implementation of the tiered diagnosis and treatment system.

Tiered diagnosis and treatment is a key component of this year’s healthcare reform. The policy aims to allocate medical resources rationally, facilitate scientific and effective patient triage, and ensure that diseases of varying severity are treated at healthcare institutions of appropriate levels. A slogan associated with this policy is “90% of patients receive care within their county.”

In fact, the main focus of healthcare reform in many regions has shifted to the reform of county-level hospitals, with Guangdong Province, for example, implementing particularly robust measures in this area. The majority of patients receive care at county-level or primary healthcare institutions, which constitutes the core essence of tiered diagnosis and treatment. Common minor ailments are treated at community or township health centers, while most major diseases are managed at county-level hospitals. Only a small number of complex and refractory cases are referred to top-tier tertiary hospitals. This represents the fundamental requirement of the tiered diagnosis and treatment policy.

Tiered diagnosis and treatment require that the majority of patients receive care at smaller hospitals, raising concerns about their diagnostic and therapeutic capabilities—for instance, whether county-level hospitals are capable of managing 90% of patient cases. This is not a matter of willingness but one of capability, which inevitably causes considerable concern.

Indeed, given the current technological capabilities, such tasks are difficult to accomplish. This is precisely the real driving force behind the administrative departments’ determination to implement tiered diagnosis and treatment. Imagine if county-level hospitals were capable of handling such tasks; the overcrowding in large hospitals would be alleviated.

Lower-tier hospitals face insufficient technical capacity yet are required to handle a large volume of patient diagnosis and treatment. This presents new challenges for these institutions. To ensure the smooth implementation of this policy, governments at all levels have introduced corresponding supporting measures, the most important of which is so-called policy-driven technical assistance. Such assistance has actually been in place for quite some time; however, due to the lack of profit incentives, its effectiveness has been poor.

To fundamentally address the challenge of weak technical capabilities in primary healthcare institutions, the government has introduced a special policy provision, in addition to general policy-based assistance, that allows tertiary hospitals and lower-tier hospitals to share resources and distribute profits. This measure has led to a rather unique phenomenon: technical experts from higher-level hospitals have taken the initiative to support lower-tier hospitals, ultimately resulting in shared benefits. This represents the most significant ripple effect following the implementation of the tiered diagnosis and treatment policy.

So, why does such a reaction occur? This is primarily related to the redistribution of medical resources. In the general public’s perception, large hospitals never lack medical resources; patients struggle to access care, while hospitals face no shortage of demand. This is a deeply entrenched pattern formed under the current system. It is precisely this pattern that lies at the root of the current difficulty in accessing medical care.

Tiered Diagnosis and Treatment Will Force Large Hospitals to Become Market-Oriented

For patients, whether suffering from major or minor illnesses, if everyone flocks to large hospitals, these institutions will inevitably become overcrowded. This is a reality we have recognized for many years. Within this context, large hospitals firmly monopolize medical resources and are the biggest beneficiaries of the system, while smaller public hospitals, although part of the same system, remain in an awkward position. This long-standing inequity in the allocation of medical resources has spoiled many large public hospitals.

Now the question arises: most patients can no longer seek care at such large hospitals, as they are restricted to completing their treatment at smaller or lower-tier hospitals. As a result, will the resources of large hospitals decrease significantly? The answer is undoubtedly yes. No large hospital will be spared, regardless of its reputation. Precisely because this possibility exists, some have even boldly predicted that in the near future, a substantial number of Grade 3A hospitals will lose their prestigious status, potentially leading to widespread staff layoffs. These are potential outcomes following the implementation of the tiered diagnosis and treatment policy. If this indeed comes to pass, all large hospitals will generally face an unprecedented resource crisis.

Virtually all large hospitals are public institutions, yet they have been fully thrust into the market. As participants in this market-driven environment, public hospitals must strive to maximize their revenue to ensure their survival. However, with a noticeable decline in patient numbers and underutilized medical resources, how can these hospitals sustain themselves? Consequently, many public hospitals have resorted to various market-oriented tactics that typically characterize commercial entities.

Pros and Cons of Medical Consortiums

One of the hottest concepts in the healthcare industry last year was the Medical Consortium, a notion that had been proposed several years earlier. In essence, a Medical Consortium is a hospital group with intertwined interests, where large hospitals deploy technical personnel—and even management staff to take over operations—to county-level or lower-tier hospitals. This integration transforms subordinate hospitals and major medical centers into a community of shared interests, thereby enabling greater access to medical resources.

The emergence of medical consortiums enables the effective downward transfer of technical expertise from upstream institutions, thereby enhancing the diagnostic and treatment capabilities of lower-tier hospitals and achieving the goal of retaining the majority of patients within their county. This serves as a critical technical support for the tiered diagnosis and treatment policy. Members of a medical consortium are bound together by shared interests, resulting in a de facto monopoly with a highly rigid structure. Within such a system, if patients at lower-tier hospitals require treatment at higher-level facilities, they are generally retained within the consortium rather than being lost to other large hospitals.

It is evident that the ability of Medical Consortiums to aggregate healthcare resources has driven many large hospitals to embark on extensive expansion, resulting in a current landscape reminiscent of “warlord fragmentation.” By this year, the delineation of these spheres of influence has been largely completed. Taking Guangzhou as an example, nearly all major hospitals have established their own Medical Consortiums within the province. Consequently, each subordinate hospital is confined within a “tight-knit” referral “channel,” making it highly difficult for patients to seek care outside this designated pathway.

At this point, many readers may ask: Since seeking medical care is a personal decision, and no outsider can force a patient to choose a specific facility, how could anyone possibly control the direction of patients’ healthcare-seeking behavior? Even with policy restrictions, or despite the misleading advice from county hospital physicians or even medical touts, why can’t patients simply choose to seek care at large hospitals on their own? The answer lies in the structure of the healthcare system.

Nowadays, medical expenses have become a severe burden for many families. If all medical care were paid out-of-pocket, many people would be unable to afford treatment. Hence, health insurance was introduced, gradually evolving into universal health coverage, which has made medical care accessible to the majority of impoverished patients. But who formulates health insurance reimbursement policies? The administrative authorities. Currently, these authorities are seeking to implement a tiered diagnosis and treatment system, with health insurance serving as the most effective, and perhaps the only, management tool for this system. For the vast majority of patients, there is no choice but to receive treatment in accordance with policy regulations. The previous trend of patients flocking en masse to large hospitals has been curbed by the implementation of this policy.

In summary, the implementation of the tiered diagnosis and treatment policy is a crucial measure to address the current difficulty in accessing medical care. The essence of this policy is to curb patients’ indiscriminate movement, thereby achieving an orderly diversion of patient flow. If the number of patients at large hospitals is brought under control, excess physician resources will be freed up. Physicians are precisely the scarcest resource for existing internet healthcare companies. As the old medical landscape is disrupted and a new one gradually takes shape, significant business opportunities are inevitably emerging. Those who fully grasp the characteristics of this policy are sure to make substantial strides.

Three Major Characteristics of the Tiered Diagnosis and Treatment Market

Following the implementation of the tiered diagnosis and treatment policy, lower-tier hospitals have emerged as the primary beneficiaries. Previously struggling with low patient volumes, these institutions are now reaping the benefits of healthcare resources due to favorable policy shifts. However, this policy poses significant challenges for large tertiary hospitals, leading to a certain degree of patient outflow, reduced revenue, and mounting pressures across various operational aspects. This dynamic likely serves as the fundamental driving force for many companies seeking to capitalize on patient referral services.

Patient referrals are not uncommon; such practices have long existed even before the advent of the internet.

At that time, there were approximately three models: first, patients independently sought treatment at major hospitals; second, physicians at lower-tier hospitals referred patients to major hospitals for treatment; and third, specialized intermediaries, known as “medical touts,” guided patients.

This demonstrates that in traditional referral models, value is also generated due to the flow of resources. This constitutes what is known as a business opportunity.

Tertiary hospitals are eager to attract patients, a practice that effectively “poaches” them from primary and secondary care institutions. How can this be achieved? This requires first analyzing the characteristics of the market under the tiered diagnosis and treatment policy:

1, highly monopolized.Public hospitals are government entities, so policies are primarily designed to serve them. Although large hospitals have been pushed toward the market, their dominant position remains unshakable. Therefore, once systems such as Medical Alliances are established, it signifies the formation of a complete monopoly. Patient referrals mainly occur through fixed channels, making it difficult for patients to seek care at other hospitals. This ensures certain benefits for large hospitals. In this landscape, patient flow is inevitable; however, since large hospitals have already accounted for internal patient transfers within their own systems, they strictly prohibit third-party institutions from diverting patients. Online healthcare companies cannot find business opportunities within such a system and must seek opportunities outside of it. This approach clearly conflicts significantly with the structure of Medical Alliances. Without additional resources, there are no products, and consequently, no revenue. Therefore, the current highly monopolistic landscape is unfavorable for the commercial activities of internet companies.

2, potential risks.The tiered diagnosis and treatment system aligns with the current needs of the healthcare framework, yet it carries significant potential risks. It is important to recognize that policies are formulated by humans, and policymakers have always been “crossing the river by feeling the stones.” Consider this: if different individuals were tasked with “feeling the stones,” could the policies potentially undergo entirely different changes? The recent ban in Beijing on collaborations with third-party commercial platforms for adding appointment slots serves as a prime example of such policy risk. This regulation caught nearly everyone off guard, arriving with unexpected suddenness. This illustrates the detrimental impact of policy-related risks.

3, Conflict of Interest.Following the implementation of the tiered diagnosis and treatment policy, two types of conflicts of interest have emerged: one between medical consortia, and the other within medical consortia. At the core of these conflicts is the competition for patient resources. Among different medical consortia, hospitals may reach a tacit understanding to ensure that each party earns its share in an orderly manner within a monopolistic framework, thereby avoiding mutually destructive outcomes caused by vicious competition. While this aspiration is ideal, and would indeed allow all large hospitals to operate with peace of mind if all parties were compliant business operators, cooperation among businessmen is inherently limited—a constraint dictated by the nature of capital. Consequently, poaching of resources from one another occurs from time to time, creating profit opportunities for many third-party entities.

Another form of conflict of interest exists within medical consortiums, and such conflicts may be even more intense. Although lower-tier hospitals are bound by the rule-making systems established by higher-tier hospitals, they remain in a subordinate position. Their staff can never enjoy equal status with those from large hospitals, and all matters involving their immediate interests remain strictly separated. In this landscape, everyone inevitably strives to secure their own share to maximize self-interest. At the core of these interests lies patient resources. Higher-tier hospitals need patients, and lower-tier hospitals need them even more urgently. Consequently, conflicts are inevitable. Such contradictions significantly inhibit patient flow.

What Are the Business Opportunities in Tiered Diagnosis and Treatment?

The graded diagnosis and treatment market. In fact, the reason the healthcare sector constitutes a market is that possibilities exist in every aspect. I believe enterprises can consider the following areas:

1, product positioning.As mentioned above, the effects of this policy have completely closed off channels for out-of-system referrals. Therefore, how to reopen these channels will be key to the product’s success or failure. We recognize that although there are now many large hospitals, their capabilities—particularly across different specialties—vary significantly, with each hospital having its own most specialized departments. This disparity creates the technical feasibility for out-of-system referrals.

On the other hand, although large hospitals generally reach a tacit “non-aggression” understanding and avoid overreaching, such superficial accords are worthless when core institutional interests are at stake; safeguarding one’s own interests is what truly matters. Under these circumstances, business opportunities surge like a tide. Poaching staff is neither shameful nor illegal; on the contrary, it can even be framed as an effort to optimize the quality of tiered diagnosis and treatment services, termed “healthy competition.”

2, user's question.When it comes to online healthcare, many friends will unhesitatingly say that their primary users are doctors, followed by patients. However, for products focused on tiered diagnosis and treatment services, patients play no role whatsoever; the patients’ own preferences cannot influence product operations. I have discussed the issue of user identification with many peers, and too often, they immediately start talking about patients’ preferences and roles. This is a critical flaw. Consider this: many companies are burning through cash without even having clearly identified who their users are.

It is a well-known fact that while patients are the subjects of referrals, they do not have the autonomy to decide where they are referred. If patients could choose their preferred physicians independently, they would accomplish this through consultation apps, thereby eliminating the revenue model for apps specializing in referral services. Therefore, it is crucial to recognize that patients are by no means your users; your users are physicians, particularly those in primary care institutions. Such products essentially serve as a medium connecting physicians in lower-tier hospitals with those in higher-tier hospitals, which constitutes the core essence of the product design.

3, the function of commercial insurance.As previously mentioned, the primary reason patients are restricted to lower-tier hospitals is the constraint imposed by medical insurance policies. If patients violate these regulations and seek treatment at higher-tier hospitals on their own initiative, public medical insurance will not cover the costs. This has become a major source of anxiety for patients. However, if commercial insurance were to step in at this point, would it not create a win-win outcome for patients, higher-tier hospitals, and commercial insurers alike? Such an outcome would undoubtedly benefit commercial insurers, making the development of such insurance products relatively straightforward. Once commercial insurance provides this safety net, all policy-related barriers will inevitably be overcome.

4, and be adept at identifying potential patient resources.In the referral business, although patients are not the direct customers of the platform, they are the sole resource through which users can realize value. Only when users have access to this resource do they become valuable; otherwise, their existence lacks purpose.

The tiered diagnosis and treatment system primarily covers public hospitals, which also constitute the main body of medical insurance coverage. As mentioned above, due to policy-related factors, penetrating this market presents considerable challenges. However, this population does not represent the entirety of society; there are still many special groups who fall outside the scope of medical insurance benefits. The healthcare-seeking behavior of these groups is not constrained by such policies. Therefore, for entities aiming to engage in the tiered diagnosis and treatment business, delving deeply into these populations will undoubtedly reveal significant business opportunities.

5, be adept at uncovering potential business opportunities.Tiered diagnosis and treatment is a fundamental healthcare policy that, like all medical activities, encompasses both diagnostic and therapeutic aspects. Upon closer examination, it comprises numerous specific procedures. Large-scale or generic procedures can be easily performed across various hospitals, thus offering limited commercial value. However, those well-versed in medical practices understand that certain diagnostic and therapeutic procedures are beyond the capabilities of lower-tier hospitals under any circumstances. Even among higher-tier hospitals, not all large institutions can successfully perform these procedures. For such specialized services, the policy goal of keeping 90% of patient visits within county-level jurisdictions does not apply, nor are they constrained by systemic limitations. This creates significant business opportunities. Capturing even one such niche, if pursued with professionalism and depth, is sufficient to realize substantial commercial value.

6, issues of interest.In the practice of tiered diagnosis and treatment, many product designers still cling to outdated notions, believing that junior physicians are pleading with senior physicians to accept patient referrals. This reflects a complete lack of understanding of the realities of the healthcare market. In any market, the party controlling resources holds the bargaining power. Junior physicians control these resources, and they determine the flow of these resources, which grants them a dominant position in negotiations. Therefore, it is the physicians at lower-tier hospitals who must reap the rewards. For physicians at upper-tier hospitals, their role in this relationship is that of buyers, and buyers must pay. They need to pay not only the lower-tier hospitals but also for the product itself. This constitutes the most fundamental distribution of benefits. If this relationship can be properly aligned, greater opportunities will inevitably arise.

7, other profit-generating issues.Profitability is the primary consideration for any product. In the process of tiered diagnosis and treatment, patient referrals can create clear value. By adopting a broader perspective—looking beyond the superficial aspects of referral workflows—one may uncover additional opportunities. For instance, by carefully examining the operational details of the referral process, such as patient transport, transfer, and en-route medical care, can more opportunities be readily identified? In practice, there are indeed numerous such profit points.

Nowadays, there is a plethora of online consultation products, with profitability remaining the most pressing concern for stakeholders. After initial exploration, many platforms have shifted their focus to offline services—a prudent strategic move. Products centered on tiered diagnosis and treatment are characterized by their inherent integration of both online and offline operations. If these platforms can deepen and refine their service offerings, revenue streams will extend far beyond referral fees alone. There remain substantial opportunities for those willing to capitalize on this lucrative market segment.

(Author: Ye Fu, M.D., Postdoctoral Fellow at Sun Yat-sen University, and senior online medical commentator. Author's WeChat: willinew.)