The 2016 Offline Clinic Battle: Internet Healthcare Giants Go Brick-and-Mortar

Over the past year, Spring Rain Doctor, DXY, and Ping An Good Doctor have all begun establishing offline clinics. In early 2016, Xingren Doctor announced the launch of offline physician studios, with a plan to establish 100 such studios by 2018.

It is evident that the competitive frontier of internet healthcare is shifting from online to offline. After leveraging internet tools and methods to accumulate a sufficiently large user base, these internet healthcare companies are gradually exploring viable business models. Establishing offline clinics is not only aimed at enhancing the user experience but also constitutes a critical component of the business models they are currently building.

From the perspective of systemic transformation in healthcare, the rise of offline clinics is driven by the liberalization of policies allowing physicians to practice at multiple sites. Whether online or offline, physicians remain the core resource. The intensifying competition among offline clinics signals an impending battle for physician talent.



Why Open a Clinic?

2014 is regarded as the inaugural year of internet healthcare, while 2015 saw the sector enter a period of intense competition akin to the Warring States era. As the industry ecosystem evolved, a consensus emerged within the sector: the thriving prosperity of internet healthcare hinges on the effective implementation of offline services.

Spring Rain Doctor (hereinafter referred to as “Spring Rain”), which debuted in 2011, can be regarded as a pioneer in China’s internet healthcare sector. Amidst various external controversies and doubts, Spring Rain Doctor has steadily grown into the leader in the field of online consultations, aggregating 410,000 doctors and 92 million consumer-side users over four years.

The Development History of Chunyu Doctor: A Microcosm of the Development of Online Consultation Platforms in China

Many online medical consultation startups initially adopt a free-of-charge business model, and Spring Rain is no exception. The provision of free services in the early stage can be viewed as a funnel: after accumulating a sufficiently large user base, a portion of high-value users are converted to paid models, while the professionalism of the services is simultaneously enhanced. Typically, free services serve as foundational features to attract traffic, offering question-and-answer-based health and medical information. These questions and answers are relatively brief; many complex issues cannot be thoroughly resolved through free consultations, thereby leading users to either opt for paid services or seek offline medical care.

It is reported that Chunyu Yisheng currently handles over 80,000 online consultations per day. More than 70% of these inquiries are resolved quickly, while nearly 30% require further offline management.

Spring Rain’s evolution from offering completely free services to users initially to implementing tiered pricing based on user needs reflects the gradual exploration of profitability models by online consultation platforms.

Users who have higher demands for timeliness, interactivity, and personalization often need to access paid sections to obtain more professional and comprehensive services. For example, HealthTap has achieved great success in converting free users to paid ones and integrating both models: it ranges from free online Q&A, to micro-consultations supported by instant messaging tools with small fees, and then to video consultations with a monthly subscription fee of 99 yuan, where the platform shares revenue with doctors. Spring Rain has launched a similar service called "Private Doctor."

However, the low willingness of users to pay is a major challenge faced by all online medical consultation platforms in China.

According to the "Interpretation of Spring Rain Doctor Report" previously released by VCBeat, the conversion rate from ordinary users to members on Spring Rain’s app platform is approximately 5%, and the number of free consultations is nearly ten times the number of private doctor subscriptions. After Spring Rain introduced paid services, users opting for free consultations faced longer waiting times; however, this did not increase their willingness to pay, as the vast majority of lightweight medical consultations do not have high demands for timeliness. To further deepen its private doctor services, Spring Rain needs to integrate corresponding offline services.

This is the inevitable path for the development of online consultation platforms such as Spring Rain, and it also represents a tough battle they will face in the future. According to Zhang Rui’s plan, offline clinics are not only intended to enhance user experience but are also an inevitable choice for Spring Rain’s profit model. “The profit model for all mobile health companies revolves around insurance or insurance-like products; large-scale players become insurance companies, while smaller ones partner with insurance companies.”

“In Zhang Rui’s view, today’s private physician services represent the prototype of health insurance. ‘The core element of our Chunyu Health Insurance, developed in partnership with insurance companies, is the private physician. When you purchase our Chunyu Health Insurance, we assign you a private physician and cover the costs of medications for offline examinations and treatments at Chunyu Clinics. These are the two most essential components, while peripheral offerings include services such as health check-ups. This constitutes the basic framework of an insurance product.’”

Dingxiangyuan, which started as a physician community, has long been skeptical of online consultations. Li Tiantian, the founder of Dingxiangyuan who comes from a family of medical practitioners, places great emphasis on medical safety and quality. Over the past 15 years, Dingxiangyuan has amassed a professional network of 2 million physicians. Previously, Dingxiangyuan’s revenue model included paid physician tools, recruitment services, and sales of biological reagents. Offline clinics represent a new attempt at diversifying its revenue streams.

Xingren Doctor is an emerging player, focusing specifically on the field of post-consultation follow-up. Currently, its platform hosts over 360,000 physicians. Xingren Doctor’s strategy centers on serving physicians, aiming to attract more patients by delivering high-quality services to doctors. Martin, CEO of Xingren Doctor, stated that multi-site practice for physicians is a major trend, and their establishment of offline physician studios is designed to align with this broader development.

Self-builtorCooperation?

In terms of the operational models of offline clinics, Spring Rain Doctor and DXY represent asset-light and asset-heavy models, respectively. Spring Rain Doctor primarily operates through collaborations with private offline hospitals, whereas DXY has built its own facilities entirely in-house.

Chunyu Doctor adopts a four-pronged approach: in addition to the cooperative model, it is also exploring trusteeship, franchising, and self-built facilities.

The trusteeship model involves Spring Rain Clinic managing hospitals affiliated with communities or enterprises. Currently, Spring Rain has implemented this trusteeship model in Wuhan and other regions. The typical operational approach entails assigning physicians from Grade 3A hospitals to provide clinical services at the clinics, with their salaries disbursed by Spring Rain.

According to Zhang Rui, the management of community hospitals by Chunyu Clinics is related to chronic disease management. The rationale behind this managed service model is to implement the logic of chronic disease management within community hospitals by pairing community physicians with specialists from higher-tier medical institutions. As a result, a patient with diabetes is co-managed by two physicians: a community doctor who provides basic care services, and a senior specialist. It is reported that Chunyu has currently partnered with China’s largest property management company, leveraging their residential properties to establish clinics on-site.

The third model is the franchise system. Spring Rain plans to open two flagship clinics in Wuhan and Beijing. Zhang Rui hopes that Spring Rain’s flagship stores can adopt a model similar to that of Home Inn and Crystal Orange Hotels. In terms of operational model, Spring Rain has largely integrated with commercial insurance, aligning hospital facilities with commercial insurance providers. This commercial insurance is not high-end medical care like that offered by United Family Healthcare; rather, commercial insurers sign contracts directly with Spring Rain’s clinics/hospitals. “This is essentially a clinic demonstration store co-developed with commercial insurance companies,” said Zhang Rui. He believes that while there are many clinics in China, they suffer from poor management, particularly failing to resolve two key issues: patient acquisition and payer identification. Spring Rain, with its own online consultation platform, can address the patient acquisition issue, while commercial insurance companies serve as the payers. If Spring Rain clinics can achieve widespread expansion across China, it is not impossible for this model to succeed, though it will require significant capital investment and time for validation.

The fourth model is self-construction. Spring Rain has discussed the establishment of renowned physician clinics with many doctors, offering them a certain equity stake in these ventures. Both boutique clinics and renowned physician clinics will be launched simultaneously in Beijing.

Dingxiang Yuan currently adopts only this self-built model.

On January 18, 2016, DXY unveiled its first clinic in Hangzhou. The project required an investment of tens of millions of yuan and took approximately eight months to complete. The primary drawback of building proprietary clinics is the high cost. However, when Spring Rain partners with other institutions to rent their consultation rooms, it lacks control over all aspects except for the face-to-face consultation, particularly failing to ensure medical quality. Moreover, each medical institution employs a different Hospital Information System (HIS), has distinct service workflows, and adheres to varying cooperation standards, resulting in significant integration costs for both parties.

It remains unclear whether the physician studios under Xingren Doctor are self-built or established through partnerships. However, Martin expressed skepticism toward the asset-heavy model, citing the difficulty in recouping investment costs.

The Challenge of Converting Online Traffic to Offline Retention

According to Zhang Rui, CEO of Spring Rain, the company planned to have 300 Spring Rain Clinics in operation across China by the end of 2015. Currently, Spring Rain has indeed signed contracts with more than 300 clinics, but most of them are not yet in actual operation.

In the cooperative model, the ideal state for Spring Rain Clinic is for Spring Rain to provide patient and physician resources, while utilizing partner hospitals’ offline facilities and diagnostic equipment free of charge, with reimbursement through medical insurance.

Chunyu Clinic faces two major challenges in achieving its expected goals: first, it is difficult to convert the substantial online traffic into offline visits; second, the partnership model exerts weak control over clinics, making it hard to standardize the patient care experience; third, most partner hospitals are private institutions, which makes medical insurance reimbursement difficult to implement.

The underlying reason is that online users are dispersed across China with diverse healthcare needs, whereas offline clinics are constrained by geographic limitations. Currently, patients’ primary choice for medical care remains public Grade 3A hospitals, making it difficult for Chunyu Clinic, which lacks brand recognition, to gain patient trust. On the other hand, Chunyu aims to achieve cost containment through its offline clinics to facilitate integration with insurance services. However, the collaborative model with private hospitals limits Chunyu’s influence over clinic operations, making it challenging to ensure a consistent patient experience and thereby undermining its cost-containment objectives.

The challenges facing Chunyu are common to all companies currently seeking to establish offline clinics.

Zhao Xinger, Brand Director at DXY, stated that the DXY Doctor WeChat official account alone has attracted over 5 million followers, in addition to a large user base acquired through its mobile products and WeChat official account matrix. However, how to channel these online resources to offline DXY Clinics remains a question DXY is currently addressing. At this stage, DXY is attracting consumer-end users through WeChat and offline promotion, among other methods.

Xingren Doctor has taken a novel approach by entering the market through the B-side to ultimately serve C-end users. Martin describes this model as “managing patients together with doctors.” Xingren Doctor consistently focuses on the physician community for its service offerings and product upgrades. This strategy is closely tied to Martin’s professional background. He is a former military physician with the United Nations Peacekeeping Forces, a general practitioner in Australia, and one of the earliest administrators at United Family Healthcare. In his view, only by maximizing the value of physicians can the current patient care experience in China be improved.

Spring Rain is also attempting to address the issue of offline customer acquisition by targeting the B2B sector. Chen Lei, Brand Director of Spring Rain Doctor, stated that foot traffic for offline clinics cannot rely solely on individual consumers (C-end). “By engaging corporate clients as B2B users, companies can resolve payment issues by purchasing commercial health insurance for their employees.”

How to Attract Physicians?

Without exception, internet healthcare platforms currently laying out offline clinics all hold substantial financing. Spring Rain secured $50 million in Series C funding, DXY obtained $70 million in Series C funding, and Almond Doctor raised RMB 200 million in Series B funding. Ample capital is the cornerstone for winning the clinic war, and the participants in this “war” are inevitably well-funded companies.

However, money alone is far from sufficient. To get a clinic operational, the primary challenge is securing a source of physicians. While internet healthcare companies have an abundance of doctors available online, online and offline practices are two different matters. Doctors can patiently answer patients’ questions online by utilizing their fragmented time, whereas offline consultations require relatively continuous and ample blocks of time.

Li Tiantian believes that, from a policy perspective, restrictions on physicians practicing at multiple locations have begun to ease. However, the motivation and willingness of physicians to engage in multi-site practice remain uncertain, as they still harbor certain concerns. Therefore, DXY Clinic currently focuses primarily on recruiting full-time physicians. Nevertheless, DXY Clinic is also considering collaborations with third-party medical institutions to become an optional platform for physicians practicing at multiple locations.

With countless platforms available for physicians to choose from, the inherent appeal of each platform will determine their motivation to engage in multi-site practice.

Whether practicing full-time or at multiple sites, a major driver for physicians engaging in multi-site practice is the prospect of higher, dignified income—rather than relying on kickbacks from prescription drugs. Online consultations already meet this need for some physicians. In offline settings, doctors generate economic returns through consultation fees, a common model adopted by private hospitals such as United Family Healthcare.

Furthermore, granting physicians equity and stock options to make them partners in the clinic is a common strategy for offline clinics to attract top talent.

To Integrate with Insurance, Cost Control Is Key

At present, the majority of patients at Dingxiang Clinic are self-pay. To reach a broader population, integrating with public medical insurance and commercial health insurance is an inevitable choice for the future.

Last year, both Spring Rain Doctor and DXY entered into cooperation agreements with relevant insurance companies. Zhang Rui also publicly stated that a major future profit driver for Spring Rain Doctor would be insurance. Offline clinics serve as healthcare service providers within the insurance framework; therefore, cost control is key to achieving profitability through insurance.

VCBeat has learned that Chunyu Clinic currently charges approximately RMB 200 per consultation, with the total cost reaching around RMB 500 when including examination fees and medication. This price level is not low compared to public hospitals. Chen Lei also stated that the trial operation results of Chunyu Clinic fell short of expectations, with cost control being one of the contributing factors.

To truly achieve cost control and integrate with public medical insurance or commercial health insurance, clinics need to establish their own clinical practice guidelines and medication protocols. This is precisely what DXY Clinic is attempting to do.

Currently, DXY Clinic has also developed its own clinic information system, established a general practitioner training framework, and integrated with third-party providers for pharmaceuticals and testing. By adopting standardized service processes and leveraging extensive smart hardware and mobile internet technologies, it delivers services that reduce costs for both patients and healthcare provision. For instance, DXY Clinic shares electronic prescriptions with Shanghai Pharmaceuticals, which handles drug distribution and related services; medications can be dispensed in divided doses as needed by patients. Highly specialized services, such as physical examinations and laboratory tests, are outsourced to independent third-party diagnostic companies like KingMed Diagnostics and Dian Diagnostics. The current consultation fee structure at DXY Clinic is RMB 180 for adult initial visits, RMB 180 for adult follow-up visits, RMB 300 for pediatric initial visits, and RMB 100 for pediatric follow-up visits.

DXY plans to establish three to five clinics this year, primarily in Hangzhou, with each facility spanning approximately 800 to 1,500 square meters. Pediatrics is a key specialty of these clinics. Prior to the launch of DXY Clinics, its pilot pediatric clinic in Fuzhou demonstrated strong operational performance, which led to the establishment of pediatrics as a core service offering.

Chen Lei told VCBeat that Spring Rain will refine relevant cooperation agreements with its contracted clinics this year, specifically covering clinical treatment standards, medication guidelines, and other related matters. Zhang Rui previously stated that Spring Rain had already achieved break-even in 2015. Under the new plan, Spring Rain aims to have 50 to 100 offline clinics in actual operation by the end of 2016 and plans to integrate with the national medical insurance system.

Martin stated that his consultation fees are significantly lower than those of existing clinic platforms. “We aim to ensure reasonable cost-effectiveness for offline clinics. The primary focus is on cost control rather than adhering to the traditional model, where hardware is not the key element. Instead, the emphasis should be on reflecting the value of physicians.” Martin further explained that doctors on the Xingren Doctor platform operate as independent practitioners, whether providing services online or offline, with Xingren Doctor serving merely as a platform or venue.

Dingxiang Yuan, Chunyu Yisheng, and Ping An Good Doctor are all attempting to implement the HMO model by integrating insurance services, aiming to control costs while ensuring the quality of medical care for patients. However, Martin believes that there is a misunderstanding of the HMO model in China. “HMOs are designed to prevent patients from spending money so that insurance companies can make profits. The primary goal is to avoid excessive waste of medical resources, not to help you find the best specialists.”

This does not mean that Almond Doctor will not consider collaborations with insurance companies in the future. “We will collaborate with insurers, but this is not the core focus of Almond Doctor,” Martin told VCBeat. He noted that, compared to the public healthcare system, mobile health companies, as market-driven forces, should place greater emphasis on market-oriented medical needs and services.