Top 10 Internet Healthcare Events in China (2014–2015): A Prospectus Overview

Thanks to President Xi, who added further momentum to healthcare reform at the World Internet Conference as 2015 drew to a close and the New Year approached. The model of “Healthcare + Internet” or “Internet + Healthcare,” exemplified by the Wuzhen Internet Hospital, was personally highlighted by President Xi.

Why Has Internet Healthcare Been So Popular Over the Past Two Years? This is because, from official circles to the general public, the pain points in healthcare have resonated deeply with both the populace and policymakers. Therefore, when platforms such as Chunyu Doctor and Guahao.com first entered the market, many people were concerned about policy, legal issues, and user habits. In reality, however, policies have been continuously relaxed and encouraged. We have witnessed the liberalization of multi-site practice, the promotion of tiered diagnosis and treatment, and the rollout of various pilot programs across China.

Perhaps this is about going with the flow. VCBeat itself has grown in this climate and feels a responsibility to carefully review the development trends of internet healthcare over the past two years as well as future trends, thus initiating “2015 Internet Healthcare Industry Leaders List”. To date, over 100 startups have registered, with dozens of hospitals and hundreds of physicians participating in the nomination process. We look forward to welcoming more participants and promoters from the internet healthcare sector to join us.

During the ranking period, VCBeat will also roll out the “2014–2015 Internet Healthcare News Power Rankings,” featuring the Top 10 Events of 2015, the Top 10 Influencers of 2015, and the Top 10 Trends for 2016. Stay tuned.

This issue features: The Top 10 Events in Internet Healthcare, 2014–2015. We present them in chronological order to help readers appreciate the evolution of internet healthcare.

1. The Three Musketeers' Financing

It was autumn in 2014. The team at VCBeat was diligently researching the emerging industry of internet healthcare. Then, as if a spring breeze had arrived overnight, Chunyu Yisheng, DXY, and Guahao.com secured $50 million, $70 million, and $100 million in funding respectively over the consecutive months of August, September, and October. Indeed, this marked the true tipping point for internet healthcare and the beginning of its sustained boom.

At that time, many people did not fully understand the landscape of mobile health and online consultations, and domestic resources were relatively scarce. Shortly thereafter, VCBeat released a series of reports, including “Deconstructing Chunyu Doctor,” which systematically analyzed internet healthcare products both in China and abroad, sparking significant research interest and attention within the industry.

The greatest significance of the financing secured by these “Three Musketeers” lies in the fact that internet healthcare emerged as a distinct industry, initially characterized by strong capital-driven attributes, with follow-up involvement from the industrial chain and government coming later. During that phase, Chunyu Yisheng, being the most agile and internet-native player, captured the majority of public attention.

Another impact is that with the emergence of star companies, many underground startups engaged in online consultations have lost their development opportunities and have had to seek other avenues for transformation, significantly accelerating the pace of industry development and iteration.

2. Establishment of Dr. Zhang Qiang Doctor Group

The Zhang Qiang Doctor Group was established in July 2014, but it did not attract widespread attention until January 2015, when media reports revealed that the group had secured RMB 50 million in financing, causing a significant stir. The most profound impact was felt among physicians; thereafter, doctor groups emerged in large numbers across China.

Of course, unlike the Zhang Qiang Doctor Group, the vast majority of doctor groups are affiliated with the public healthcare system. However, this is not the key point. The emergence of numerous doctor groups represents another important prerequisite for the development of internet healthcare: the freedom of physicians’ professional identity and practice rights. More importantly, it reflects an increasingly open aspiration among physicians to engage with the broader world outside the traditional system.

During that period, whenever VCBeat published articles on physician groups, we would consistently receive messages from physicians via the WeChat backend (vcbeat), with the recurring question: “How can I join XX Physician Group?” Please take a look at the table below to see how one stone can stir up a thousand waves.

3. Gradual Relaxation of Multi-Site Practice Regulations

After the frenzy among internet professionals and physicians, let us turn our attention to the government.

On January 12, the National Health and Family Planning Commission officially announced the conditions for physicians’ multi-site practice. The guidelines clearly state that physicians in the categories of clinical medicine, stomatology, and traditional Chinese medicine are permitted to engage in multi-site practice. Physicians practicing at multiple sites must hold a professional technical title at the intermediate level or above, have engaged in the same specialty for at least five years, and be competent to perform duties associated with multi-site practice.

Key point: Physicians are not required to complete formalities for multi-site practice when participating in urban-rural hospital pairing assistance, providing support to primary care institutions, or engaging in multi-site practice among medical institutions that have signed assistance or trusteeship agreements, or established medical groups or medical consortia.

Similarly, a single stone has stirred up thousands of ripples:

Multi-site practice by physicians is a crucial component of internet healthcare, addressing the issue of physicians’ freedom to practice. Of course, another critical aspect—online diagnosis—has yet to be fully resolved. Nevertheless, the significance of multi-site practice lies in the fact that reforms in internet healthcare appear to be progressing more smoothly than those in many other industries, with policymakers generally acting as supporters of reformers. At least based on current observations, policy itself is not the obstacle; rather, the true challenge lies in effectively addressing the pain points within the healthcare system.

4. Transition from Online Consultations to Offline Clinics: Profit Model Takes Center Stage

By May 2015, the online consultation sector had already passed its peak hype cycle. With investors closely watching, and both doctors and patients flocking to these platforms, the pressing question remained: where is the viable business model?

The key to the narrative for the next round of financing lies in the post-consultation implementation: first, ensuring effective clinical outcomes; second, securing reimbursement contingent upon demonstrated treatment efficacy.

On May 7, Chunyu Doctor announced that it would open 25 offline clinics in five key cities across China. By the end of this year, it plans to further expand by opening 300 additional clinics in 50 large and medium-sized cities nationwide. Chunyu Clinics will meet patients’ needs for examinations, prescription medications, surgical procedures, and hospitalization.

In early July, Li Tiantian, founder of DXY, officially announced the launch of “warm” clinics, marking DXY’s formal entry into offline operations after more than a decade of serving online communities. In November, DXY’s first offline clinic officially opened its doors.

Everyone should pay special attention to this pivotal moment, which marks the transition from “Internet + Healthcare” to “Healthcare + Internet.” In this new phase, the “Internet + Healthcare” model has faced numerous challenges. It is becoming increasingly rare for a single app to attract a surge of investment; instead, more and more stakeholders are emphasizing resources and in-depth industry expertise.

Meanwhile, concerns over profitability models have thrust internet healthcare directly from summer into winter, with discussions of a “capital winter” flooding social media feeds. Of course, the sector also endured a sharp stock market decline, and many players are still in the process of stemming their losses. It is fair to say that the autumn of 2015 was far less vibrant than that of 2014.

However, the key point is that those who strive continue to do so; no matter how harsh the winter, there will always be individuals who rise above the rest and change the world.

Therefore, the following narrative does not dwell on the hardships; rather, it remains focused on problem-solving and exploring viable profit models.

5. Commercial Health Insurance Steps In to Fill the Gap

From an international perspective, insurance is one of the most important payers in healthcare. Therefore, leading internet healthcare companies, in addition to exploring offline clinics, have made collaboration with insurance providers a key strategic focus. Fortunately, policy frameworks continue to be supportive in this regard. “If anyone still claims that policy is a major obstacle for internet healthcare, this editor will have a word with you :)”

Since the beginning of this year, three major policies regarding tax-preferred health insurance for individuals have been issued at the national level.

On May 28, the Ministry of Finance, the State Administration of Taxation, and the China Insurance Regulatory Commission jointly issued the “Notice on Launching Pilot Programs for Individual Income Tax Policies on Commercial Health Insurance,” proposing to select one central city in various regions to conduct pilot programs.

On August 20, the China Insurance Regulatory Commission (CIRC) released the Interim Measures for the Administration of Individual Tax-Advantaged Health Insurance Business, deciding to establish individual tax-advantaged health insurance and specifying restrictions on the forms of such policies.

On December 11, the Ministry of Finance, the State Administration of Taxation, and the China Insurance Regulatory Commission issued the "Notice on Implementing Pilot Programs for Individual Income Tax Policies on Commercial Health Insurance." Starting January 1, 2016, pilot programs offering individual income tax incentives for commercial health insurance will be launched in 31 cities. Premiums paid for designated health insurance products will be exempt from individual income tax, with an annual tax-exempt limit of no more than RMB 2,400.

This time, the pilot scope of tax-preferential health insurance has been expanded from the four municipalities of Beijing, Shanghai, Tianjin, and Chongqing to 31 cities. Furthermore, the notice outlines the guideline framework for individual tax-preferential health insurance products, along with three sets of model clauses: Type A, Type B, and Type C.

Take a look at how rapidly policies are being implemented; the gap with the internet industry is clearly narrowing. The importance of insurance is evident from the emphasis placed on it by platforms such as Chunyu Doctor and Guahao.com (WeDoctor), which also aligns with international practices. Moreover, the low market share of commercial insurance in China leaves immense room for growth. Additionally, it is worth noting that the Zhang Qiang Doctor Group accepts only commercial insurance.

6. Teladoc Becomes the World’s First Online Consultation Company to Go Public via IPO

At a critical juncture, the Americans came to the rescue. On July 1, Teladoc, a well-established U.S. telemedicine company, officially began trading on the New York Stock Exchange, becoming the world’s first online consultation company to go public, with a valuation of approximately $1 billion.

Let’s examine the most closely watched revenue figures: In 2013, Teladoc generated $19.9 million in revenue and incurred a net loss of $6 million; in 2014, it achieved $43.5 million in revenue with a net loss of $17 million.

In the first quarter of 2015, the company reported business revenue of nearly $16.5 million and a net loss of $12.7 million. In the third quarter, total revenue reached $20 million, representing an 83% year-on-year increase. Revenue from membership subscriptions and consultation fees amounted to $17 million and $3 million, respectively, reflecting year-on-year growth of 78% and 122%.

Teladoc is projected to generate approximately $80 million in revenue for the full year 2015, marking its third consecutive year of doubling revenue, while its third-quarter net loss narrowed from $13.2 million to $4.5 million.

Based on Teladoc’s experience, insurance payers, enterprise clients, and members constitute the three primary revenue drivers, making this model one of the most important references for domestic internet healthcare companies exploring profitable business models.

7. Tiered Diagnosis and Treatment System Spurs Massive Demand

Another hallmark of the shifting public discourse toward “Healthcare + Internet” is the establishment of the tiered diagnosis and treatment policy, which represents the most impactful reform measure introduced at the official level. The implementation of tiered diagnosis and treatment has created substantial opportunities for numerous healthcare informatics companies, as well as for internet enterprises.

On September 12, the General Office of the State Council issued guiding opinions on advancing the construction of a tiered diagnosis and treatment system, setting clear targets to basically establish such a system nationwide by 2020 and to ensure that major diseases can generally be treated within county-level jurisdictions by 2017. The guidelines require the comprehensive implementation of tiered diagnosis and treatment in 100 cities across China as well as in the four provinces of Fujian, Anhui, Qinghai, and Jiangsu, with a view to gradually establishing a system characterized by initial consultations at primary care facilities, two-way referrals, separate management of acute and chronic conditions, and coordinated care between different levels of medical institutions. Last week, it was further announced that nearly 20 provinces have successively introduced policies on tiered diagnosis and treatment.

According to VCBeat, in multiple provinces and cities such as Wuhan, Sichuan, and Chongqing, many medical informatics and internet companies that have established tiered diagnosis and treatment platforms centered around provincial, municipal, county-level, and township hospitals have found ample room for expansion. Even Alibaba Health has proactively joined this effort, no longer focusing solely on its own “Future Hospital” initiative.

Taking a hospital in Wuhan as an example, during the establishment of its four-tier tiered diagnosis and treatment platform, Alibaba-affiliated companies became involved in payment processing, pharmaceutical e-commerce, and patient acquisition, while Tencent participated in payment services and WeChat official account applications. Additionally, numerous other enterprises engaged in various aspects of healthcare IT, including remote consultation, billing settlement, instant messaging, and medical imaging.

What the editor wishes to convey is that beneath the seemingly unshakable facade of the healthcare industry, agile players have long been actively vying for market share.

8. WeDoctor Raises $300 Million in Funding; A Unicorn Finally Emerges

On the night of November 30, 2015, an announcement regarding overseas investment by Shanghai Fosun Pharmaceutical (Group) Co., Ltd. began circulating in WeChat groups, instantly igniting the internet healthcare venture capital and investment community. The announcement disclosed that Fosun Pharma, through its wholly-owned subsidiary Regal Gesture Limited, invested USD 65 million to acquire a 4.33% stake in WeDoctor Group. Based on calculations derived from the information in the announcement, WeDoctor Group’s valuation in this funding round had reached USD 1.5 billion.

From the announcement of a massive funding round in September to the finalization of land acquisition in late November, WeDoctor Group underwent its most thrilling journey and reaped the greatest reward: becoming China’s first healthcare unicorn. Since then, the attention and resources garnered by WeDoctor have increased by an order of magnitude.

This is also one of the most significant responses from the internet healthcare sector during the so-called “capital winter.” There may be problems and setbacks along the path of transformation, but the direction of progress is always correct.

9. Where Have the Pharmaceutical Companies Gone?

What Are Pharmaceutical Companies Doing as a Key Link in the Internet Healthcare Industry Chain?

Several large-ticket orders in previous years.

According to VCBeat, many global pharmaceutical giants, including Pfizer, attach great importance to the “Internet Plus” concept and are set to launch major initiatives in 2015–2016.

10. Wuzhen Internet Hospital Opens

On December 7, the Tongxiang Municipal Government of Zhejiang Province officially announced the launch of the nation’s first internet hospital, unveiling the official website and mobile app of the Wuzhen Internet Hospital to provide online medical services centered on follow-up consultations for patients across China. The entire consultation process, including issuing electronic prescriptions and dispensing medications, can be completed via video conferencing.

It is reported that the co-founders of Wuzhen Internet Hospital have established information system connections with more than 1,900 key hospitals across 27 provinces in China. Among these, the access rate for Grade A tertiary hospitals has reached 70%, aggregating a pool of 200,000 physicians.

The online hospital mentioned by President Xi at the recently held Internet Healthcare Conference is none other than the Wuzhen Internet Hospital, which was established by WeDoctor Group.

The significance of the Wuzhen Internet Hospital lies in the fact that, in a country where reforms are often initiated under the guise of pilot programs, true reform only begins once an officially backed pilot is established. The attention garnered by the Wuzhen Internet Hospital indirectly demonstrates that, in the journey of “Healthcare + Internet,” the government’s sense of urgency is no less than that of internet industry professionals.

So, go for it, young man! Work hard this year and make it into the Top 10 Events of 2016 next year!