Industry Shakeout Looms for Putian-Linked Healthcare Providers Within Three Years: Are You Ready?

After years of development, the Putian-affiliated medical sector has been thriving. Leading brands such as Hemei Medical and Yuanda Cardiothoracic Hospital have achieved initial brand accumulation. In July 2015, Hemei Medical was listed on the Main Board of the Hong Kong Stock Exchange. Moreover, venture capital firms such as Sequoia Capital have invested heavily in Putian-affiliated hospitals, demonstrating significant capital support.

The Putian Medical Group Faces Both Growth and Hidden Concerns: With the Rapid Rise of Mobile Healthcare, It Will Undergo Industry Reshuffling Within Three Years. The Sector Has Reached a “Tipping Point.” Putian Medical Group, Are You Ready?

The Reshuffling Trend in the Putian Medical System Is Set

The rise of the Putian medical network has paralleled the rapid expansion of China’s private healthcare sector. Its early growth was largely driven by market-oriented and privatization reforms that outperformed the existing public healthcare system, while lenient policies toward private medical institutions provided ample room for development. These factors facilitated the evolution of the Putian network from itinerant practitioners to comprehensive hospitals, specialized clinics, and mobile specialty care services. Furthermore, the high incidence and recurrence rates of various chronic and complex diseases have significantly contributed to the past prosperity of the Putian medical network.

However, the advent of mobile health has posed severe challenges to the profit models, service models, and growth models on which the Putian-affiliated healthcare providers rely for survival. Transformation within the Putian healthcare sector is imminent.

1. The singular and traditional profit model of the Putian medical network has become ineffective, while a healthy and diversified revenue model is emerging.

It is no exaggeration to state that the growth of the Putian medical network has benefited from the Chinese public’s urgent treatment mindset, all-or-nothing approach to therapy, and blind faith in experts. This lies at the heart of the enduring prosperity of China’s private healthcare system. When facing illness, Chinese patients often seek medical help in desperation, sparing no expense—even selling off assets—to fund treatment. They place extraordinary trust in large hospitals and medical specialists, while exhibiting excessive reliance on specialized hospitals. The Putian medical network has developed precisely by leveraging massive television advertising campaigns and endorsements from reputed medical experts. High consultation fees and sales of pharmaceuticals and medical devices constitute the primary sources of substantial profits for Putian-affiliated hospitals.

However, in the face of the development of mobile healthcare, the substantial investments in high-altitude advertising, expert endorsements, and high consultation fees that have long underpinned the Putian medical network are gradually losing patient trust. National-level medical treatment initiatives have faced repeated scrutiny, while patient acceptance and trust in television advertisements continue to decline. The eroding trust among specialized patients, particularly those with complex and refractory conditions, toward the Putian medical network has become a “fatal challenge” to its further development.

At the national level, favorable policies such as tiered diagnosis and treatment systems and multi-site practice for physicians are being gradually implemented. It has become commonplace for renowned doctors to practice at multiple sites and for medical experts to be listed and offer appointment bookings on various mobile health platforms. Patients’ “deification” of specialist experts is gradually fading, as they place greater trust in their own disease assessments and online doctor-patient communications. High consultation fees that rely on dubious prescriptions and a myriad of unnecessary tests are unsustainable; under the service quality supervision and patient evaluation mechanisms of mobile health platforms, such practices are vulnerable and have nowhere to hide.

The traditional business model of Putian-affiliated healthcare providers—relying on aggressive advertising and search engine marketing to attract patients, generating profits through high consultation fees, and marking up prices for pharmaceuticals and medical devices—is increasingly in decline. The value proposition of the conventional model, which depends on high fees for diagnostic and treatment services, is weakening, and these legacy profit mechanisms are failing. Can Putian-affiliated healthcare remain unchanged? Industry transformation has become inevitable.

2. The traditional approaches of attracting patients through search engine traffic and public welfare initiatives are increasingly losing effectiveness, making it particularly challenging for Putian-affiliated medical institutions to thrive under a healthcare service model that prioritizes doctor-patient communication and word-of-mouth referrals.

With the rise of mobile healthcare platforms such as Chunyu Yisheng (Spring Rain Doctor) and WeDoctor, the patient acquisition channels for Putian-affiliated medical institutions have been significantly impacted. Search engine marketing, represented by Baidu, has clearly dominated online promotion. The Putian medical group already suffered setbacks in the competitive landscape of 2015. Under multiple pressures, including a shortage of patients and stringent platform service regulations, these institutions find that control over patient traffic distribution rests firmly in the hands of mobile healthcare platforms and major search engines. Without a steady flow of patients, the development of Putian-affiliated healthcare will inevitably face significant challenges.

This industry landscape will persist for a considerable period, and the Putian-affiliated medical sector must maintain a clear awareness of this reality. Reviewing the development of China’s healthcare services industry, standardization, specialization, and high market concentration are inevitable paths forward. High-quality patient resources and professional medical service resources will inevitably be controlled by the top-tier platforms and hospital brands that account for 30% of the market. It is the general trend in the industry’s development that mobile health platforms will take the lead in managing the full cycle of diagnostic and therapeutic services, including patient acquisition, appointment scheduling, examination services, and health guidance.

In the early stages, Putian-affiliated healthcare providers achieved rapid growth in competition with public hospitals by leveraging expert endorsements, advertising campaigns, and patient resource acquisition. However, in the future competitive landscape of the mobile health industry, mobile health platforms will play a more dominant role. Their stringent oversight of service quality is unacceptable to Putian-affiliated providers. Furthermore, post-consultation patient reviews will significantly influence subsequent patients’ healthcare choices. The unsustainability of diagnostic and treatment services, coupled with weak word-of-mouth propagation, constitutes a major challenge facing the development of Putian-affiliated healthcare.

Emphasizing online doctor-patient communication, strengthening full-cycle health services for patients before, during, and after consultations, learning to engage in deep collaboration with mobile health platforms, or building high-quality specialized medical platforms independently are essential steps for the rapid development of Putian-affiliated healthcare providers. In an era where mobile health dominates patient diagnosis and treatment services, transformation is imperative for Putian-affiliated healthcare.

3. The traditional development model, which relied on hospital construction through investment to achieve gradual growth, is gradually declining, while medical capital is driving industry transformation.

The development paths of Putian-affiliated medical institutions are highly similar. They take over or partner with underperforming hospitals that are open to such arrangements, or directly invest in building new hospitals, expanding from one to two facilities and replicating this model to establish nationwide hospital groups. This model faced no significant issues before the rise of the internet. However, the development of mobile healthcare has made appointment registration simpler, facilitated local communication among patients, and accelerated word-of-mouth dissemination. As a result, the expansion model of Putian-affiliated institutions—from one to many—is now confronting numerous challenges, including poor patient reputation, insufficient patient volume, and substantial financial pressure.

Meanwhile, the growth of mobile health platforms requires substantial cash burn to cultivate the market, demanding significant capital infusion and resource support from investors, thereby strengthening the collaboration between the two parties. Leading mobile health platforms have long established partnerships with capital markets. Alibaba has successively invested in healthcare platforms such as XYWY (Xunyi Wenyao) and Huakang Panoramic Network, acquired CITIC 21st Century, and rebranded it as AliHealth, subsequently launching Alipay’s “Future Hospital” initiative. Baidu launched “Baidu Doctor,” while Guahao.com completed multiple rounds of financing, achieving a valuation exceeding $1.5 billion.

Capital investment seeks profits. Ultimately, capital will drive mobile health platforms to expand offline and control offline hospital service resources. The Putian network, having cultivated specialized medical care for many years, has become a key target for mergers and acquisitions. It is believed that between 2016 and 2018, mobile health platforms will undertake large-scale industry M&A driven by capital, leaving Putian-affiliated healthcare providers facing a critical make-or-break decision.

In summary, the profit model, service model, and development model that underpin the survival of Putian-affiliated healthcare providers have undergone fundamental changes. With mobile health on the verge of a boom, these providers must transform to survive and thrive; change ensures survival, while stagnation leads to obsolescence.

A Preview of the Reshuffling in the Putian Medical Industry

The medical sectors dominated by the Putian network are largely specialized healthcare services. Hospital development requires a considerable lead time, and the integration of medical service resources demands sustained effort. Precisely because establishing offline hospitals is a long-term, professional, and complex undertaking, industry consolidation through mergers and acquisitions by mobile health platforms—bolstered by capital infusion—is more likely to occur, making industry reshuffling increasingly inevitable.

Industry Reshuffle Projection: One Year of Differentiation, Two Years of Consolidation, Three Years to Define the Landscape

The development of mobile health platforms is advancing in stages. In the early phase, the focus lies on aggregating patient traffic, integrating medical resources, and expanding brand influence. In the mid-to-late stages, greater emphasis is placed on enhancing offline clinical service experiences and building physician-patient communities. Currently, mobile health platforms are still in the stage of user accumulation and medical resource aggregation. Their immediate tasks remain centered on expanding platform influence and attracting substantial patient traffic. Meanwhile, they face significant challenges, including clarifying profitable business models, establishing branded communities, and regulating offline medical services.

Wang Pengfei of Shanghai Taohui Consulting believes that while building excellent mobile health platforms, pioneers have already kicked off a wave of capital mergers and acquisitions. In August 2015, Chunfeng Venture Capital, led by Chunyu Doctor, was officially established with an initial fund of RMB 300 million. Investors included listed companies, individual investors, and government-guided funds. Its primary investment targets are mobile health companies in their start-up and growth stages. Within three months of its establishment, it had already completed four investment projects.

The phased development of mobile health platforms also determines the stages of differentiation and consolidation within the Putian-affiliated medical industry. It is believed that patient traffic and expert resources associated with Putian-affiliated healthcare providers will increasingly be integrated and dominated by mobile health platforms in the future. However, high-quality diagnostic and therapeutic services—a key priority for these platforms—represent a weakness for Putian-affiliated institutions. To create superior offline clinical service experiences, rapidly establish a nationwide presence, and efficiently promote online-to-offline (O2O) healthcare integration, mobile health platforms, bolstered by capital investment, will aggressively acquire Putian-affiliated medical institutions to accelerate their expansion.

According to preliminary estimates by Shanghai Taohui Consulting, the Putian-affiliated medical sector will undergo industry reshuffling within three years, with group mergers and acquisitions, industry differentiation, and the establishment of market structures serving as the main themes of industry development.

2016 will mark the inaugural year for platform development and a period of differentiation within the Putian-affiliated medical sector. Divergent choices will lead to varied paths: industry leaders will advance the construction of mobile healthcare platforms, mediocre players will be consolidated, and laggards will remain inert, signaling imminent industry stratification. 2017 will be the year of mergers and acquisitions (M&A) for Putian-affiliated healthcare entities. Leading mobile healthcare platforms or top-tier Putian-affiliated providers, bolstered by capital, will engage in extensive industry M&A activities. This will serve to expand platform scale, enlarge the patient base, and secure medical resources, while simultaneously accelerating IPO preparations and engaging with capital markets. 2018 will be the year when the competitive landscape of Putian-affiliated healthcare is solidified. Integration will occur among various mobile healthcare platforms and among chained hospital groups. Capital investors will drive equity integration and market consolidation, thereby establishing the five-year strategic framework for the Putian-affiliated medical industry.

Departmental Reshuffle Simulation: Starting with Mainstream Departments Such as Ophthalmology and Orthopedics, and Concluding with Niche Specialties

The Putian-affiliated medical sector has long focused on specialized care, accumulating substantial patient bases, specialist expertise, and diagnostic and therapeutic capabilities. These resources are precisely what mobile health platforms urgently need to penetrate and expand into lower-tier markets, and they constitute the primary driver behind such platforms’ industry-wide mergers and acquisitions.

According to data released by ChinaVenture, the top three specialties in terms of profit margins in 2010 were ophthalmology, plastic surgery, and dentistry, while obstetrics and gynecology ranked 9th, and dermatology ranked 13th. Taking into account multiple factors such as patient incidence and recurrence rates, mobile health platforms will drive the reshuffling of the Putian-affiliated healthcare industry in phases. In the initial stage, the focus will be on mainstream conditions such as ophthalmology and integrated medicine; in the mid-to-late stages, penetration will extend to less common and more complex conditions. It is believed that mobile health platforms will aggressively and rapidly advance this transformation, leveraging substantial capital, strong patient traffic advantages, value-added platform services, and sophisticated community engagement capabilities.

Profiles of the Key Players in the Putian Medical Industry’s Consolidation

Wang Pengfei of Shanghai Taohui Consulting believes that the Putian-affiliated medical industry is on the verge of a major reshuffle. Given the existing industry landscape, there are numerous participants vying for dominance, which can be broadly categorized into three groups: M&A hegemons, supportive regional powers, and smaller, weaker players.

1. M&A Dominators: Healthcare Investment Groups, Mobile Health Platforms, and Leading Pharmaceutical and Medical Device Companies

M&A leaders exhibit distinct characteristics, often possessing strong competitive or capital advantages that enable them to acquire offline hospitals in their entirety through full buyouts or equity control. Alternatively, they may leverage substantial patient traffic, brand influence, and specialized medical resources to implement platform-based operations that directly interface with physical hospital entities. Others may rely on robust R&D capabilities in pharmaceuticals and medical devices, along with proprietary distribution channels and customer bases, to achieve industrial complementarity and leapfrog growth.

The primary operational strategies of the M&A leader include: 1) Advancing capital operations by acquiring controlling stakes in core Putian-affiliated hospitals and taking necessary minority equity positions in emerging hospitals, thereby steering corporate development through board and executive management control; 2) Building “strategic alliances” to achieve strong partnerships based on platform and capital advantages, forming “Mobile Medical Consortia” for in-depth collaboration; 3) Promoting business cooperation to facilitate efficient medical exchanges, joint product R&D, and co-marketing activities, aiming for mutual leverage and gradual market consolidation through progressively deeper collaboration; 4) Driving interconnectivity among communities by providing comprehensive services centered on patients’ diagnostic and treatment needs—including disease diagnosis, appointment scheduling, in-consultation inquiries, online payment, health guidance, customized pharmaceuticals and medical devices, and medication reminders—thereby deeply fulfilling communication needs between doctors and patients and leveraging the value of key opinion leaders (KOLs) in the healthcare sector.

2. Empowering Regional Leaders: Offline Specialty Hospital Groups, Nationwide Hospital Groups, and Specialty Medical Resource Groups

The trend of consolidation is also highly evident. Wang Pengfei from Shanghai Taohui Consulting believes that a large number of state-owned and public hospitals, leveraging their long-term brand equity, medical expertise, and physician resources, will also expand during this reshuffling of the Putian-affiliated healthcare industry. They will pursue moderate mergers and acquisitions of high-quality Putian-affiliated hospitals to achieve regional expansion and rapid market presence.

Key operational strategies to empower major regional healthcare players include: 1) Acquiring controlling stakes in hospitals within key regions, taking over their equipment, personnel, and other assets comprehensively to enable rapid deployment, establishment, and operation, thereby competing effectively against mobile health platforms; 2) Integrating high-quality medical resources. Having operated for many years, Putian-affiliated medical groups have developed specialized clinical expertise. These resources remain highly attractive to pharmaceutical and medical device companies and serve as a critical foundation for their swift entry into the mobile health sector; 3) Expanding through existing “Hospital Medical Alliances.” This approach not only enhances the value of these alliances in terms of medical exchange, academic research, clinical interaction, and physician guidance, but also actively incorporates platform-based mobile health operations. By interconnecting existing remote consultation services, advanced hospital diagnostic and treatment networks, and patient medical records, it leverages the inherent connectivity value of traditional businesses while integrating mobile health functionalities.

3. Weak and Small Healthcare Groups: Marginal Hospitals, Outdated Specialized Hospitals

Where there are acquiring enterprises, there are naturally acquired ones, as well as those eliminated from the market. The rise of mobile health coincides with the exit of laggard and backward enterprises from the industry, a trend in which the characteristics of these weaker players are particularly evident. Some fringe medical institutions, limited in growth potential due to low patient volumes and low incidence rates, are often acquired. Meanwhile, hospitals that respond slowly to mobile health trends or adopt inappropriate strategies will be cleared out in this wave of transformation.

The tidal wave of mobile internet-enabled healthcare services is surging across China. The Putian-affiliated medical groups must change, have no choice but to change, and cannot afford not to change. As the times create their heroes, who will dominate the industry of tomorrow?

▶This article was published on VCBeat with authorization from the author, Wang Pengfei. Reproduction without permission is prohibited.

Author: Wang Pengfei, Partner, Project Director, and Chief E-commerce Planning Consultant at Shanghai Taohui Management Consulting Co., Ltd.; China-certified Management Consultant, China-certified Economist, and China Senior Marketing Professional; Contributing Expert and Columnist for renowned domestic and international magazines and websites such as Harvard Business Review (Chinese Edition) and Manager; Contributing Expert and Author for well-known Chinese internet e-commerce industry publications including Tianxia Wangshang, Sellers, and Sales & Marketing; Columnist for multiple internet platforms such as iResearch, Paidai.com, Meihua Network, and Global Brand Network. WeChat ID: wind53880; Email: wind53880@163.com.