11 Emerging Entrepreneurial Opportunities in the Evolving Healthcare Industry by Wang Jianfei of Legend Capital

Guest Profile: Joined Legend Capital (formerly Lenovo Investment) in 2006. Currently serves as Investment Director of the Healthcare Team at Legend Capital, focusing on investments in the internet healthcare sector. With over 12 years of experience in the healthcare industry, he has led and participated in multiple investment projects in the medical field.

————————Guest Sharing————————

I am delighted to be here today to share some reflections on strategic direction that have evolved over the past two years. It is wonderful to see many familiar faces, and I have had in-depth exchanges with more than ten of you. Just now, Mr. Zhu Hengpeng described himself as a leading expert in healthcare reform policy. Standing here, I can only say that I am perhaps one of the most ordinary participants in the healthcare investment community. My extensive insights and understanding of the industry are largely derived from all of you present here.

"After listening to Professor Zhu's speech, are you more confident or more confused about the business of the company we are currently running as entrepreneurs?"

A: Confident.

"Please raise your hand if you are currently engaged in internet healthcare. Over 90% of you have done so. Let me ask another question: Please raise your hand again if you have started to make a profit and are feeling very happy about it. There are two of you."

I. Business Opportunities Are the Primary Driver of Entrepreneurship    

I began dedicating time to studying healthcare policy at the beginning of this year. Today, let us jointly explore the business opportunities arising from the evolution of these policies.

When it comes to the term “business opportunity,” my understanding stems from this diagram, which I encountered in a “Entrepreneurship Management” course I took at Tsinghua University in 2002.

Starting a business requires a driving motive, which often stems from an observation made by the entrepreneur in society that is perceived as a profit-making opportunity, hence the term “business opportunity.” To capitalize on such an opportunity, you will find that substantial resources are needed; no individual can succeed alone, and it takes a team to execute effectively. The founder, also known as the company’s top leader, must continuously strike a balance among three key dimensions: business opportunity, resources, and team.

Returning to the healthcare sector, let me share a case from my own investment portfolio. The backdrop was 2011, when the National Health and Family Planning Commission issued regulations to restrict antibiotic use, aiming to curb the misuse of antibiotics in hospitals. Certain in vitro diagnostic (IVD) tests became mandatory when prescribing antibiotics. Recognizing this as a significant business opportunity, the company was founded in 2011 and launched its product in 2012, becoming the first in the industry to bring such a solution to market. Initially starting with just five employees, the founder remarked at the beginning of 2012 that their annual meeting required only a single table. Today, the company has grown to 200 employees, with profits reaching tens of millions of yuan. This trajectory illustrates a continuous upward cycle driven by the interplay of business opportunities, resources, and team development. The founder initially leveraged this opportunity to build a platform, enabling sustained team growth and expanding resource capabilities, allowing the company to do far more today than just offer its original product.

Where Do Business Opportunities Lie? There are no opportunities in a static market; business opportunities arise from changes on several fronts: technology, the market, and society. Within the healthcare industry, what truly drives change—or brings about significant shifts within a very short timeframe—is often deregulation. In contrast, the evolution of lifestyles is a gradual process, and achieving genuine technological breakthroughs is exceptionally challenging.

Furthermore, for many of us entrepreneurs, it is crucial to seize the narrow window of opportunity. The timeframe from the emergence to the closure of a business opportunity is becoming increasingly short. Initially, as society develops and time progresses, the market gradually expands, thereby opening a window for new opportunities. As Professor Zhu mentioned earlier, citing examples such as Alibaba Health and Ping An Insurance, when these opportunities truly appear before large corporations, they possess superior capabilities to control resources compared to early-stage companies like ours. By the time these giants enter the market, fully understand it, and devise their strategies, the window has already closed. In such scenarios, investors and entrepreneurs often need to identify alternative opportunities and explore different markets.

Entrepreneurs need to identify future industry trends in advance, as Mark Twain’s famous quote goes, “"I rarely see opportunities; often, by the time I do, they are no longer opportunities."”. Internet healthcare began to take off in 2013 or even earlier. At that time, the market was perceived as promising yet largely overlooked by most people; today, however, it has become a prominent focus of investment.

II. Industry Changes in the Healthcare Sector

• The Contradictory Nature of the Healthcare Industry Chain

Last week, I visited the Capital Institute of Pediatrics and Beijing Chaoyang Hospital to take some photos of their outpatient departments, where crowds were still densely packed. There remains substantial room for improvement in the current state of our healthcare services. China’s healthcare industry chain is a paradoxical entity characterized by both extreme fragmentation and high concentration. Extreme fragmentation refers to localized management, with each province and city adopting a territorial administration model, resulting in highly fragmented health insurance systems and hospitals. However, within each individual region, the market is highly monopolized. As Professor Zhu Hengpeng illustrated with cases from several regions, the siphoning effect of tertiary Grade-A hospitals is particularly severe in many prefecture-level cities.

I began engaging with the healthcare services sector in 2010. At that time, I was at Legend Holdings, where I presented opportunities in healthcare services to Mr. Liu and the Management Committee, conducting relatively in-depth research. From my perspective, the improvement of the social security system over the past decade has driven a 26% growth in the health industry. Under the urban employee basic medical insurance scheme, beneficiaries are restricted to selecting from a limited number of public hospitals, which has led most people to prefer public hospitals when seeking care. The New Rural Cooperative Medical Scheme was launched in 2002, followed by the Urban Resident Basic Medical Insurance in 2007. In 2007, the fund size for urban resident medical insurance stood at RMB 1 billion, while total medical insurance expenditures across all schemes amounted to approximately RMB 190 billion. Today, this figure approaches RMB 1 trillion, accounting for 40–50% of total hospital revenues. I believe that such growth would have been impossible without the support of medical insurance.

The transformations within the entire healthcare system have led to significant imbalances, with large hospitals commandeering a greater share of resources. Today, all pressures stem from the depletion of the medical insurance fund pool. Previous growth was driven by the expansion in breadth as medical insurance coverage expanded from low to high levels. Now that nearly everyone—including our parents, urban residents, and rural farmers—is covered by medical insurance, future growth can only rely on deepening coverage. The medical insurance fund will no longer maintain the approximately 20% growth rate seen in the past; instead, it will remain at a very low level. This shift will bring about many changes, the most direct of which can be observed in the continuous policy adjustments over recent years.

In our analysis of these policies, the first step is to understand their underlying objectives. I believe that, at the current stage, the primary goal of these policies is to optimize healthcare supply and enhance efficiency. For instance, administrative barriers are being lowered; in many parts of Shenzhen, establishing clinics or hospitals no longer involves overly complex restrictions. Another example is the market-oriented reform of medical service pricing. Some regions have announced their adjustment policies, and a significant number of localities have introduced corresponding local regulations.

III. Three Major Entrepreneurial Opportunities Brought About by Policy Changes

Based on the evolution of the aforementioned industry and policy changes, we can derive three fundamental judgments:

First, a substantial influx of social capital will enter the healthcare services sector, significantly increasing the share of private medical services over the next five years, which also implies intense competition.

Second, pricing mechanisms are becoming increasingly market-oriented, and service prices will gradually rise. People are diverse, diseases are varied, and the required services are equally heterogeneous, leading to a wide array of innovative service models. Addressing these demands through private-sector mechanisms is undoubtedly the optimal approach.

Third is the awakening of the physician community. Many doctors in their prime, aged around 30 to 40, are well-versed in the internet and have a strong desire and confidence to leave the public healthcare system.

Amid this trend, the core logic for identifying business opportunities in the healthcare sector should lie in the following three directions:

First, the demand driven by consumption upgrading, which corresponds to changes in the disease spectrum and the rise of middle-class demands;

Second, the demands of payers, such as cost control and how commercial insurers can capture this market share.

Third, cost-containment measures within the medical insurance system have driven reforms in the public healthcare service delivery model, encompassing process reengineering and improvements in operational efficiency. As part of the reform of the public hospital system, the state will provide basic medical services, while a substantial volume of non-basic medical services will be assumed by private capital, thereby creating significant new opportunities.

Meanwhile, as social services continue to improve and integrate with commercial insurance, the payer system will be further refined, driving continuous growth in this virtuous cycle. For all of us here, it is crucial to identify your strategic positioning within these segments and seize the right opportunities.

IV. In-Depth Analysis of Eleven Major Business Opportunities

Below, I will attempt to break down the opportunities across the aforementioned three levels into smaller components for further discussion with everyone.

1、Five Hot Topics in the Field of Medical Insurance Cost Control

Under the previous health insurance reimbursement system, claims were essentially processed without audit; patients would simply seek reimbursement for any medical condition treated. Currently, however, there is a substantial demand for claim reviews. Data indicates that fraud and abuse account for 20–30% of total health insurance expenditures, and this is likely a widespread phenomenon.

With changes in medical insurance policies, we believe that the system is currently evolving from initial cost settlement management toward standardized management and rationality monitoring. Standardized management involves fee-for-service payment, where a specific amount is paid for each service item. Rationality monitoring employs a software system to evaluate whether the services provided by healthcare institutions comply with established rules; non-compliant services may be denied reimbursement.

Several key points here are significant and represent a future trend. For instance, on November 4, Jiangsu Province issued a document titled “Notice on Promoting Disease-Based Payment and Charging Standards for Day Surgery under Urban Basic Medical Insurance.” Many people remain skeptical about Diagnosis-Related Groups (DRGs). Indeed, numerous issues arose when DRGs were first introduced in 2011. However, the landscape is continually evolving. In the future, DRGs will be extensively applied to diseases with clear diagnoses and well-defined clinical pathways for surgical procedures. For example, the “Reference Fee Standards for Disease-Based Payment and Charging of 20 Types of Day Surgeries” explicitly specifies procedures such as laparoscopic cholecystectomy.

It is easy to draw a conclusion: if healthcare insurance authorities set prices for hospital services at a certain level, hospitals will inevitably deliver care in the most cost-effective manner. In other words, whereas we previously assigned fixed prices to individual items—leading physicians to use large quantities of consumables and medications—the shift to Diagnosis-Related Groups (DRGs) has made cost orientation paramount. From the hospital’s perspective, this creates strong pressure to continuously improve efficiency and refine treatment protocols, thereby genuinely enhancing the quality of medical services as a core driving force. With this evolution, I believe the overall system is moving in a positive direction. For example, a surgery that previously cost RMB 8,000 can now be reduced to RMB 7,000 through deliberate efforts.

In this area, we have also conducted systematic research, which I would broadly categorize into five cycles. Historically, within the social health insurance sector, a few companies operating on settlement platforms have been profitable—three of them are now publicly listed. These companies primarily facilitate settlement systems between medical insurance funds and hospitals, employing IT software to monitor expense settlements for designated healthcare providers on a per-transaction basis. Our original social insurance system relied on retrospective settlement: expenses were aggregated and settled uniformly at the end of each month, with any deemed unreasonable deductions withheld during that process. By 2015, some regions had already achieved real-time settlement, uploading daily prescriptions and associated costs to the platform, which would then provide immediate feedback on any questionable expenses. This shift has had a profound impact on the future landscape, creating entrepreneurial opportunities along the way.

Second, the reason we currently consider DRS to be ineffective is primarily due to the substantial volume of low-quality data it contains. If this data were thoroughly cleaned and standardized, it would unlock significant value-added services. We have also observed several startups exploring opportunities in this area.

Third, regarding end users, while everyone is expected to have social health insurance, the actual balance in these accounts remains unknown and largely unexamined. I have observed some companies addressing this gap by leveraging medical insurance data to provide personalized services. Furthermore, there are similar opportunities to enhance these services through the development of knowledge bases for pharmaceuticals and general health.

2. Commercial Health Insurance: Early Stage of Development, with Promising Prospects

Commercial health insurers are now entering the healthcare market through mechanisms such as critical illness insurance, with Qingdao and Anhui continuously experimenting with ways to leverage commercial insurance to tap into the downstream market of social security services. Currently, the internal performance evaluation system of insurance companies is primarily based on premium volume. As a result, they lack any substantive leverage over healthcare providers, leaving them with little negotiating power with medical institutions and making it difficult to realize business opportunities such as Pharmacy Benefit Management (PBM) as envisioned. Secondly, in product design, as previously mentioned, the inability to access high-quality data hinders the development of robust pricing models, keeping these insurers on the sidelines of the market. Nevertheless, we remain optimistic about this direction in the long term, although it will indeed require time to accumulate experience and resources.

3. Restructuring the Medical Service System of Public Hospitals    

The core of public healthcare system reform lies in improving efficiency, which I summarize as involving two aspects: process reengineering and tiered diagnosis and treatment.

Let us examine the organizational chart of a large tertiary hospital, which can be divided into three categories: clinical departments, medical support departments, and administrative support departments. The core driving force behind this structure lies in the uneven distribution of resources. From the perspective of process reengineering, there is a demand for service outsourcing across all three areas—clinical operations, medical support, and administrative support.

To cite a simple example, in the realm of medical assistance services for chronic diseases, I believe greater opportunities stem from a profound understanding of specific disease conditions. By focusing on pharmaceutical supply, service support, and subsequent rehabilitation management, one can thoroughly analyze the industry’s value chain. For each specific disease, entry points should be identified based on its unique characteristics and distinct core value chains.

4. Third-Party Service Support Based on Service Efficiency Enhancement

Within the medical support sector, there are platform-level opportunities. For instance, KingMed Diagnostics, a portfolio company of Legend Capital, is China’s largest third-party clinical laboratory. After more than a decade of development, it now generates over RMB 1 billion in revenue, firmly establishing itself as the undisputed industry leader. Beyond third-party support services, emerging sectors such as radiology and medical imaging are gaining momentum. Historically, opportunities in this market were limited to equipment sales and maintenance. Hospital reimbursement was based on anatomical sites for diagnosis rather than medical services, failing to reflect the value of physicians’ expertise. The internet has created an opportunity to demonstrate the value of these services, opening up a series of prospects in this direction. Similar platform-level opportunities can be identified not only in radiology but also in pathology, ultrasound, and electrocardiography.

5. Outsourcing of Non-Medical Services Based on Management Optimization

Hospitals offer a wide range of non-clinical services, such as equipment maintenance and repair. Historically, securing contracts for these services often relied on personal connections with hospital directors. However, this model is likely to change. In the future, top-tier engineers across China may be integrated into centralized platforms to provide third-party services, including departmental maintenance and linen laundering. Some companies have already achieved notable success in this area, presenting further opportunities for stakeholders to explore new avenues and directions.

In the past, nursing care services were often arranged through referrals by nurses or doctors within hospitals. Some offline companies maintained strong relationships with a dozen or so hospitals, employing hundreds of caregivers and sharing revenue with these institutions as part of their business model. With the advent of the internet, many now advocate for a shift in this paradigm, enabling family members and patients to select caregivers via mobile apps. Similar opportunities abound in non-medical markets. Certain services are difficult to deliver within hospital settings, while others, though needed by patients, cannot be supported by hospitals’ hiring practices. Furthermore, existing pricing structures do not accommodate such services. For entrepreneurs, this translates into substantial opportunities for innovation and market entry.

6. Community Health Service Centers May Become a Key Battleground

The most significant restructuring within the entire public healthcare system is the implementation of tiered diagnosis and treatment. Currently, tertiary Grade A hospitals hold a monopolistic position, with statistical data showing that their outpatient visits have reached 7.6 billion. Secondly, community health service centers suffer from inadequate capabilities, particularly a shortage of high-quality physicians. Due to low income levels, these centers lack public trust, leading residents to prefer large hospitals even for minor ailments, despite the inconvenience and significant time commitment involved.

But what about the future? The current healthcare supply system, as it stands today, has swung to one end of the pendulum. In the future, the 7.6 billion outpatient visits will gradually be diverted through various measures, such as subsidizing community health service centers, improving compensation packages, and attracting high-quality physicians. Currently, due to tight fiscal conditions in central and western regions of China, a large number of community health service centers have already come under private management.

Community health service centers, including clinics, are likely to become a key battleground in the future. The core competition revolves around prescribing rights. Once community physicians are granted certain prescribing privileges, this channel will draw significant attention from stakeholders, including medical device companies. This strategic direction is shared by several major companies that have secured the largest financing rounds in China’s internet healthcare sector: Chunyu Doctor announced the launch of its first 25 offline clinics, while DXY opened two. My rationale is that if the public healthcare system fails to deliver these services effectively, private capital should step in. Once the necessary infrastructure is established and an increasing number of physicians practice independently, I believe patients will make their own informed choices.

7、Innovative service applications based on new technologies: an eternal opportunity

Regardless of whether policies provide impetus, there are abundant new opportunities in this space. These opportunities fall into two categories, one of which involves novel diagnostic and therapeutic technologies, such as gene sequencing, robotics, and cell therapy. Our focus is not on how cutting-edge the technology is, but rather on how it can be effectively commercialized. It does not matter if certain devices or technologies are imported from abroad; as long as there is demand in the Chinese market, they hold promise. We have observed many projects striving in this direction. For instance, we previously invested in a company offering non-invasive prenatal screening for diabetes, which represented an excellent opportunity.

Another key aspect is the transformation of the healthcare system driven by internet technologies. Within the healthcare sector, two elements consistently hold the greatest value. The first is physicians’ time, which constitutes a core resource. There is intense competition for physicians’ time across the industry; regardless of the business model, if a service requires physicians to devote substantial amounts of their time, its value will be correspondingly constrained and limited. The second element is patients or the served population, which represents the value of data. When individuals accumulate their payment and health data on a particular platform, we can essentially determine the platform’s value based on this data aggregation.

8. The Value of Data

Today, vast amounts of data are scattered across various locations. If we can build a platform that attracts a segment of customers to confidently entrust their data to us, I believe it will hold significant value in the future. Once this data is aggregated, the possibilities become endless—ranging from expense reimbursement and developing robust models for insurance companies, to enabling patients to manage their daily health behaviors. Furthermore, large volumes of clinical data on similar disease types can provide valuable guidance for clinical practice.

9. Consumer Demand for Non-Essential Medical Services

Returning to the aforementioned logic, we observe that as the public healthcare system enhances efficiency under cost pressures, a substantial volume of demand for non-essential medical services will be displaced or diverted. This segment of demand will primarily be addressed by social (non-public) supply in the future. The three core factors previously mentioned—staffing quotas, the service pricing catalog, and consumer demand—are compelling public hospitals to outsource or divest certain services.

The service system currently established by public hospitals remains centered on the treatment phase, with a significant lack of services provided during the prevention and rehabilitation stages. From the perspective of the disease spectrum, specialties that are less prioritized by public hospitals are gradually being shifted to the social sector; for instance, services in plastic surgery, dentistry, and ophthalmology are increasingly supplied by non-public medical institutions.

The chart above presents research by Taiwanese scholars. From the perspective of capital investment efficiency, it is preferable to enter the market along the trajectory shown on the left. In sectors such as health check-ups, medical aesthetics, ophthalmic surgery, and dentistry, users place greater emphasis on service experience. These services are gradually becoming an important component of non-essential healthcare in society.

10. New Business Opportunities for Specialty Clinic Chains

In the specialized chain sector, the focus has traditionally been on specialized services, such as Aier Eye Hospital, Bybo Dental, and Meizhong Yihe, which were previously invested in by Legend Capital. In the future, the industry will gradually transition toward professional service offerings, presenting significant growth potential. This shift extends from specialized medical services to various professional service companies. While these service providers may not necessarily operate at a clinical medical level, they address genuine consumer needs. Examples include postpartum care centers, rehabilitation centers, ambulatory surgery centers, and single-disease management centers.

11. New Types of Health Services Based on Individuals/Families

Another significant shift is underway: the healthcare system, previously structured around disease-specific treatments, is gradually transitioning toward a human-centric, person-oriented service model. An examination of the supply side reveals hundreds of thousands of pharmacies and clinics, along with tens of thousands of medical service institutions—all currently operating from a disease-centered perspective. In the future, a new business model may emerge that targets specific population groups by integrating the functions of pharmacies, clinics, and hospitals, with a genuine focus on caring for individuals. For instance, we have observed certain enterprises in Hunan Province achieve a business scale worth billions of yuan within just a few years by establishing such novel service ecosystems.

There is still much that can be done to improve health, such as offering more convenient testing options. Currently, the standard frequency for routine health check-ups is once a year. From the perspective of personal health management, how effective is this annual model? There may be a demand for more convenient and timely solutions, such as streamlined health screenings or micro-checkup centers. The ultimate goal could be to have simple, affordable devices available at home for on-demand monitoring. Secondly, there is a need for a trustworthy family doctor system. Additionally, regarding health management knowledge and services, compiling widely concerned health information into a knowledge base to facilitate learning and reference is another area of opportunity. This is also an initiative Baidu aims to pursue, and it remains to be seen what future opportunities may arise, but it undoubtedly addresses a market need.

V. Core Value of Internet Healthcare

The core value of internet healthcare can be defined by three keywords: connectivity, data, and experience. In my view, any business that fails to establish core value along these three dimensions faces significant uncertainty in the future.

Who exactly are the users and physicians on internet healthcare platforms, and how much time are they willing to spend there? Second, what types of data are generated in this process, such as transaction data and personal health data? Finally, there is the user experience: creating a novel experience that surpasses the traditional system and continuously improving services.

In the internet era, patients’ voices have grown increasingly influential. As Professor Zhu Hengpeng has noted, patients now even bring overseas literature to discuss treatment plans with their physicians. The ultimate goal of internet healthcare is to prioritize patient value. By leveraging a B2B2C model—reaching patients through services provided to hospitals, physicians, or other institutions—the sector ultimately aims to serve consumers directly (2C). Today’s patients place their trust in internet healthcare platforms and institutions.

Internet healthcare is inherently service-oriented. Its core driver is shifting from asset-driven to data-and-technology-driven models. In the past, we relied heavily on assets, such as advanced equipment and top-tier physicians. Future healthcare will be increasingly grounded in data-driven science; only in this way can all of you here seize greater opportunities. Of course, we believe that internet healthcare solutions that are merely tool-based offer very limited value and fail to address substantive issues.

VI. Expectations for Entrepreneurs

Many players, including numerous investment firms, are accelerating their entry into this industry, posing significant challenges and pressure for entrepreneurs. Returning to the model of business opportunity identification, the first thing on an entrepreneur’s mind each morning is whether the opportunities they previously identified still exist, whether their available resources are sufficient to execute the venture, and whether their team aligns with their vision. It is indeed a demanding journey for founders. The following insights are shared with fellow entrepreneurs:

First, the founder’s background and learning ability determine the future ceiling of a startup; therefore, when evaluating companies, our primary consideration is the founder—seeking balance among business opportunities, resources, and team.

Second, the addition of key resources and teams may change the company's fate.

Finally, the healthcare industry is one that requires patience; perseverance is crucial, as is staying true to our original mission. We can also see greater possibilities emerging from policy changes, and I believe the next 5–10 years will be a golden period for investment in the healthcare sector.

“The most important final sentence,”It is often the information you know but that is not true that harms you.”. When it comes to making actual decisions, I still hope you will go out into the market and engage in discussions with your clients.

VII. Q&A

Question: I would like to hear your views on physician groups.

Wang Jianfei: I believe that healthcare services constitute a professional service, which is naturally delivered through various medical technologies, advanced equipment, or diagnostic devices. However, in essence, it is somewhat analogous to the professions of lawyers and accountants, with the key difference being that the latter do not rely on equipment for analysis. From my perspective, physician groups will continue to be dominated by the partnership model in the future. Under such a model, the generated profits should be distributed among the partners. From the standpoint of an investment institution, investing in a physician group is similar to investing in a consulting firm, an accounting firm, or a legal team.

We are more inclined to invest in businesses that support physician groups in delivering high-quality services, such as establishing premier medical centers and assembling top-tier expert teams. Under such a model, physicians have every reason to choose us, as they can achieve greater returns only through our platform. We prefer to invest in and support the growth of such companies. As Professor Zhu just mentioned, the advent of physicians’ independent practice is the hallmark of the industry’s springtime. Without the participation of physicians, it is unlikely that internet healthcare will advance into deeper realms.

Question:What are the market prospects and opportunities for non-medical ancillary services, such as outpatient companionship?

Jianfei Wang:The most reliable aspect of this business is that it is a project driven by market demand. In fact, beyond medical escort services, each specific disease category presents its own local opportunities if examined closely. Medical escort services primarily address the needs of patients undergoing major surgeries. The key challenge lies in effectively balancing costs within this process, given that the model remains predominantly labor-intensive.

Behind the Scenes: The reason why Mr. Wang Jianfei’s Q&A session was brief is that he was swarmed by an overwhelmingly enthusiastic crowd before he could finish answering questions. He was surrounded by passionate entrepreneurs for nearly forty minutes, leaving him hungry and without lunch until 2 p.m.