Zhu Hengpeng: Attracting Doctors Is the Key Breakthrough for Internet Healthcare — Xingdong Xiangyi Forum Public Lecture Series 1

Event Name: Xingdong Xiangyi Hui Phase 1 Open Lecture

Event Dates: November 7–8, 2015

Organizers: Legend Star, VCBeat, BlueRun Ventures

Guest Speaker: Zhu Hengpeng, Deputy Director of the Institute of Economics at the Chinese Academy of Social Sciences and Director of the Center for Public Policy Research.

Zhu Hengpeng said, “I am the best expert on healthcare reform policy, bar none.”

Below are the highlights from Professor Zhu Hengpeng’s inspiring speech. For the full presentation, please follow VCBeat on WeChat (vcbeat) to watch.

Zhu Hengpeng's Notable Quotes:

1. I am probably the most down-to-earth expert in China, having traveled to more than two-thirds of the country.

2. When interpreting China’s healthcare policies, it is essential to recognize the country’s complexity. Many U.S. investment banks and elites struggle to grasp Chinese regulatory frameworks and red lines, leading to misinterpretations of Chinese policies.3. When the 2009 healthcare reform was introduced, many predicted it would bring about turbulent and drastic changes. At the time, I judged that there would be no significant shifts, which indeed proved to be the case. However, in the stock market, I forgot Keynes’ remark: investing is not about being right, but about anticipating what the majority believes. Thus, while my theoretical analysis was correct, I failed in the stock market.4. Regarding the difficulties and high costs of accessing medical care, our advice to policymakers is not to claim that these issues can be resolved, as they are fundamentally unsolvable. Our per capita income is only one-sixth that of the United States, yet we use the same medical equipment, similar technologies, and comparable pharmaceuticals.5. I do not discuss healthcare reform with ordinary individuals; I simply advise them to take personal responsibility for their own medical care.6. The challenges of difficult and expensive access to medical care represent a uniquely painful issue in China, but also present opportunities. One such opportunity lies in the reform of tiered diagnosis and treatment. This area constitutes the greatest pain point. Abroad, this concept is referred to as “division of labor and collaboration” rather than “tiered diagnosis and treatment.” The latter reflects an administrative mindset, whereas the opportunity lies in leveraging market-oriented approaches to improve healthcare delivery.

7. Let us consider a scenario in which the medical infrastructure layout in Zhongguancun is planned by the National Health and Family Planning Commission. In formulating such plans, it is difficult to adequately account for area-specific factors such as the age structure and disease spectrum of Zhongguancun’s population. However, if a market-oriented approach were adopted—allowing physicians to freely establish clinics and private enterprises to operate hospitals—the strategies for opening clinics and hospitals would automatically adjust in response to Zhongguancun’s demographic distribution, thereby achieving optimized allocation of healthcare resources.

8. Therefore, a key to internet healthcare lies in attracting physicians to engage in multi-site practice and freelance work. Entrepreneurs should not focus on partnering with tertiary A hospitals; instead, they should aim to recruit specialists from these top-tier institutions by providing the necessary support for them to branch out independently. Convey to physicians that there are abundant opportunities beyond their current settings, and deliver high-quality services tailored to their needs.

9. It is imperative to support policies that enable physicians from public hospitals to practice outside these institutions. The argument that physicians should be restricted from leaving because they were trained by public hospitals is untenable; training medical professionals is an inherent responsibility of public hospitals, which already receive fiscal appropriations and policy support. Such restrictions are as absurd as the former practice of requiring university graduates to pay “training fees” when joining private enterprises—a practice that will inevitably appear equally preposterous in retrospect.

10. We must find hope amidst despair, and another source of hope lies in the rising volume of outpatient visits in community clinics. This data is derived from Beijing urban employee basic medical insurance patients, all of whom are Beijing residents. A staggering 88% of outpatient expenditures flow to hospitals. Do Beijing residents also predominantly seek care at tertiary hospitals? This constitutes the "despair." In such a scenario, it becomes evident that nothing can grow under the shadow of giant trees; apart from tertiary hospitals, the tiered diagnosis and treatment system appears virtually nonexistent. This is what I mean by "despair." However, why has a glimmer of hope emerged? Data from Beijing reveals that, due to severe strain on the city’s medical insurance fund and stringent cost-containment measures imposed on hospitals, Beijing has taken the lead nationwide in undergoing a structural shift: 35% of insurance funds are allocated to inpatient care, while 65% are directed toward outpatient services. This trend will eventually spread across China, as financial constraints will primarily target inpatient care, where waste is most pronounced and cost-control measures yield the most significant results. Therefore, the so-called "glimmer of hope" is that outpatient services will account for the majority of healthcare expenditures. Outpatient care is an area where you can make a substantial impact.

11. The core of pharmaceutical policy is centralized procurement. Zhejiang’s procurement model mandates a 10% price reduction, whereas Beijing has discontinued its centralized procurement process, instead adopting the lowest bid price among the 31 cities nationwide. For products with an existing market in Beijing, it is advisable to avoid price reductions in that province.

For original imported drugs and those essential for inpatient care, joint bidding is permissible without price reductions. However, exclusive proprietary Chinese medicines must undergo price cuts, as they are not considered clinically essential. Consequently, failure to reduce prices during tendering may result in exclusion from the market. Even if a significant price reduction secures a winning bid in Beijing, hospitals may still refrain from procuring the product. Tertiary Grade A hospitals will not abandon outpatient services, making the separation of prescribing from dispensing unfeasible.

Alibaba Health’s pilot program for online prescription drug sales in Shijiazhuang last year ultimately failed, as prescriptions could not be released from hospitals; both physicians and hospitals were unwilling to participate.

12. The current issue is that while the policies appear sound, they lack coordination. Therefore, when analyzing trends through policy lenses, do not rely on initiatives requiring multi-faceted coordination. Why, then, have I included this point? Because I believe the breakthrough in healthcare reform does not lie in simultaneous, across-the-board advances, but rather in focused, unilateral progress. Once one area is effectively addressed, other policies will naturally follow suit.