VB Salon Series No.2: 2015 U.S. Mobile Health Investment and Market Analysis Seminar

Time: Afternoon of Thursday, January 29, 2015

Location: 2nd Floor, National Science Library, Chinese Academy of Sciences

Theme: 2015 U.S. mHealth Investment and Market Analysis Thematic Salon

In China, the healthcare industry cannot thrive without support from the government and industrial policies. As a matter of public welfare, it draws significant attention from both the government and the general public. My journey into the telemedicine sector began with my background as a physician; however, I left the hospital system early on after practicing for only three years. The genesis of this venture owes much to Lu Jun. In February 2012, while visiting Houston in the United States, I toured Lu Jun’s company and gained insight into the direction of telemedicine. Upon returning to China at the end of 2012, I dedicated myself to developing telemedicine and mobile health solutions. At that time, we collaborated with Lu Jun and his leadership team and signed a strategic agreement with the American Telemedicine Association (ATA). Last October, we hosted the inaugural Telemedicine Technology Exhibition and Forum. Drawing on the organizational structure of the ATA, we established the Tianjin Telemedicine Association. Furthermore, we have become the Telemedicine Branch of the China Medical Education Association, thereby creating a professional association framework. Our objective is to horizontally integrate resources through the platforms provided by the exhibition and the association. Given that the telemedicine industry is still in its nascent stage in China, I hope that resource integration via the association and the exhibition will drive the overall development of the sector.

Let me quickly go through the PowerPoint presentation. In fact, the current surge of interest in mobile health or telemedicine is driven by technological innovation. The rollout of 4G networks in April 2012 opened up pathways for telemedicine. Although the concept has existed for a long time—the American Telemedicine Association was founded in 1993, making it 24 years old as of now—many ideas back then failed to gain widespread adoption due to cost and accessibility barriers. Therefore, the emergence of telemedicine stems from innovations in new technologies. A key challenge lies in effectively integrating these new technologies with traditional medical practices. Particularly given China’s current context, the primary resource providers we need to engage are the government and healthcare institutions. Stakeholders span a wide range, including patients and even every household. What China currently lacks most is a comprehensive service system, along with a relatively independent third-party healthcare evaluation framework.

This diagram illustrates the interrelationships among these stakeholders. Therefore, whether we are engaged in mobile health or telemedicine, we cannot proceed without policy and government support; without such backing, I believe many projects would be unsustainable. Adhering to this principle, the Tianjin Telemedicine Association has actively collaborated with local governments from the outset, as well as with the National Health and Family Planning Commission and various professional bodies, aiming to integrate resources through this framework.Let me share my understanding of telemedicine. My initial perspective was shaped by observing the membership structure of the American Telemedicine Association (ATA) in the United States. The ATA includes IT technology providers and telecommunications operators; for instance, front-end companies like Google and Intel are members, as are major U.S. carriers such as AT&T. Additionally, manufacturers of medical devices, including Qualcomm, GE, and Panasonic, are also members. I consider these entities to constitute the front end of telemedicine. Its core lies in healthcare itself—hospitals, medical professionals, and related services—while the back end comprises insurance companies and investment institutions. In the U.S., numerous law firms are also involved. Thus, telemedicine forms a complete industrial closed loop. It is only under the condition of such a closed loop that comprehensive industry strategies can emerge.In China, when telemedicine is mentioned to the general public, many people focus solely on technology. However, technology is merely one link in the industrial chain. If a closed loop cannot be formed, it will be difficult to develop a viable market.

Lu Jun has already provided a comprehensive overview of the situation in the United States, so I will not repeat it. What was just discussed primarily concerns the U.S. approach to healthcare models. The introduction of new technologies has fundamentally altered behavioral patterns, which in turn has transformed entire business models. Over the past two years, I have examined numerous domestic mobile health projects and identified a significant issue: many startups in this space remain “up in the clouds” without achieving practical implementation. This phenomenon is particularly pronounced in the mobile or digital health sector. Without offline support, purely online operations place mobile health projects in considerable jeopardy. This is why I specifically emphasize shifting the focus of services downward—namely, how to effectively integrate technological tools with offline resources. I believe this integration is the key determinant of future success for these projects.Some time ago, I spoke with the president of a Grade 3A hospital. He recounted asking his physicians about Jack Ma’s statement that “doctors will be disrupted within 30 years.” The president asked them, “Do you know how you might be disrupted?” The doctors replied that they did not. The president then remarked, “That is precisely how you are being disrupted.” Whether Jack Ma’s comment was alarmist or hit the nail on the head, it holds a certain degree of validity. Which doctors face disruption over the next 30 years? In fact, approximately 70% of current physicians could potentially be displaced through technological and internet-based solutions. Why? Although China boasts a vast workforce of 2.7 million registered physicians, many—particularly those at lower levels—lack high professional proficiency. Even among physicians in Grade 3A hospitals, expertise varies significantly. This gap creates substantial market opportunities for technology-driven innovations, enabling major breakthroughs.Furthermore, we face significant challenges related to patient care-seeking habits. For instance, if a physician consults a reference book in front of a patient during a consultation, the patient is likely to immediately perceive the doctor as incompetent and leave.

However, the situation is different in the United States. Americans would perceive you as diligent and responsible for consulting references, recognizing that it is difficult to memorize all medical knowledge accurately or clearly. In contrast, in China, such behavior might lead to being labeled an incompetent physician. During my time as a practicing doctor, I also encountered situations where I could not recall specific protocols. In such cases, my supervising attending physician would instruct me to order the necessary laboratory tests, ask the patient to leave, and then consult the literature. By leveraging big data and technological innovations, we can capture disease symptoms, including subjective patient-reported outcomes, through data-driven approaches. This significantly reduces diagnostic error rates and enhances the overall level of diagnostic accuracy.

These are several current models of internet healthcare in China. As they are still in their infancy, it is premature to judge them as good or bad; their viability will be tested by time, and their business models remain undefined, subject to continuous adjustment in the future. This highlights a critical issue: under China’s current system, investing in mobile health or telemedicine—such as the initiatives undertaken by Chunyu Yisheng, Tencent, and Alibaba—is, in my view, extremely high-risk. These efforts primarily focus on pre-diagnosis and intra-diagnosis stages, which demand strong professional expertise and are highly prone to legal disputes. Nevertheless, more than 70% of projects and companies are concentrated in these two phases.In contrast, the post-diagnosis market, where many companies are also active, appears to be the direction most likely to achieve initial success. Companies focusing on a single disease type in the post-diagnosis phase have significant potential for success. Mobile health remains largely uncharted territory for many medical specialties in China. For instance, Lu Junye recently introduced JSA, a U.S.-based company specializing in psychiatry. This represents a very narrow, highly professional, and deeply vertical project. I believe such projects are particularly well-suited to succeed in the Chinese environment, as they create high barriers to entry once established. Investors should pay closer attention to such deep-vertical, single-disease projects.Another notable example is a U.S. company specializing in fundus disease screening, which is also highly promising. Additionally, Dr. Guan has been working on in-depth diabetes management. While many players are currently involved in diabetes care, few have effectively implemented solutions at the individual patient level, within communities, or through robust monitoring structures. There is still considerable room for improvement in this area.Furthermore, I recently encountered a specialized project focused on HIV/AIDS. Initially, I was skeptical when the founder discussed it with me. Given that the official number of AIDS cases in China is 490,000, with the actual number of patients estimated at less than 1.1 million, I questioned the market size—even if fully captured, it would only amount to 1.2 million people. However, after a detailed two-hour discussion, I realized it was an excellent opportunity. He provided a key statistic that changed my perspective: in 2013, 103 million HIV tests were conducted in China. AIDS testing is the only government-funded healthcare program in China, with 5,000 testing sites nationwide, resulting in 108 million tests performed in 2013. This represents a massive market. I cite this case to encourage investors to focus on projects with deep vertical specialization.

The latter part primarily focuses on community healthcare, which represents the most significant difference between China’s and the United States’ medical systems. Americans might well envy our community hospitals, as they undertake a substantial portion of public health initiatives and CDC-related responsibilities. The Chinese government has allocated abundant resources to community-level facilities, ranging from hardware infrastructure to policy support. However, our payment system has led to a situation where tertiary Grade A hospitals dominate the market, while community hospitals remain underutilized. I believe that starting this year, with the National Health and Family Planning Commission having recently issued more than ten policy documents, resources are being redirected toward community hospitals to correct the inverted pyramid structure. For investors, the fundamental principle remains unchanged: investing in healthcare projects in China requires close alignment with government policies. This holds true in the United States as well, where policy orientation significantly influences overall market share and market size.

This provides a general overview of current telemedicine modalities, featuring numerous case studies. I will discuss RAND’s Personal Health Management (PHM) model, which emphasizes individual engagement in one’s own health management. This approach presents significant opportunities for companies specializing in health management and chronic disease management. As Lu Jun mentioned earlier, the United States has 3.1–3.2 physicians per 1,000 people, whereas China’s average is approximately one-third of that figure. Thus, both the U.S. and China face severe shortages of medical resources. China’s shortfall may be even more pronounced due to its large population base. The PHM model therefore creates substantial opportunities in the healthcare market. What should we entrepreneurs focus on? We should concentrate on personal health management—specifically, how to develop effective health management tools or innovative personal health management models—which will unlock considerable future market potential. The structural contradictions in our healthcare system cannot be resolved through simple incremental growth. Instead, we must mobilize individual initiative and encourage full participation in personal health management. This outlines the characteristics of a high-quality healthcare system. By identifying what constitutes an ideal system and striving to meet those standards, we can ensure that our projects are well-positioned for success.

Within this system, the area where our government has arguably performed the poorest is the failure to embody the principles of efficiency, low cost, and equity. However, judging by the rapid pace of policy implementation in the first month of 2015, with a significant number of healthcare reform measures being introduced, it appears that our government is becoming increasingly efficient. Moreover, the Chinese government is inherently an efficient entity; its past shortcomings stemmed not from inability, but from a lack of prioritization. When it genuinely commits to a task, it invariably succeeds—a key distinction from the United States. Although President Obama initiated healthcare reform upon taking office, progress has remained sluggish to this day. In contrast, once the Chinese government fully recognizes the imperative and resolves to act, its execution capabilities far surpass those of the U.S. government.

This section discusses fundamental public health and hygiene issues. I have included this diagram to illustrate investment directions: three circles and one square. Entrepreneurs and investors should align themselves accordingly. Areas such as basic public health, collaborative healthcare, and collaborative wellness are sectors that entrepreneurs can focus on and engage in. It is advisable to avoid entering the core medical care sector, as it involves significant legal complexities and presents a high barrier to entry at the outset.

I would like to focus on this diagram, which illustrates the architecture of telemedicine. In our view, this framework essentially encompasses all telemedicine and mobile health startup projects. I believe each company should identify its position within this diagram: determine which segment you occupy, what problems you can solve within that segment, and if you can effectively address those issues, then you have a promising project.Currently, many startups claim they want to build health service information platforms, leverage cloud computing, and ultimately utilize big data. However, these capabilities are not accessible to everyone. The technical requirements are extremely high, and moreover, many companies do not yet possess substantial big data resources. On Wednesday in Beijing, I discussed with the CTO of Sugon (Zhongke Shuguang) regarding cloud computing. Our conversation centered on establishing the Tianjin Regional Health Information Service Platform and a gene sequencing platform powered by supercomputers. This involves a very high technical threshold; not many startups are capable of handling big data and related technologies. Meanwhile, General Practitioner Workstations are also undergoing digital transformation, a trend being pursued by many companies.The hottest sector at present is wearable devices. Although this represents only a small segment within the overall system, the solutions currently developed by startups in this area still fall short of expectations. I will share this diagram with everyone later. I believe it effectively reflects the systematic architectural framework of the entire telemedicine ecosystem.

To illustrate, consider collaborative platforms for clinical laboratory testing and quarantine. A major challenge in telemedicine is standardization. As China is still in the early stages of development, various regions, government bodies, institutions, and companies largely operate in silos. This fragmentation will lead to significant problems in the future, as data cannot form a coherent data chain or adhere to unified data standards, resulting in substantial waste of foundational investments. In this context, clinical laboratory testing and quarantine represent the area most amenable to standardization. Unlike medical imaging, which involves considerable subjective interpretation by physicians, laboratory testing yields objective numerical results from automated instruments. Therefore, within the entire healthcare workflow, clinical laboratory testing and quarantine are relatively easier to standardize. Currently, Guangzhou Da An Gene is leading efforts in establishing medical standards in this field and has achieved notable success through collaboration with the International Federation of Clinical Chemistry and Laboratory Medicine (IFCC).

This is the standardization issue I just mentioned. Which companies are currently working on standardization? I believe this could be a very important direction for future investment.

To illustrate this field, let’s look at a case from Guangzhou involving collaboration on diabetes and eye diseases to implement a diabetes prevention and treatment project. This initiative screened two million cases in Guangzhou through community hospitals and community service platforms. What does this case actually demonstrate? Many entrepreneurs and investors have yet to fully recognize the potential of communities, which serve as excellent vehicles for healthcare delivery. The Guangzhou project focused on screening for diabetic retinopathy. China has made substantial investments in public health services, particularly after the SARS outbreak, with significant annual funding. However, much of this effort involves redundant work. For instance, Guangzhou conducted one million cervical cancer screenings. In discussions with counterparts in Tianjin, I learned that their colorectal cancer screening program, which concluded in 2014, covered 2.1 million cases over three years. When U.S. data companies hear these figures, they are immediately intrigued. Such large-scale initiatives are feasible only in China, not in the United States. Therefore, these areas represent future investment opportunities in China, generating valuable big data. Moreover, this data was generated through public health platforms at the community level.

This discussion highlights that telemedicine must function as an integrated system; it is difficult to build an industry around a single, isolated component. This underscores the rationale behind establishing associations and promoting exhibitions: to engage various departments and entities simultaneously throughout the entire process, thereby transforming telemedicine into a cohesive system and aligning it with future development trends. In practice, it is already a significant achievement for each company to excel in its specific niche within this ecosystem. Regional diagnostic collaboration centers will serve as the core of this system, with high-caliber physicians constituting the true essence of this core.

This discussion centers on organizational synergy. At the time, the entire system was focused on screening for diabetes and eye diseases. This itself represents an excellent investment opportunity. In China, the number of individuals with diabetes and eye diseases exceeds ten million, with nearly thirty million people showing related trends, indicating a vast market. Furthermore, diabetes is incurable and leads to a significant decline in functional capacity. A blind person typically requires the assistance of at least three sighted individuals to maintain normal daily life, which underscores the substantial market potential. Profitability seems evident from any perspective. However, the key challenge lies in operating effectively within this system, particularly through collaboration with the government and professional medical institutions, which I believe is crucial.This brings us to the recent surge of interest over the past six months in mobile digital health. Notably, the driving forces behind this trend are not professionals with medical backgrounds, but rather individuals from the internet sector. This presents a significant issue: these individuals lack an understanding of medical workflows and tend to make assumptions when developing projects. This is not to say that internet professionals are inadequate; leveraging technology as a driver is certainly valid. However, it is essential to integrate professional medical expertise. Whether we refer to it as mobile health, smart healthcare, or digital health, the core term remains "healthcare," while the preceding terms merely denote the means or tools. The critical question is how to utilize these tools effectively. If the focus remains predominantly on the technological means, one essentially deviates from the core essence of healthcare.

This is also the issue that Lu Jun repeatedly emphasized just now: Who pays for it? This essentially concerns how to balance the benefits of all parties involved, which is a critical factor when evaluating a startup or an investment project. Throughout the entire project lifecycle, whether the interests of all stakeholders are balanced and how equilibrium is achieved among these competing interests determine whether your business model is viable and scalable.

This is the Chinese translation of the American “International Telemedicine Practice Standards and Guidelines,” jointly translated by the Tianjin Telemedicine Association and the National Health and Family Planning Commission. The book compiles behavioral and technical standards for telemedicine across various disease categories, summarized by the American Telemedicine Association over the past two decades, and was scheduled for publication this year.

Tianjin Telemedicine Association and the Houston Entrepreneurship Center (HTC) in Tianjin Binhai High-Tech Industrial Development Zone have jointly established a business incubator to provide comprehensive financial and policy support for startups in the healthcare industry. Entrepreneurs are welcome!

(Compiled and edited by VCBeat)

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