VB Salon Series No.2: Vesalius Ventures Shares U.S. Mobile Health Investment Insights and Success Cases

Time: Thursday, January 29, 2015 (Afternoon)

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

Topic: 2015 U.S. Mobile Health Investment and Market Analysis Thematic Salon

First of all, thank you all for taking time out of your busy schedules to be here. Let me give you a brief introduction to our company. Founded in 2002, our initial model was essentially a venture capital incubator. We specialized in the healthcare sector, starting with telemedicine. I will share a short story later on why we chose to focus on telemedicine back in 2002.
Today, I would like to discuss the current investment landscape in mobile health and telemedicine in the United States, as well as our perspective on investment trends across the industry, from four key aspects. First, I will share the story of my company, which serves as a soft promotion. Second, and critically important, healthcare is an industry heavily influenced by policy regulation. To understand why U.S. mobile health companies pursue their current strategies, one must have a general understanding of the U.S. healthcare system. While this topic alone could take days to fully explore, I will provide a concise overview of what we perceive as opportunities in the mobile health and telemedicine sectors, explaining from a policy perspective why these fields have been exceptionally hot in the United States over the past four years. Third, I will discuss investment trends and opportunities in the U.S. mobile health market. Finally, I will share several case studies from our company’s investment portfolio, along with other notable investment cases in which we have participated that offer valuable insights.
As mentioned earlier, Vesalius Ventures is actually headquartered in Houston and specializes in early-stage mobile health and venture capital. Over the past 12 years, these are some of the cases our company has participated in or incubated, covering areas such as devices, services, and healthcare IT. Currently, with the expansion of our business, Vesalius mainly focuses on four core areas. The primary business remains an early-stage venture capital incubator. The second business involves private equity investments, primarily targeting opportunities in both the healthcare and non-healthcare sectors, although 90% of the projects are within the healthcare industry. Thirdly, we provide consulting services, mainly for U.S.-based companies looking to expand overseas, as we have accumulated a significant number of small and medium-sized American healthcare enterprises that have strong demands for international expansion. Lastly, our fourth area of focus is international business, which currently centers on two key markets: the Middle East, where we opened an office in Abu Dhabi last year, and China, where I am responsible for overseeing operations.

Let me first introduce our company and explain why we pioneered telemedicine. Our founder, Dr. Bernard Harris, is a legendary figure in the United States. A physician by training, he joined NASA in 1990 to conduct medical research. He became the first African American astronaut to perform a spacewalk, having flown on two missions: one in 1993 and another in 1995. During his 1995 mission, he conducted an extravehicular activity (EVA), making history as the first African American astronaut to perform a spacewalk. Given his medical background, he engaged in extensive medical research both before and after becoming an astronaut. A key aspect of his work involved monitoring astronauts’ vital physiological parameters from ground control stations to space stations or spacecraft. Thus, the origins of modern telemedicine technology can be traced back to NASA. Furthermore, NASA has a strong tradition of transferring technologies initially developed for military and aerospace applications to the private sector.Dr. Harris served as the Chair of the American Telemedicine Association (ATA) during the 2011–2012 term. Last year, together with President Feng of the Tianjin Telemedicine Association, we co-organized an event with the ATA, marking the first time the American Telemedicine Association was introduced to China. Through this platform, we aim to facilitate connections between U.S. companies specializing in telemedicine and mobile health and the Chinese market, including Chinese investors and relevant enterprises.

I joined this company five years ago. My academic background is in biomedical research. I completed my undergraduate studies in Nanjing and worked for a startup there for two years before pursuing medical research in the United States. I graduated from the University of Houston in 2009. My responsibilities include investing in and incubating US-based startups, as well as expanding overseas business opportunities for our portfolio companies or affiliated enterprises in the telemedicine sector.

These are some of the experiences accumulated by our entire U.S. corporate team, including companies we have previously invested in and those with which we maintain extensive business relationships. Our primary partners include leading hospitals across the United States, such as the Texas Heart Institute, widely regarded as the premier institution for cardiac research in the country. As a research-focused medical organization, the Texas Heart Institute has been the source of innovations across all areas of cardiology, including artificial hearts, open-heart surgery, coronary artery bypass grafting, and heart transplantation.

On Investment Philosophy

This outlines our firm’s investment philosophy and the key perspectives we consider when evaluating projects. As we primarily invest in early-stage ventures, our foremost concern is the founding team. For technology-driven companies, we place significant emphasis on assessing their competitive moats, particularly from the standpoint of patent protection. For service-oriented companies, we evaluate the market entry opportunities within the industry. Our focus on early-stage startups is driven by our extensive experience in telemedicine and mobile health, which enables us to deliver substantial post-investment value to our portfolio companies. Furthermore, we actively engage in the post-investment management of all our projects. Later, I will share a case study of a company we invested in last year, where I was deeply involved in its corporate management.

Here, I would like to outline Vesalius’s three-step strategy for the Chinese market. The first step involves participating in exhibitions and forums. Through these channels, we aim to integrate domestic resources related to telemedicine and mobile health, while simultaneously building our brand. The second step is our collaboration with the Tianjin Binhai High-Tech Industrial Development Area to establish an incubator specifically focused on mobile and telehealth solutions. What sets this incubator apart from traditional ones is that it will not only serve domestic telemedicine and mobile health companies but also act as a bridgehead for overseas startups or established companies with proven business models to enter the Chinese market. The third step is our aspiration to establish a fund dedicated to investing in early-stage projects in the Chinese market, leveraging our overseas resources to facilitate cross-border investments. Additionally, we are currently engaged in projects that help Chinese enterprises seek cooperation opportunities abroad, whether at the project level or the capital level.

Below, I would like to take some time to introduce the U.S. healthcare system and healthcare reform in the United States. Following President Obama’s inauguration, nationwide healthcare reforms were launched in 2009 and 2010. These reforms represent the most substantial efforts in the past three decades, comprehensively addressing the interests of various stakeholders. It is precisely this wave of healthcare reform that has created immense market opportunities for emerging healthcare enterprises.

As I mentioned earlier, a thorough exploration of the U.S. healthcare system could easily take days to fully cover. Therefore, I will focus on several key points to provide you with a comprehensive overview of the current U.S. healthcare system, particularly from an investment perspective.First, the U.S. healthcare delivery operates under what is known as a "three-party system," involving patients, healthcare providers (including physicians and hospitals), and payers. Unlike China’s system, the U.S. allows independent medical practice. As I will elaborate in my fourth point, approximately 50% of physicians in the U.S. are independent practitioners. I will explain this concept in greater detail shortly.The most critical component within this three-party framework is the question of who bears the cost—a frequent inquiry from our domestic peers regarding ultimate payment responsibility. The current U.S. healthcare system is fundamentally structured around these three parties: patients, providers, and payers. The payer landscape is primarily dominated by two entities: commercial insurance companies, given the highly developed nature of the U.S. commercial health insurance market, and the government. Government-funded coverage mainly includes Medicare, which provides universal health coverage for individuals aged 65 and older, and Medicaid, a nationwide insurance program for populations below the poverty line. These two programs constitute the government’s role as a primary payer.

Second, and I believe this is critically important, within the overall U.S. healthcare system, the scope of medical services provided is ultimately determined by payers. In reality, neither patients nor physicians have significant power to participate in or influence the payment system. To illustrate, in the current U.S. market, no matter how advanced a pharmaceutical drug, medical device, or service model may be, if it fails to gain payer approval—meaning no insurance company is willing to cover its cost—it will be extremely difficult to promote and adopt, even if it has received clearance from the U.S. Food and Drug Administration (FDA).A recent noteworthy case involves one of America’s largest pharmaceutical companies specializing in HIV medications, which launched a highly effective treatment for hepatitis C. However, this therapy is exceptionally expensive, with a single course of treatment costing approximately $140,000. Although this treatment has been recognized by the U.S. federal government—specifically, covered under Medicare—the dynamics of the U.S. insurance system are more complex. After FDA approval, manufacturers must negotiate with the Centers for Medicare & Medicaid Services (CMS), an agency analogous to China’s social security administration, to determine whether the service or device can be included in CMS’s reimbursement framework. If CMS decides to reimburse a particular treatment, most private insurers generally follow CMS’s lead, albeit with adjustments based on market conditions.In the case of the aforementioned hepatitis C drug, although CMS approved coverage, individual insurers interpreted the policy differently. For instance, Insurer A might cover the drug, while Insurer B does not. If I were a patient insured by Insurer B, my physician would likely not prescribe this medication, knowing that I would be unable to afford the out-of-pocket costs. There is a common saying in the U.S. that insurance companies effectively hold decision-making power over which medical services patients can access. This reality significantly influences physicians’ behavior; if doctors believe a service will not be reimbursed, they typically will not recommend it to patients, except in rare cases of self-pay patients, who are virtually nonexistent in the U.S. healthcare landscape. Indeed, medical expenses are the leading cause of bankruptcy among the American middle class, largely because the U.S. has the most expensive healthcare services among all developed nations.

Third, regarding so-called payment habits, this may differ from the Chinese market. In fact, consumers in the Chinese market do have such usage habits: when they go to a hospital, they believe they need to pay for the medical services received, either in full or partially. However, individual users in the U.S. market do not share this consumption habit. Patients in the U.S. do not typically pay out-of-pocket at the point of care because most individuals seeking medical attention are covered by insurance. If you are employed, your employer generally provides health insurance; if you are a government employee, you also receive corresponding medical insurance benefits. Therefore, U.S. patients do not have a habit of directly paying for medical services themselves; instead, their insurance companies cover the costs.Another key difference from China is that in China, patients are generally required to pay upfront, or providers must verify their ability to pay before delivering medical services. In the U.S., patients receive treatment first and only later receive medical bills. Two years ago, Time magazine conducted an in-depth analysis of the U.S. payment system, highlighting significant flaws within it. Nevertheless, from the patient’s perspective, this system at least ensures that no one is denied emergency care due to inability to pay. When patients visit a hospital, doctors and hospitals, guided by humanitarian principles, provide initial treatment immediately. Patients subsequently receive separate bills from physicians and the hospital, and then file claims with their insurance companies for reimbursement of the medical services rendered. This claims process itself is highly complex.

Fourth, the practice of independent medicine by physicians is perhaps the most significant difference from China. In the United States, physicians enjoy professional autonomy and are free to choose their employment arrangements; currently, 50% of U.S. physicians practice independently. What does independent practice entail? For instance, as a cardiologist practicing independently, I can establish my own office in any location. For routine outpatient consultations, patients visit my clinic directly rather than going to a hospital. If hospital services are required—such as cardiac surgery or other medical procedures that cannot be performed in an outpatient clinic—I can leverage agreements with multiple hospitals. For example, I may arrange for a patient to undergo cardiac surgery at Hospital A. In this scenario, I bill separately for my professional services (consultation and surgical fees), while the patient’s hospital-related costs are billed directly by the hospital.Although independent practice is permitted in the U.S., it faces certain limitations, particularly regarding cross-state licensure. Medical licensure is regulated at the state level across all 50 states. To draw an analogy with China: if a physician licensed in Beijing wishes to practice in Shanghai, they must obtain a medical license in Shanghai; otherwise, they are not permitted to practice there. This requirement has historically posed a major barrier to telemedicine. Similarly, in the U.S., a physician licensed in one state (e.g., Anhui, using the Chinese analogy) cannot provide telemedicine services to a patient located in another state (e.g., Guizhou) without holding a license in that latter state, due to the lack of cross-state licensure reciprocity. However, healthcare reforms in the U.S. are beginning to address these restrictions on cross-state practice. Since 2015, the federal government has moved toward recognizing and facilitating telemedicine across state lines, gradually easing these regulatory constraints.

In 2010, the U.S. Congress formally approved the Affordable Care Act (ACA), officially titled the Patient Protection and Affordable Care Act. This legislation represents the most thorough and far-reaching reform of the American healthcare system in history. The introduction of the ACA provided sufficient incentives to existing healthcare institutions from both administrative and economic perspectives. For instance, the ACA mandated that all physicians and hospitals adopt electronic health record (EHR) systems. Five years prior, less than one-third of U.S. healthcare providers had implemented EHRs; however, since 2010, EHR adoption rates among both physicians and hospitals across the United States have exceeded 90%. This surge was driven by federal regulations requiring all U.S. hospitals to implement EHR systems starting in 2010, accompanied by financial subsidies for those who complied. Concurrently, a penalty mechanism was established: physicians or hospitals failing to use EHRs faced punitive measures in reimbursement claims. By leveraging both policy mandates and economic incentives, the government effectively promoted the widespread adoption and application of EHRs. Consequently, service providers in the EHR sector experienced significant market growth over the past three to four years, primarily due to these policy-driven factors.

The ACA actually includes two very important reform initiatives, the first of which is the establishment of ACOs, or Accountable Care Organizations. What does this mean? Let me use an analogy to explain. Previously, under the U.S. payment system, insurance companies processed a claim for each medical visit. In this model, hospitals and physicians lacked sufficient financial incentive to improve healthcare quality, as they were not held accountable for final outcomes. Under the current ACO model, the government conducts assessments for chronic diseases such as hypertension. For example, if the annual cost is estimated at $20,000, the government allocates $20,000 per year for a patient (using a Beijing-based user as an illustrative example). All healthcare providers within the ACO network in Beijing—including hospitals, physicians, and related institutions—jointly manage the patient’s condition, with a total budget cap of $20,000. This creates a strong incentive for all participating hospitals and physicians to reduce costs: any savings from the $20,000 budget are shared among the participating entities in the healthcare system. Consequently, U.S. hospitals now have significant financial motivation to leverage technological means to lower overall healthcare service costs, since every dollar saved translates into increased revenue. This marks a substantial shift from the previous fee-for-service model, where providers were reimbursed separately for each visit.

Another key aspect is the establishment of a universal health insurance system. Among developed nations, the United States previously had relatively inadequate insurance coverage, with nearly 30 million people uninsured. The Affordable Care Act (Obamacare) aims to implement a universal health insurance framework, encouraging everyone to purchase coverage. Insurance operates on the principle of risk pooling: theoretically, the larger the insured population, the greater the benefits for all participants. However, challenges have emerged. In the past, individuals with pre-existing conditions were unable to obtain commercial insurance, as no insurer would cover patients expected to incur substantial medical expenses. The U.S. government has now intervened through regulatory measures, prohibiting insurers from denying coverage based on pre-existing conditions. The U.S. also faces shortages in medical resources. Previously, uninsured individuals rarely accessed medical services. With universal enrollment, the healthcare system must accommodate an additional 10% of the population—those with the greatest medical needs—within two to three years. This surge has placed significant strain on the entire healthcare system.

Summary of U.S. Healthcare ReformPrior to healthcare reform, the prevailing model in the United States featured several key characteristics. First was the Fee-for-Service (FFS) model, where patients pay for each individual medical visit or service. Second, the payment system was highly fragmented (Disparate Payments), lacking a coordinated mechanism. For a single patient’s hospital visit, costs involving physicians, nurses, hospitals, and medications were settled separately with insurance companies, without any centralized coordination. Third, the system was oriented toward Illness Cure, focusing on disease treatment rather than prevention; for instance, procedures such as cardiac stenting or open-heart surgery incurred substantial costs. Fourth, it was driven by service frequency. Since reimbursement was based on per-service fees, hospitals and physicians had an incentive to encourage more frequent patient visits to increase their revenue. Finally, the system was characterized by fragmentation.Following healthcare reform, the U.S. is adopting a Value-Based Care model. This approach requires evaluating the ultimate therapeutic outcomes for patients. A systematic framework is being established to quantify and assess whether specific services are effective or ineffective for patients. Another key component is Bundled Payments. As previously illustrated, the government may allocate a fixed annual payment (e.g., $20,000–$30,000) for patients with certain conditions. The healthcare system retains autonomy over how these funds are utilized, with the government providing only advisory guidelines while respecting the professional expertise of physicians and hospitals.Furthermore, there is a shift toward Population Health. Previously, the U.S. placed insufficient emphasis on prevention because insurers typically did not cover preventive interventions. Without payer coverage, chronic disease management models were difficult to implement, partly due to users’ lack of habit in paying out-of-pocket for such services. Post-reform, insurance companies are adjusting their policies, and many now cover preventive chronic disease management. Additionally, Value Incentives are being introduced, shifting the focus from service volume to service quality. Lastly, the reform emphasizes Holistic Integration, aiming to align all stakeholders within a region to collaboratively serve patients. The core objective is to provide more effective care at a lower overall cost.

Below, I would like to discuss some trends and opportunities in the current U.S. mobile health market, reflecting our company’s own insights into this sector. First, what is mobile health, or what is telemedicine? If you ask one hundred people, you will likely receive one hundred different answers. The definition of telemedicine we proposed ten years ago remains highly applicable today. How should we understand mobile health and telemedicine? We believe they represent the convergence of three major industries. The first is telecommunications, spanning from early dial-up connections to 3G, 4G, and now wireless networks—an industry fundamentally related to information transmission. The second is information technology, including what people commonly refer to as apps and medical software, which are essentially components of healthcare informatization. The third component involves healthcare hardware, such as wearable devices. At a deeper level, wearable devices are simply tools for collecting data on one or several basic vital signs. We believe that mobile health is the integration of these three major industries, with healthcare services serving as its foundation. Whether referred to as mobile health, digital health, or telemedicine, none can deviate from the essence of this industry: providing healthcare services. While the methods of delivering these services are evolving rapidly, the core mission remains the provision of healthcare services.

Below, I will provide a brief overview of the 2014 investment trends in the United States, drawing on a highly detailed study of U.S. healthcare industry investments conducted by Rock Health several months ago. In 2014, total venture capital invested in the digital health sector in the U.S. approached $4 billion. What exactly is meant by “digital health”? My understanding is that it essentially refers to what was traditionally known as health IT, now rebranded under the term “digital health.” The investment volume in 2014 exceeded the cumulative total of the previous three years (2011–2013). As indicated by the red line, the combined investment for those three prior years amounted to approximately $4 billion, whereas investment in 2014 alone surpassed $4 billion.Within the digital health industry, six major segments attracted nearly 44% of total investment in 2014. What are these six segments? First, big data—specifically, software companies capable of performing data analytics. Second, healthcare consumer engagement, which primarily involves wearable devices aimed directly at consumers, focusing on strategies to motivate individuals to take a more proactive role in managing their own health. Third, digital medical devices, which are closely related to wearables but place greater emphasis on medical-grade standards; while many wearable devices are consumer electronics rather than medical products, there is a distinct category of medical-grade wearable devices. Fourth, telemedicine, driven by shifts in industry policy; investors anticipate explosive growth in the U.S. telemedicine market over the next two to three years. Fifth, personalized medicine, a relatively new concept involving tailored treatments. This approach leverages data collected from sources such as wearable devices—including both basic vital signs and treatment-related metrics—to develop more targeted therapeutic plans for individual patients. Sixth, population health management, which embodies the broader concept of health management. Thus, in 2014, 44% of investments were directed into these six major segments.

Telemedicine was the sector with the fastest investment growth in 2014, encompassing financing for new companies and additional investments in existing ones, such as Series B and C rounds. The opening of interstate medical licensure and changes in insurance claims payment strategies have significantly boosted this industry. Another area involves management applications for payers, primarily health insurance companies. Why has this change occurred? As mentioned earlier, the Accountable Care Organization (ACO) model requires coordination, which poses managerial challenges for insurers. Consequently, there are currently many solutions specifically designed to help insurance companies adapt to the new ACO service ecosystem, which leans more toward healthcare software applications.

Another aspect I find particularly interesting is what is known as digital therapeutics. As Da Tao mentioned earlier, WellDoc is a company that many people in the United States are familiar with. I personally believe it is highly innovative. Whether you categorize it as a mobile health company or a digital health company is not particularly important; I will discuss this case in detail with everyone shortly. There is also another company, Omada Health, which operates on similar principles to WellDoc. Both companies focus on diabetes management.

Where do we see the drivers for mobile health investment in the United States over the next two to three years? First and foremost, I believe the most significant driver is healthcare reform in the U.S., which has unlocked substantial market opportunities. Activities that were previously prohibited are now permissible, and services that previously lacked reimbursement mechanisms now have payers. This is a critically important impetus. The reason why numerous companies are emerging and investors are willing to commit capital to this sector is inextricably linked to these major policy-driven healthcare reforms.Second, the U.S. is also facing an aging population problem. The cohort aged 65 and older is expanding rapidly. It is well recognized that healthcare expenditures grow exponentially with age. Therefore, the combination of an aging demographic and the high prevalence of chronic diseases—which are also a severe issue in the U.S.—constitutes a key driver.Third, there is a shortage of medical resources in the U.S., particularly among specialists, coupled with persistently high medical costs.Another driver for mobile health investment is the high level of personnel and business mobility within the U.S. commercial model and society at large. To accommodate this corporate and individual mobility, there is a corresponding need for mobility in healthcare service delivery.Finally, changes in healthcare-seeking behavior are creating opportunities. As mentioned earlier, traditional U.S. users lacked a habit of direct payment for healthcare. However, younger Americans, specifically those under 30, are exhibiting shifts in their overall healthcare utilization patterns. Traditionally, Americans embraced the concept of a primary care physician (PCP). If you ask individuals over 50 who have insurance, most likely they have a designated PCP. In contrast, Millennials and Generation Z may not necessarily adopt this service model. They may prefer a transactional approach: seeking care only when ill, rather than engaging a PCP for comprehensive health management during periods of wellness. This shift in user behavior and healthcare consumption patterns will also generate significant investment opportunities.

Another factor is the heightened health and monitoring awareness among consumers, primarily driven by wearable devices and the efforts of wearable device companies to promote the concept of self-health management. Additionally, due to the widespread adoption of smart mobile devices in the United States across all age groups, smartphone penetration has become extremely high, even among individuals aged 55 and above.

Below, I would like to present typical cases that we currently find particularly interesting across these four aspects. The first aspect is medical consultation. As I mentioned earlier, whether it is mobile health or digital health, the core essence lies in healthcare services; without healthcare services, there can be no meaningful discussion of digital or mobile health. Regarding the entire process of seeking medical care, we identify four key stages: first, the process of finding a doctor during medical consultation; second, diagnosis, which occurs during the face-to-face interaction between the doctor and the patient; third, treatment, referring to the methods by which doctors provide therapeutic interventions to patients; and fourth, rehabilitation. By broadening the scope of rehabilitation, it can encompass chronic disease management, targeting individuals who are either in a sub-health state or already diagnosed with diseases.

In terms of healthcare delivery models, what opportunities do we currently see? I would like to share with you that the U.S. healthcare system currently offers only two pathways: emergency care and scheduled appointments. In the United States, if I become ill, there are two ways to consult a physician: one is to schedule an appointment. Whether seeing a specialist or a primary care physician, appointments are typically not available on the same day; patients may need to wait 1–2 days or 2–3 days. Securing an appointment with a specialist is even more difficult.

Let me provide an example. A while ago, I wanted to see a gastroenterologist. I made an appointment with a specialist who performs gastroscopies, but I had to wait four weeks for the consultation. What if I needed to see a doctor immediately? Under the current U.S. healthcare model, I would go to the emergency room (ER). The concept of an ER in the United States is not entirely the same as in China. In the U.S., you can see a doctor immediately upon arrival at the ER, although there may still be a considerable waiting time, potentially up to eight hours. Traditionally, these two approaches—scheduled specialist appointments and ER visits—were the primary ways to access medical care in the U.S.We believe that beyond these two traditional methods, a third approach has now emerged. One example is mobile health platforms such as Healthedge, which are similar to China’s Chunyu Yisheng (Spring Rain Doctor). Another category we call “non-clinical setting consultations,” essentially telemedicine. Major U.S. telemedicine providers, such as Teladoc, American Well, and Digital Health companies, operate on the concept of seeing a doctor without leaving home—you can consult a physician from your computer at home. To differentiate themselves from emergency rooms, these services promise to connect you with a doctor within two to three hours. Teladoc, for instance, has a strong history of providing medical services. Founded in 2002 or 2003, it has been offering these services throughout the rise of mobile health and telemedicine waves, initially via telephone. If I needed a doctor, I could simply call, and the company would arrange a consultation within a specified timeframe.Currently, this type of non-clinical consultation is suitable only for minor illnesses or situations where you need immediate attention from a physician. Consider that in most healthcare scenarios, approximately 70% of conditions do not require spending half a day or an entire day at a hospital, only to receive five minutes of advice from a doctor. These companies aim to streamline the healthcare process by allowing users to obtain professional medical advice without visiting a hospital or scheduling an appointment in advance. Of course, if a condition is serious, the physician will recommend scheduling an in-person appointment as soon as possible.Another innovation is ZocDoc, a platform for specialist appointments. As mentioned earlier, securing an appointment with a specialist in the U.S. can be extremely difficult. ZocDoc addresses this by reallocating scarce medical resources. Physicians can upload their available schedules onto the ZocDoc platform. Based on the user’s location and city—for example, if I want to see a pediatrician—the system can instantly inform me which pediatricians have available slots today. Essentially, ZocDoc solves the problem of difficulty in making appointments.

Furthermore, regarding specialists, the example I mentioned earlier about scheduling an appointment with a gastroenterologist four weeks in advance illustrates one way to utilize these medical resources rationally. However, this approach may not be effective if you seek consultation at a so-called “expert clinic” or insist on seeing a specific physician. Another key point is to avoid unnecessary emergency room (ER) visits. A significant portion of healthcare costs in the United States stems from patients flocking to ERs for conditions that do not require emergency care. Once a patient enters the ER, the overall expenses become substantially high. From the patient’s perspective, there is a copayment mechanism: visiting an ER physician might cost the patient $100–$200 out-of-pocket, whereas seeing a family physician would only cost $20–$30. For the entire healthcare system, the average cost of an ER visit exceeds $1,000, while the total cost of a scheduled appointment with a family physician remains under $200. This is why insurers are motivated to discourage patients from going to the ER. In the past, there were no viable alternatives; however, from an economic standpoint and through other solutions—such as platforms like HealthSpot and Teladoc—patients now have access to urgent care appointments and tertiary care options that allow them to receive treatment nearby or even consult with physicians remotely from home.

The second component is diagnostic methodology. We believe that investment opportunities primarily stem from novel diagnostic approaches that combine portable sensors with mobile devices. Qualcomm has done extensive work in this field. As a chip manufacturer, Qualcomm’s philosophy is to “connect everything.” Their business model relies on collecting patent royalties from any connected device; thus, the more devices connected to the network, the greater their profitability. Four years ago, Qualcomm collaborated with the XPRIZE Foundation on an XPRIZE project. For those unfamiliar with XPRIZE, it is well-known for sponsoring private companies to launch rockets into space, with the winner receiving a $10 million challenge prize. Recently, XPRIZE has focused on healthcare through the “XPRIZE Tricorder” initiative. The term “Tricorder” is widely recognized in the United States, originating from *Star Trek*, the most famous American science fiction television series, which debuted in the 1960s and influenced an entire generation. In the series, the Tricorder is a handheld device that scans and displays all of a patient’s vital signs. Qualcomm and XPRIZE jointly sponsored a $10 million challenge to develop such a device.The initiative aims to achieve two main objectives. The first is intelligent diagnosis: determining whether technology can accurately diagnose certain diseases without physician intervention. This involves two aspects: front-end data acquisition devices (for vital signs or blood samples) and artificial intelligence systems capable of using algorithms to make clinical judgments comparable to those of physicians. A notable example is IBM’s Watson, the intelligent robot system that first gained fame by winning question-answering challenges. IBM subsequently partnered with one of the world’s largest cancer centers to allow its AI system to assist in patient care. This highlights how the U.S. is advancing rapidly in translating research innovations into commercial applications.The second objective involves portable, medical-grade peripheral devices connected to mobile equipment. It is crucial to distinguish between medical-grade peripherals and consumer wearable devices. Medical-grade devices must receive regulatory approval, particularly from the U.S. Food and Drug Administration (FDA), ensuring that the collected data is valid and accurate enough for clinical diagnostic use. Two key companies in this sector are Scanadu and DynoSense. Scanadu launched a device on the crowdfunding platform Indiegogo in 2013, becoming the campaign with the highest funds raised on the site at that time. The device, roughly half the size of a palm, measures body temperature, heart rate, blood pressure, and blood oxygen saturation. The project was launched in late November 2013, with promises to ship the first prototypes to backers by spring 2014. Although I purchased one, I have not yet received it. Scanadu shipped initial prototypes to testers in spring 2014 but discovered accuracy issues, particularly with temperature measurements. To secure FDA clearance, they had to guarantee data validity and accuracy. Consequently, they recalled all initial test units, redesigned the product, and spent another year and a half refining it. As of January and February of this year, the product had still not been shipped to users, though I hope to receive my prototype upon my return. Developing medical-grade wearables carries significant risk. Following its crowdfunding campaign, Scanadu quickly secured its first round of funding—over $10 million—from Jerry Yang’s Silicon Valley fund. Another company, DynoSense, offers a device similar to Scanadu’s. Notably, Scanadu was selected as one of the ten final finalists in the Qualcomm-sponsored XPRIZE Tricorder competition last October. These finalists were given 18 months to deliver their final solutions.Finally, there is intelligent auxiliary screening, which combines medical big data with artificial intelligence. As mentioned earlier regarding IBM’s large-scale AI computer participating in disease diagnosis, this approach has the potential to fundamentally transform the delivery of healthcare services.

There are also certain remote diagnostic solutions targeted at specific diseases. A case in point is the diagnosis of arrhythmia by AliveCor, a name many of you may have heard. I happen to have brought this device with me. It works in conjunction with smartphones to provide anytime, anywhere monitoring for individuals with potential heart conditions or a history of heart disease. This model has received FDA approval. Initially, its sales model required a physician’s prescription for purchase, targeting the professional medical market first and necessitating physician endorsement to validate its efficacy and data accuracy. By the end of last year, it was officially launched in the over-the-counter (OTC) market, allowing consumers to purchase the device without a prescription.Although the device appears very simple, it features significant innovation and patent protection. One reason why there are no counterfeit versions in the United States is its unique data transmission method: it transmits data directly to the smartphone via audio signals, rather than through Bluetooth or Wi-Fi. This represents an excellent example of user experience design. Many people use Bluetooth-enabled devices, which often suffer from poor user experiences due to the frequent need for pairing between the device and the smartphone. With this device, pairing is entirely unnecessary; users simply open the app and place their fingers on the sensors to perform an ECG monitoring. This company is backed by Qualcomm.Another aspect worth noting about U.S. companies is their specialization. This particular company adopts a service model that combines data acquisition with services. Since average users cannot interpret ECG results on their own, professional analysis is required. However, this company does not provide such analytical services in-house; instead, it outsources the entire service component to another specialized firm. The company’s core competencies lie in marketing and product design and iteration. At the end of last year, it launched what is termed its second-generation product, which is thinner, smaller, and more affordable than its predecessor. The initial retail price was $199, though it may have decreased slightly since then. Its business model is clear: it generates profit through hardware sales, with profitability increasing as the user base grows, thanks to its very low production costs.

Additionally, AliveCor developed its own screening software late last year, which can automatically detect atrial fibrillation with virtually no false negatives and an accuracy rate of 100%. Clinical trials have demonstrated that it reliably diagnoses atrial fibrillation whenever present. Atrial fibrillation is a type of arrhythmia that often occurs suddenly and irregularly. Currently, patients with a history of such conditions typically receive a 24-hour wearable monitor from their physicians; however, this method fails to detect arrhythmias in 70% of cases. With this new technology, users can perform an immediate ECG self-check whenever they feel unwell. Another area is on-site emergency care. We are involved with a company called LifeBot, which provides a portable emergency device specifically designed for ambulances. It enables real-time data transmission via satellite, wireless networks, or wired connections, allowing access as long as any communication mode is available on site. Furthermore, there is specialist deployment through diagnostic platforms such as Specialists On Call, into which Warburg Pincus invested $35 million last year. Another player in remote consultation is InTouch Health, which has developed a telemedicine robot. This solution is better suited to the U.S. market and may not align with China’s market model.

Another area is the treatment level. Currently, we have not seen many so-called mobile health companies intervening in this segment. I will cite a few examples. One is AirStrip, a company invested by Sequoia Capital, which transmits data from bedside monitors in real time to doctors’ mobile phones and smart devices via a cloud-based platform. Theoretically, this allows physicians to monitor patients remotely without needing to be physically present in the ward. Another example is WellDoc, a digital therapeutics company that may be familiar to our colleagues in China; I will discuss its application in diabetes management in more detail later. A third example is remote ICU monitoring, a project in which our company has participated. This involves a hardware manufacturer that has developed contactless monitoring devices, primarily addressing the pain point that many ICU patients cannot tolerate numerous attached wires. The fourth example is real-time surgical guidance, a concept with which most are familiar, particularly in the context of robotic surgery. Theoretically, surgeons could operate on patients from any location. However, the U.S. FDA currently does not approve fully remote operations; the surgeon and the equipment must be in the same physical space. While they do not need to be in the same room, uninterrupted connectivity must be ensured, as any lapse during surgery is unacceptable.

Another area is post-discharge rehabilitation. I have cited several examples, one of which focuses on reducing hospital readmission rates. Why did I choose this example? It is also driven by healthcare reform policies. In the United States, a provision under healthcare reform stipulates that insurers will not reimburse costs if a patient is readmitted for the same condition within 30 days. One might ask: If insurers do not cover the costs, can hospitals refuse to admit these patients? In practice, such refusal is virtually non-existent in the U.S. For instance, patients with congestive heart failure (CHF) historically had very high readmission rates. However, implementing a robust post-discharge monitoring model can significantly reduce readmissions among these cardiac patients. Many U.S. companies now offer post-discharge monitoring services specifically tailored to this single disease entity—CHF. Previously, there was no clear payer; neither patients nor insurers were willing to pay. However, with the 30-day penalty mechanism introduced by healthcare reform, hospitals now have strong incentives. If a patient returns to the hospital, the facility must admit them, thereby incurring medical service costs and significantly increasing care expenses. Consequently, hospitals are motivated to ensure that CHF patients, even if monitored for only 30 days post-discharge, do not return to the hospital within that period, thus effectively lowering readmission rates.Additionally, chronic disease management, such as for diabetes and hypertension, has created financial incentives for both insurers and hospitals to reimburse new disease management models. The third area involves broader self-health management, which increasingly incorporates wearable devices and health management apps. Due to shifts in user habits and payment methods, consumers may become more willing to personally pay for wearable devices in the future.

Below, I will discuss three case studies. Two of these are companies in which we have invested. One is Jsahealth, which we invested in last year. Jsahealth has a pool of psychiatrists. Its business model involves centralizing physician resources and selling their time to numerous hospitals or emergency rooms. As I mentioned earlier, specialist physicians are a scarce resource in the United States. Many hospitals face shortages in specific specialties. For instance, if a patient with a psychiatric condition is admitted to a hospital that lacks on-site psychiatric specialists, the hospital may not know how to manage the case. Through telemedicine, physicians can provide such services using tablets. This model leverages a third-party company to consolidate scarce specialist resources and achieve the most efficient market allocation. Whether this model can be implemented in China depends on policies regarding multi-site practice.Why do I highlight this case? We invested in this company early last year and actively participated in its management. At the time of our investment, the company faced certain challenges. The founder was a renowned psychiatrist with strong influence in the field, enabling the rapid recruitment of many psychiatric physicians. However, the company lacked operational and managerial expertise. We recognized that while the company had strong control over scarce resources in this highly specialized niche, it required investor assistance in corporate operations. Therefore, during the investment process, we actively engaged in managing the company, helping establish a standardized financial system and developing plans for future business growth. Currently, the company’s services are limited to Texas due to restrictions on cross-state medical practice. However, we plan to expand into the California market this year. There is significant demand in major U.S. markets such as New York, California, and Texas.A similar case is SOC (Specialists On Call), in which Warburg Pincus invested $32 million in 2014. The name literally translates to “Specialist Physicians Online.” Its model is largely similar to that of Jsahealth, except that SOC covers four specialties: psychiatry, cardiology, neurology (specifically for stroke patients), and intensive care. Stroke care requires expert advice within a very short timeframe to significantly reduce patient disability. In the U.S., there is a severe shortage of physicians experienced in intensive care units (ICUs). SOC integrates resources across these four specialties. Since physicians in the U.S. can practice independently and contract with multiple companies without restriction, SOC uses a third-party platform to aggregate scarce physician resources. It operates on a B2B rather than a direct-to-consumer model, selling these services to hospitals.Previously, if a cardiac patient arrived at a hospital without an on-site cardiologist, the hospital had two options. First, it could admit the patient temporarily and then coordinate with other hospitals or third-party staffing agencies to secure a specialist. However, this process typically took 2–3 days. Second, the hospital might transfer the patient to another facility. However, many hospitals prefer to retain such patients because they often involve serious conditions and represent high-value cases; from an economic perspective, hospitals are reluctant to lose them. With models like those of SOC and Jsahealth, hospitals are promised access to a specialist within approximately two hours. This allows the hospital to admit the patient initially, obtain a preliminary assessment from a specialist quickly, and thereby gain sufficient time to arrange further resources. This model effectively consolidates and allocates scarce medical resources.

Another example is TelaDoc, which operates on a business model similar to the two companies previously mentioned. I personally understand it as a B2C model that directly targets consumers, addressing the same issue discussed earlier: “I need to see a doctor, but I cannot access one immediately—what should I do?” TelaDoc’s solution ensures that if you cannot see a doctor in person, it will provide you with a professional physician and specialized medical advice within two hours. The reason the U.S. can support such a direct-to-consumer (B2C) model is that all prescriptions in the country are electronic. When a physician conducts a remote consultation and prescribes medication, certain healthcare needs can be effectively addressed. The patient receives an electronic prescription from the doctor. Given the separation between medical practice and pharmaceutical dispensing in the U.S., the prescription is automatically transmitted to the pharmacy designated by the patient. The patient can then pick up the medication at the nearest pharmacy, thereby completing the entire closed-loop process from diagnosis to medication acquisition.

Second, I would like to discuss diabetes health management, a topic of considerable interest. Just a week ago, Tencent launched a so-called diabetes management application. The reason I wish to address this is that, although our company does not currently have projects directly related to diabetes management, we did collaborate with another company in 2006—before the advent of mobile smart devices—to provide health management for diabetic patients via mobile phones. In the United States, diabetes management is a prominent sector within mobile health. Diabetes is a major chronic condition that is generally incurable once contracted. While many current claims suggest that diabetes can be cured through certain methods, I remain personally skeptical about such assertions. First, diabetes is incurable. Second, while diabetes itself may not present immediate severe issues, the various complications it triggers—such as amputation, heart disease, and renal dysfunction—carry extremely high risks once they develop.

Let’s examine the case of Telcare in the United States. As the first company of its kind, Telcare launched the first FDA-cleared wireless blood glucose meter based on cellular networks. I believe its business model is largely consistent with that of Teladoc. It is a standalone device designed to operate independently without relying on a smartphone. After collecting data, it transmits the information to the cloud via a SIM card, allowing users to download it through a mobile app. The company was likely founded in 2010 or 2011. In 2014, Sequoia Capital led its Series C financing round with an investment of $32 million. Prior to Sequoia’s involvement, the company secured its first round of funding shortly after receiving FDA clearance for its wireless blood glucose meter in 2012. To date, it has raised a total of over $60 million. In its latest funding round, the company indicated ambitions beyond diabetes care, aiming to expand into the management of other chronic diseases. This trend highlights a common strategy: leveraging a high-prevalence disease as an entry point, and then pursuing vertical expansion—often referred to as disease-category extension—once a substantial user base and brand recognition have been established.

The second company is iBGSTAR, which is quite well-known as the so-called first iPhone-compatible blood glucose meter. This company was ultimately acquired by Sanofi, a French pharmaceutical giant. The product was developed and manufactured by a U.S.-based company specializing in blood glucose meters. The founder of this company, Sonny Vu, is a familiar name; after leaving this venture, he founded his second company, Misfit. Notably, the board of directors included the former CEO of Apple. Misfit launched a smart fitness tracker, which entered the Chinese market in late 2013 and became the best-selling fitness band in China. At the end of last year, Xiaomi and JD.com jointly invested $40 million in the company.Digressing slightly, while nearly everyone now aims to produce fitness trackers, such devices are not considered essential necessities. So why did Sonny Vu’s tracker stand out? It was even featured as a flagship product in Apple’s advertising campaigns focused on sports and health. If it is not a necessity, why would consumers pay for it? The answer lies in its fashion-forward approach. With its aesthetically pleasing design, the device can be worn on the wrist or around the neck as a pendant, creating an immediate desire to purchase. Their success, exemplified by this particular product, reflects Sonny Vu’s philosophy: prioritizing design to create products that instantly catch the eye.

The third company is Glooko, which many of you may already be familiar with. It developed a cable for smartphones. What is its purpose? It connects to traditional blood glucose meters, such as those from Johnson & Johnson and Roche. Glooko does not directly compete with these blood glucose meter manufacturers. In contrast, companies like Telcare may compete directly with Johnson & Johnson, Roche, or Abbott. Glooko, however, avoids direct competition. Currently, users in the market already own these blood glucose meters. In the United States, essentially 90% of diabetic patients have their own blood glucose meters, which are covered by insurance claims. Patients only need to pay a minimal out-of-pocket cost, as insurance reimburses both the blood glucose meter and each test strip used. This situation is certainly quite different from that in China.Glooko originated as an internal project at Johnson & Johnson. In 2009, just a few years after the iPhone’s launch, it was highlighted as a key project at Apple’s Worldwide Developers Conference (WWDC). Later, this project was discontinued internally. This raises the question: why do large corporations often refrain from pursuing such initiatives? Large companies face inherent structural challenges. For startup projects, there is less fear that large corporations will enter the same space—at least, this has been the case in the U.S. market thus far. Subsequently, the team from within Johnson & Johnson spun off to establish an independent company, continuing to develop the project. Due to its historical ties with Johnson & Johnson, Glooko was able to secure access to open data interfaces. Its initial step was to enable connectivity for several of Johnson & Johnson’s mainstream products. Currently, it has expanded to support physical connectivity with blood glucose meters from both Johnson & Johnson and Roche, exporting data directly to its app.Last year, Samsung, which has become an active investor in the U.S. mobile health sector—particularly among institutional investors—sought to build an ecosystem centered around Samsung smartphones. Samsung led Glooko’s $7 million Series B financing round.

The fourth company, Livongo, shares a significant historical connection with us. Its predecessor stems from a project our company undertook in 2005, collaborating with the founder of Livongo to deliver diabetes health management via mobile phones. If judged solely by media reports, Livongo appears to be a very recent venture, having been founded only in 2014 and securing $10 million in initial funding. Its product is quite similar to Telcare’s: a standalone blood glucose meter equipped with a built-in SIM card that connects to a smartphone app. These companies typically claim to employ proprietary algorithms to provide automated diabetes health management services.
The fifth company is an Israeli firm listed on the U.S. OTC market under the name Dario. It has not yet formally entered the U.S. market and primarily sells its smartphone-connected devices in Europe and Australia. The product is an integrated blood glucose monitoring system, with the lancet and lancing device housed together in a rectangular casing. It connects physically to smartphones via the audio jack, directly transmitting blood glucose data to the phone, similar to how it works with iPhones.

The last two companies: WellDoc is likely the one currently attracting significant attention. Several industry reports in China have conducted in-depth analyses of WellDoc. It was arguably the first to introduce the concept of "digital therapeutics" (or "electronic medicine") in the Chinese market. Essentially, it quantifies and decomposes the philosophy of behavior change into modular components, employing multi-modal monitoring to develop software that enhances adherence to medical advice. When patients visit doctors, they are often instructed to follow steps one through five; however, many patients complete only the first few steps and forget the rest. For chronic diseases, strict adherence to the treatment plan prescribed by physicians is crucial for effective disease control.WellDoc distinguished itself by conducting a randomized controlled clinical trial in 2010, adopting a pharmaceutical development model. This trial demonstrated that using its app and methodology significantly improved glycemic control, as measured by HbA1c levels. Based on this clinical evidence, the U.S. FDA approved its solution. The term "digital therapeutic" refers to the regulatory pathway where WellDoc’s product was reviewed and approved similarly to a pharmaceutical drug.Secondly, because the FDA approved it under a pharmaceutical framework, insurance companies can reimburse WellDoc’s app-based service model as they would for prescription drugs. Currently, the reimbursement amount for users of this model is approximately $99 per month. Crucially, access requires a physician’s prescription; it is not an over-the-counter product available for direct download from the market. Patients must obtain a prescription from their doctor, present it at a pharmacy, and have a licensed pharmacist download the software and provide instructions on its use. This process strictly follows the standard pharmaceutical distribution and dispensing workflow.WellDoc was founded early on, in 2006, initially focusing on diabetes health management. Although health management companies already existed in the U.S., WellDoc’s founders—a brother and sister team—brought exceptional professional credibility to the field, with the sister being a diabetes specialist and physician. The company secured substantial angel investment early on. This funding originated from a wealthy real estate developer who was a diabetic patient; after effectively managing his condition using WellDoc’s approach, he provided significant angel capital. This marks the origin story of WellDoc’s initial growth. Following its FDA clearance as a digital therapeutic, WellDoc received a $20 million investment last year from Merck’s Global Health Innovation Fund, primarily designated for market expansion and promotion.

The last company is Omada. I am unsure how extensively it has been covered in China. Its philosophy is similar to that of WellDoc. While WellDoc primarily focuses on patients with diabetes, Omada targets individuals with prediabetes. Patients are classified as having prediabetes if one or two specific indicators exceed normal thresholds. Individuals with prediabetes face a high risk of eventually progressing to diabetes.Omada was an incubated project of Rock Health in 2011. In that year, the United States conducted a nationwide clinical trial on diabetes to determine effective methods for managing patients with prediabetes. This was a large-scale, multi-year project jointly undertaken by diabetes experts across the country. The study designed a 16-week intervention program and demonstrated that this approach could effectively control blood glucose levels, leading to significantly improved outcomes. Omada quantified this 16-week protocol and integrated it into a mobile application, creating what is known as prediabetes management software.The findings were published in 2011 in a highly authoritative American medical journal and received endorsement from the American Diabetes Association. At the time, there was an effort to promote this model nationwide, encouraging users to engage in self-monitoring and health maintenance according to this framework. However, due to immature conditions at the time, this approach was not widely adopted.Seizing the opportunity presented by mobile health, Rock Health transformed this purely research-based project into a commercial product, bolstered by recognition from authoritative institutions. Many current insurance companies now collaborate with Rock Health, and many have begun covering this approach through reimbursement. By identifying payers, the difficulty of promoting this model has been significantly reduced.

The third case is a project our company invested in during its early stages. Back in 2004, before the emergence of smart devices, I would like to share with you an initiative that was also referred to as health management. At that time, there were three major players in this space: Intel had its own small device, and Honeywell offered a disease management model. The company we invested in, Health Hero, did not differ substantially from these two competitors. Health Hero was later acquired by the Bosch Group. Bosch operated a healthcare service project in the U.S., primarily targeting home-based elderly care, senior living communities, and rehabilitation centers. Upon waking up each day, patients would receive personalized software configurations based on their chronic conditions. They would answer a series of questions daily, which were processed through an algorithm. If the system determined the patient was healthy, it would display a message such as, “You are healthy today; have a pleasant mood.” However, if the responses indicated potential health risks, a nurse or medical professional would proactively intervene. This model mainly targeted the elderly market.We believe that companies following this model previously relied heavily on hardware sales—specifically, selling the devices themselves. With the widespread adoption of smart devices, it has become increasingly difficult for pure third-party hardware manufacturers to survive unless they possess a distinctly different business model. Currently, we observe that many companies have shifted away from hardware production, focusing instead on software. They leverage existing consumer hardware, such as Apple iPads or tablets from other manufacturers, rather than developing proprietary devices. Their competitive edge now lies in software rather than hardware. Our earlier investment in Health Hero ultimately exited through its acquisition by Bosch.

I believe what I just shared with everyone is primarily based on the investment opportunities we have observed and are currently focusing on in the fields of mobile health and telemedicine within the U.S. market. I am also very pleased that, if time permits later, we can have some further discussion to address any questions you may have. Regarding the four stages of care—accessing medical services, diagnosis, hospital admission, and rehabilitation—I outlined the current state of the U.S. healthcare market. What implications does this hold for China? As I mentioned earlier, the healthcare industry is heavily policy-driven. The U.S. healthcare system is fundamentally different from China’s; therefore, the American model may not necessarily work in China. Based on its own market conditions, healthcare system, and policy trends, China may see the emergence of certain business models that might not be suitable for the U.S. market.

(Edited and compiled by VCBeat)

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