Digital healthcare in China: hope or hype?

May 26, 2017 - reading time 5 mins

founder/managing director, Rubicon Strategy Group

Benjamin Shobert has worked across China and Southeast Asia for nearly a decade, helping healthcare and biotech companies build market access strategies and interact with key government officials in pursuit of improved healthcare outcomes and the development of innovative public-private partnerships. He is a frequent writer at Forbes, and his work has been featured at Harvard Asia Quarterly, Yale’s China Hands, CNBC, Fortune Magazine, and many others. In addition to his work with large healthcare and biotech companies, he teaches a class on the globalization of healthcare platforms and biotech companies at the University of Washington’s Foster MBA program.

By Benjamin Shobert Click here to read less

Several years ago, it was common to hear healthcare consultants in China talk about digital and mHealth, now many have fundamentally recalibrated their expectations for the sector in China.

Young lady in mask using smartphone on platform

Several years ago, it was common to hear healthcare consultants in China talk about how telehealth, electronic medical records (EMR), patient engagement platforms and other mHealth apps were going to leapfrog the capabilities and penetration levels of those in developed western markets. As might be expected given such high expectations, venture capital and hard R&D investments from large domestic and foreign companies flowed into China like a tsunami. But, as was pointed out by Bloomberg late last year, returns on these investments have been nearly impossible to find, and many of the earliest investors have fundamentally recalibrated their expectations for the digital and mHealth sector in China.

Why did this happen? How did an industry that was once put forward as the best example of China leapfrogging Western technology since the fax machine, just not deliver? There are five reasons, each of them illustrative of what companies working in China’s healthcare economy need to be mindful of.

First, technology cannot be used to paper over flaws in a broken system.

In a market such as China, patient access exists within an ecosystem characterized by under-compensated physicians, hospital administrators scrambling for alternative sources of revenue, and a regulatory system whose bias in favor of private versus public healthcare can be nearly impossible to predict. Consequently, the problems mHealth platforms are best suited to solve do not always line up with the most pressing priorities of Chinese patients. It should be said that some such as healthcare recommendation platform, CareVoice, do; however, too many of the early mHealth apps did too little to remedy the biggest pain points felt by Chinese families around access, affordability and addressing their deep trust issues with the Chinese healthcare system writ large.

Second, the monetization scheme for these various mHealth technologies was always a bit suspect.

In traditional digital start-ups, monetizing your platform requires you to use investment capital to identify and engage a specific cohort of users, and then use them as a vehicle for advertising or a unique point–of-sale offering. mHealth apps struggled to build a large base of users, for the reasons mentioned earlier, which then required the mHealth company to pivot into another model. Some, such as DXY, a virtual community for physicians, decided they would use their data set to drive referrals towards brick and mortar sites they owned and operated (talk about a strategic pivot – from virtual to physical care!). Others like diabetes management app, Welltang, decided they would try to craft relationships with insurers in the hopes private insurance companies would pay for improved patient adherence to their respective care plans.

Third, the online sale of pharmaceuticals went from being a near certainty to a regulatory unknown.

Look under the hood of the various mHealth platforms either started by, or invested in by, the large Chinese internet conglomerates (the so-called “BATS”, or Baidu, Alibaba, Tencent and Sina) and what could be found as justification for their interest would be access to the sale and distribution of pharmaceuticals. Given this remains where most of the profit in China’s healthcare economy resides – selling and distributing prescriptions – it seemed perfectly sensible that this would be the monetization engine that would propel the mHealth world forward. But, the Chinese government’s initial enthusiasm for this has cooled, in large part because regulators in China rightfully suspect that it could have introduced a major political vulnerability if it was perceived that the government had looked the other way when a major part of China’s healthcare system went from a physical to virtual point of prescription, sale and distribution.

Fourth, mHealth platforms struggled to ever resolve the foundational problem of where trust resides in the Chinese healthcare system.

While online consultations have grown in number, the Chinese consumer remains attached to the idea that the best care is to be found in the largest hospitals through a direct interaction with a physician. For better or worse, Chinese families know where they want to access care, and who they trust. While the transition from a hospital-centric fixed asset heavy point of care model to a virtual telehealth enabled digital experience is possible on a white board, in practice Chinese consumers want to be able to speak with a physician. The more pressing transition, and one certainly less glamorous than that promised by mHealth platforms is the one taking place from hospital to community care centric models. mHealth apps that help facilitate this intermediate step could well position themselves for greater user adoption in the mid-to-long term. But the problem of trust goes one level deeper for Chinese mHealth companies: the Chinese internet has for a long time hosted fraudulent claims around cancer cures that make western internet advertising for fad diets seem tame in comparison. Any mHealth company that needed to find and channel consumers through online marketing of healthcare services was going to struggle.

Fifth, mHealth apps never answered the question of what the value proposition for the physician was.

In a world where unicorn valuations from start-ups like Uber or China’s equivalent Didi Chuxing make investors and consumers giddy, it can be easy to overlook that these on-demand models also need to create a positive experience for those on the other side of the equation: in Didi’s situation the drivers, and in the Chinese mHealth world, the physicians. mHealth platforms never answered the question of why physicians would be incentivized to drive patients to use any particular service. In addition, many physicians were not fully educated on how these mHealth apps would address care plan adherence, or medication management, or improved triage at point of care. Consequently, mHealth platforms missed the opportunity to leverage physicians as an advocate around guiding how the patient journey in China could have been enabled through mHealth.

Betting against China in general, and the ability of Chinese companies to innovate within the unique boundaries of their domestic market specifically, has never been a wise idea. It could well be that mHealth platforms in China will take the previously mentioned problems, digest them, and use the market’s response to shape a new wave of innovative mHealth technologies. But, for this to happen mHealth apps will need to prove they can remedy essential problems around trust, access, affordability and quality specific to China’s healthcare economy and Chinese healthcare consumers.