Q4 2019: China’s internet hospitals

IHs work by allowing patients to head to a local facility to speak to doctors from other areas. Alternatively, apps have been developed that allow patients to contact doctors directly. There are regulations governing what can be done via internet hospitals and how they must be set up, for instance, patients cannot receive a diagnosis on their first visit. In addition, IHs must operate on the basis of a physical hospital and licences must be obtained. 

Ping An Good Doctor (PAGD), a subsidiary of Ping An Insurance, is one of the leaders in this sector. In H1 2019, its revenue shot up by 102% year on year, standing at RMB 2.27bn (USD 329m), while there were 62.7 million monthly active users (MAUs) and 650,000 daily consultations on average. Meanwhile, in September of that year, it announced it had reached more than 300m registered users. 

It has three major business segments: online consultation, family doctors, and private doctors. Earlier on, in 2017, most consultation services were free of charge. But, after discovering sufficient demand for online healthcare consultation, PAGD started to explore monetisation. Enterprise clients make up the bulk of revenue for family and private doctors – in fact, their “strategy is generating revenue from the enterprise-oriented segment and promoting its products and services through the customer-oriented segment, thus increasing revenue and the conversion rate at the same time.”

Compared with its main rival WeDoctor (WD), PAGD has “better user experience, a more diversified product portfolio, bigger discounts and more active users.” It also allows patients to add their doctors on WeChat. Although it’s unusual to lead users to other channels, this strategy could strengthen PAGD’s connection with users. However, recruiting senior doctors can be an issue. Generally, the higher ranked the doctor, the less they would be interested in working on such a platform owing to a heavier workload and low returns. As a result, PAGD often employs “physician assistants, who have just graduated from medical school or college”. Not only does this result in a “lack of effectiveness and authority of its online consultation” but there is also the added financial pressure of having full-time staff.

Backed by Tencent, WD was valued at USD 5.5bn in 2018. It claims to have 27 million MAUs, with its network expanding to 220,000 doctors, 15,000 pharmacies and 2,700 hospitals. A long-term strategic partnership with pan-Asian insurer, American International Assurance (AIA), was announced in 2018, giving AIA’s customers “preferred access” to WeDoctor.

Regarding its business model, it has closer ties with the government and public medical resource suppliers than PAGD. Moreover, the vast majority of physicians working with WeDoctor do it part-time, saving the company human resource costs. However, it faces the same issues as PAGD in terms of attracting high-level doctors. There are certain restrictions on doctors working for these platforms, and “it’s against the rules for doctors to use their working hours to earn extra money.” WD is also working with makers of traditional Chinese medicine (TCM) herbal paste.

Despite WD’s partnership with AIA, it “still lacks customer sources”, and this was viewed as its “biggest obstacle” by one specialist. There have been attempts to improve usage, including “sending ground promotion personnel to the hospitals, giving small gifts to patients or users, and holding activities to attract people to register.” However, these appear to have had “little effect” and “many [users] have little knowledge of the new platform and no habit of using it.” 

Weimai (WM) is another player: it “positions [itself] as a city-based medical service platform” and “cooperates with hospitals in depth to win trust from patients in those hospitals.” Founded in 2013, it covers 150m people over 17 provinces, with about 100,000 doctors. Last year, the company received USD 100m in its third funding round. WM offers “3+1 services”, comprising “online registration, payment during diagnosis and treatment, medical report inquiry, and primary diagnosis and treatment.”

What differentiates WM from the competition is that it focuses on third- and fourth-tier cities. Several benefits stem from this. The population can still be substantial, and “the competition is not intense while the demand is strong.” In terms of barriers to entry, “Weimai must work first with IT departments in those hospitals to build channels for patients to pay, register and communicate with doctors online.” However, after co-operating with hospitals it is unlikely that they will move to other IH brands. As a result, “Weimai enjoys the first-mover advantage and sets up barriers to entry.” 

Another strong point for WM is its localisation services. It has an “online mall” offering drugs and healthcare products, as well as services from local businesses “such as confinement centres [a traditional postnatal practice], dental clinics, cosmetic surgery institutions and physical examination centres” from which commission is collected. Although Weimai is a relative newcomer to the online mall segment, it is still benefiting: “the sales revenue of Weimai’s mall businesses, including products and services, reaches hundreds of thousands of RMB per month, and the gross margin is about the industry average.” 

Although it is still a relatively new industry there are still and some struggles companies need to overcome, from co-operating with hospitals to achieving profitability across different services, the demand is clearly there. What’s more, with the percentage of the population accessing the internet moving from 22.7% in 2008 to 59.6% in 2018, there’s still room for growth as more people get online.