Caution Advised In China’s Digital Dash Into Healthcare’s Future

This article was published by Pharm Asia News on Sept 28, 2015

By Cecily Liu

Executive Summary

China’s digital healthcare market is set to expand massively and reach $110bn by 2020, disrupting the industry, creating fresh opportunities and casting aside those who don’t keep up with the times. However, experts caution that digital solutions are no panacea unless they have real patient-centered value.

TAIPEI – Going digital for the sake of it is not going to work in China, analysts caution, despite a wealth of evidence suggesting the digital healthcare market is set to make huge gains over the next five years. Rather, a clear-cut strategy is required that provides real value to patients.

In a report released in mid-September, the Boston Consulting Group said that digital healthcare services in China have not only come of age but predicted they will grow “exponentially” over the next five years, hitting $110bn in 2020.

This is nearly 37 times greater than the $3bn market figure recorded in 2014, according to the report, China’s Digital Health-Care Revolution , which further suggested $700m of venture capital and private equity funding poured into China’s digital healthcare industry last year.

China’s trio of digital heavyweights, collectively known as “BAT” - Baidu, Alibaba and Tencent - are among the new players in the healthcare industry, leveraging their strengths in the search and e-commerce fields. Meanwhile, traditional pharmaceutical and medical supply companies need to grasp the fact that the healthcare landscape has changed and they must adapt to survive and thrive. The report stated: “Healthcare in China will be transformed. Every step will be affected: how patients are diagnosed, treated, and managed; how physicians and hospitals operate; how pharmaceuticals and medical-technology (medtech) devices are supplied and used; how payers structure their offerings.”

Three trends are driving digital healthcare, BCG suggests, the first being widespread adoption of technologies like mobile devices (there is 40% smartphone penetration in China), cloud computing and big-data analytics. With ever-faster internet connections, these factors will increasingly enable remote patient monitoring and drug purchasing via smartphones to a wide segment of the 1.3 billion population, even in remote rural areas.

Second, the government is actively seeking out new (and cheap) digital solutions to improve efficiencies within the healthcare system. “Remote” consultations with doctors, booking appointments online and renewing prescriptions - rather than lining up to attend overcrowded major hospitals - are examples of how overstretched resources can be made to work better.

Third, the central government has created a favorable regulatory environment, following its $9.5bn investment in 2012 to develop electronic medical records (EMR). It has reduced e-commerce barriers so that registering online pharmacies is easier, while it’s expected that prescription drugs may be sold online sometime next year.

"Digitization Journey"
PricewaterhouseCoopers (PwC) China Hong Kong Health and Life Sciences Leader, Mark Gilbraith, based in Shanghai, told PharmAsia News in an email exchange that the government and private and public hospitals in China have “commenced their digitization journeys.”

“Total digital healthcare investment in 2014 increased by 22% over 2013 and we believe that trend will continue. The largest cities in China are ahead of the rest of China and there is still a way to go in terms of continued work and investment." This provides space for companies, both domestic and foreign, to take as much market share as possible, Gilbraith added. “The general aim and benefits of digital is that repeatable transactions, and those that have been difficult in the past, can be more efficiently handled.

“Thus, where efficiency is needed in any value chain or transaction, entrepreneurs are looking for digital to play a role. Gaining scale makes the economics work." However, for companies to benefit from this digital health care revolution, they must, "Look right across any patient-centric journey and identify the parts of that journey that cause most frustration, lag in time, are burdensome to patient or family, and try to cater to those parts of the journey. Digital for the sake of digital is not necessarily going to provide the investor with a good ROI (return on investment) if it’s of little use or value."

Model Approaches
As for the new business models that BCG believes are shaping the digital healthcare market, they include “new venture players staking out territory” by partnering with hospitals, physicians and hooking up with digital companies to take advantage of mobile payment s, social media and search engine tools.

These changes are set against a background of intense activity in the healthcare space, as equity groups, major pharmas, hospital operators and construction groups take note of the demographics - such as an aging population, increased incidence of chronic diseases and massive government funding - to pour money into the sector, Gilbraith said:

"The big players will leverage their obvious strengths to lend to the efficiencies and improved services for the industry. Yet they have to work closely with those that have been in the industry to understand its regulatory environment and current ways of working. This is where acquisitions of smaller players can advance that understanding more rapidly, as in any large tech play.”

The positive impact of this digital healthcare revolution for patients in the countryside, Gilbraith said, is better access to medical resources, leveraging telemedicine, particularly mHealth for earlier, better diagnosis. Meanwhile, in cities more data will provide extra information for increasingly individualized medicines, while real-time data monitoring and analytics could be realized with clinical decision support systems using EMR as the foundation.

BCG notes that healthcare services will account for the bulk of the new digital market at $95bn, while e-commerce will contribute about $15bn. Some of this growth will come from redirecting off-line to on-line spending, but there will also be significant businesses opportunities and new revenue streams.

On this subject, Gilbraith noted: "There are already new businesses forming, for example, start-ups that provide platforms for different stakeholders in a particular disease area to come together for a total solution or disease management for a patient."

Failures Inevitable
The bad news, for some, is that all this disruption will inevitably lead to challenges and failure. For example, BCG believes, “Distributors and retailers…face a major risk of disintermediation if they fail to tap into the e-commerce channel, which is more cost-efficient and convenient.”

There are also clear signs that China is increasingly tightening up regulations in the e-commerce sector to better oversee good practices amid a rapidly changing environment ("China Pharma E-Commerce Set For Tighter Regulation As Models Shift" — PharmAsia News, Sep. 16, 2015 6:51 AM GMT). Equally, Gilbraith said, while hospitals recognize the need for better electronic medical records, they will need to overcome poor data quality. Also, there are privacy issues that need to be addressed. As for ensuring the quality and safety of the drugs distribution supply chain, industry players will have to make sure these are maintained, along with pricing guidelines, through the new digital channels.

As the BCG report concludes: Regardless of whether the changes in healthcare are a major threat or a tantalizing new opportunity, companies must respond now. In the digital age, inaction will lead to failure.”