Digital health investment in China, particularly companies serving the domestic market, topped $1.1 billion in the first half of 2016, according to data from CB Insights. That’s about how much was invested in the sector in the whole of 2015.
Several factors are fueling the growth of digital health in China, and some of these elements aren’t unlike what’s spurring the development and investment in its U.S counterpart.
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Still it’s worth noting one major difference between what’s driving the two nation’s digital health futures: deregulation and state-owned enterprise reform.
The Chinese government’s interest in downsizing state-owned enterprises has coincided with a modified stance on private and foreign capital. As a result, foreign investors and overseas companies, such as insurers, can now enter the nation’s healthcare industry, a Macquarie Research report on China found.
Here are some other factors that, combined with the above, are proving to be fertile ground for digital health’s growth in this Asian nation:
The rise of private insurance option
One big reason for the rise of the private insurance industry has been overwhelming dissatisfaction with public insurance plans. A survey by Ernst & Young of 2,000 city dwellers, representing China’s middle to upper class, revealed that 39 percent of respondents said the public plans were not satisfactory and 54 percent said they were somewhat satisfactory.
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Now, the government has reduced the regulatory barriers that turned off would-be members before and also added tax incentives. This has been a boon to the private insurance industry. Although most private insurance is still only designed to supplement public plans, particularly for catastrophic illnesses, that’s changing as these private insurers form joint ventures with public and private hospitals and differentiate their products.
Not surprisingly this has created opportunities for digital health. The private insurance industry is in the early stages of technology-driven disruption, says a report from Ernst & Young. For instance last year, Ping An, a private insurance company, launched a telemedicine business, Ping An Good Doctor to provide online consults and other services.
As of April this year, Ping An Good Doctor had 77 million registered users and partnered with over 50,000 doctors from public and private hospitals across the country.
Ping An’s venture arm is also one of the largest China-based strategic investors in U.S. digital health companies. On the flip side, Ping An benefits from a 2014 policy change permitting companies outside China to invest in domestic private insurers, so long as their stake doesn’t exceed 50 percent. The government also permits insurers outside of China to compete in the domestic market.
Tech savvy consumers
Of 700 million people with internet access in China, 86 percent connect through their mobile phones, according to the EY report. As in most countries, young people dominate cyberspace. A whopping 93 percent of 18-34 year olds have internet access, whereas the figure falls to 49 percent for people aged 35 and older, a Pew Research report on smartphone and Internet usage in emerging economies notes.
The EY insurance report indicates that accessing health data from wearables was viewed as important or very important for a little more than half of the respondents, regardless of age group.
Influence of technology players expanding into healthcare
Like Google, Apple, and Amazon have done in the U.S., China’s technology giants such as Alibaba, Tencent (which launched the popular messaging service WeChat) have moved into the healthcare technology space both as players and investors.
But as search engine business Baidu has shown, scandals have the potential to undermine public trust in these companies. Baidu got into trouble earlier this year for letting unlicensed hospitals promote themselves on its search engine. When a cancer patient who followed up with one of the ads to seek experimental treatment died, it prompted Chinese regulators to crack down on the company.
Alibaba’s health division, Alibaba Health Information Technology, which runs a pharmaceutical authentication and tracking business and is seeking to expand into health insurance, has also struggled. So while tech companies are charging into healthcare in China, they need to be aware of the particular challenges that industry represents.
Rising senior population
In many ways the elderly population illustrates China’s healthcare predicament, why the government is keen to change its strategy, and how this creates opportunity for digital solutions.
People aged 65 and older are expected to account for more than 20 percent of the population by 2035, according to the Macquarie Research report. The government-enforced policy of one child per family has sped up the impact of a reduced birth rate trend that wealthy countries experience, leading to an acute shortage of younger relatives to care for a rapidly aging population.
Some cities like Shanghai are adopting over-the-top solutions such as a threat of reduced credit rating if adult children, who don’t live with their parents, fail to honor their traditional obligation to look after their welfare through regular visits.
Another challenge is the low physician-per-citizen ratio. A report from Marsh & McClennan’s Asia Pacific Risk Center noted that China has just 14.6 doctors per 10,000 people. Only one-third of diabetes patients in the country are adequately managing their condition.
Such gaps in care is something that digital health services such as telemedicine or concierge care services for seniors can help to close.
“[To address] access to care, concierge services have come in. WeChat has added a service to let people book medical appointments,” said Mark Gilbraith, who leads PwC China’s Healthcare and Life Sciences practice, in a phone interview. “These new players and other technology companies are coming in and taking advantage of where the most frustrating bottlenecks in care are.”
Like Gilbraith, investment executives have taken notice of the shifting landscape of China’s healthcare system and are bullish on the future of digital health there.
“Given the huge challenge of providing care for such a large population in a geography still building a traditional healthcare infrastructure, we expect the demand for some digital health solutions to outpace, and in fact leapfrog, the pace of growth in the US,” said Noah Lewis, GE Ventures managing director, in an email.
Yet China is focused on the immediate task of fulfilling demand for acute medical services whereas digital health solutions in the U.S. are trying to contain costs and help manage chronic diseases better.
“We may well see emergence of new digital health categories given the unique needs of the Chinese market—perhaps intersecting with new models of tech enabled service care delivery.”
Photo: Getty Images, traffic_analyzer
