COVID-19 fuels expansion of online hospital market and spurs industry shift towards 'smart healthcare management'

According to Deloitte's new report Internet Hospitals in China: The new step into digital healthcare, COVID-19 has accelerated the development of China's online hospital ecosystem, with favorable policies set to drive the medical industry's transformation into a “health services provider” from a “medical security supplier”, thereby enhancing overall medical service quality and efficiency.

With the emergence of COVID-19, a subsequent increase in public acceptance of virtual consultations has fueled the expansion of China's online hospitals. As of 2020, investment and fundraising in the online hospital market hit RMB30 billion, far exceeding 2019 levels. Data from the National Health Commission reveals that online consultations increased 20-fold year-on-year during the pandemic. Policies have also been introduced to promote online sales of prescription medicines and allow medical insurance payouts to online hospitals, both major moves to open up the online hospital ecosystem and form a complete closed online loop from consultation and prescription, to settlement and medicine delivery.

"As the online economy has developed, and with mindsets and business models changing due to COVID-19, new infrastructure construction and sharply growing demand for hospital transformation, it is now time for online hospitals to enter a development boom," says Jens Ewert, Deloitte China Life Sciences & Health Care Industry Leader. "In the next 10 years, the medical industry will undergo an unprecedented transformation with radical innovation and changes to the nature of services and processes, evolving from traditional medical services to smart health management."

Online hospitals are entering a new era of bold development with favorable timing, a conducive environment, and greater public acceptance. The timing is favorable as the implementation of sector reforms will advance the establishment of level-to-level diagnosis and the overall health management system, thereby accelerating the realization of the Healthy China 2030 blueprint. The informatization of hospitals and construction of new infrastructure such as 5G networks are creating a conducive environment for industry development. Meanwhile, the public has gradually accepted online diagnosis and treatment, with a surge in awareness as patients have benefited from online diagnosis, door-to-door medicine delivery, online payment and other services.

At the heart of online hospitals is medical services management, which covers four types of services – remote consultation and treatment, remote diagnosis, after-hospital care and health management. Online hospitals have two main operating models: "hospital + internet" (online hospitals associated with offline medical institutions) and "internet + hospital" (separate online hospitals established by medical institutions).

"Each model has advantages and disadvantages in resources, platform operation and technical capability, the depth and range of accessible medical information, integrity of government regulation, patient satisfaction, overall process management and medical insurance," says Yvonne Wu, Deloitte Asia Pacific and China Life Sciences & Health Care Risk Advisory Leader. "Integration and cooperation between the two models is the ideal approach. Not only will this strengthen the connection between online and offline medical institutions, but it will also enable offline hospitals to leverage the internet for channel expansion. The amassment of medical resources will transform medical service processes and extend the medical ecosystem, thereby driving industry reform and innovation, as well as the equal distribution of medical resources and medical service efficiency."

Despite this positive outlook, online hospitals still face many challenges. Homogeneity has become a problem for new online hospitals with an unclear core value, while the "siphon effect" of top public hospitals also deepens medical imbalances. Most online hospitals are loss-making, although medical insurance policies have been implemented to help them form stable and sustainable profit models. In addition, the industry still needs uniform and enforceable management regulations to alleviate operational risks.

"Online hospitals are set to create an internet-based closed loop covering medicine, drugs and insurance, or a Health Maintenance Organization (HMO) model. Compared to traditional HMOs, an online HMO can reduce medical expenses and resource waste as it has no geographical limits and can reach more user groups. It will also promote full-lifecycle medical services and gradually create an ecosystem that realizes the core value of smart healthcare, covering patient education, clinical service, treatment, payment and health management," says Yvonne Wu.