I recently visited Tencent in Shenzhen and sat down with some of their digital health people. It was a pretty fascinating great discussion. I got an update on the fairly long list of healthcare projects they are working on.

Healthcare is a complicated specialty. And most of it is not useful to non-healthcare people. So, I’m not going to go into all the details. I’m just going to give a high-level summary of what I thought was most interesting. And that relates to digital strategy.

First some background on “digital meets healthcare” in China.

The Rise, Fall and Rise of Digital Health in China

Digital health was a big deal in China in 2015-2016. New healthcare divisions were created at PE and VC firms. Tons of healthcare-specific funds were raised. It was basically a extension of the existing enthusiasm for digital and mobile into healthcare, which was viewed as a big and inefficient sector.

At the time, the China healthcare story went something like this:

• China has a big population (1.4B people) with increasing wealth.
  • There was about $1T in healthcare spending in 2020. Expected to be 2-3x that in 2030.
• There is lots of chronic disease.
• China is an aging population.
• Universal insurance has recently been created by the government but it is still shallow. There is both insurance and lots of cash pay happening.
• There are lots of supply problems:
  • Providers are mostly public hospitals. And there is too little supply for the growing demand.
  • The top public hospitals are routinely overwhelmed as patients migrate to them from across the country.
  • There is unequal quality and efficiency in care delivery across regions and hospital types.
  • There is a shortage of physicians and medical staff. Only about 4M registered docs.

Overall, there were lots of system-wide problems. And digital technology was poised to provide long-awaited solutions.

But I was never a believer in this story.

In fact, I was one of the pessimistic voices back in 2015. I have been in healthcare a long time. It’s just a complicated industry and change happens slowly. I was pretty certain most of the new digital health businesses were going nowhere. As neither were the healthcare PE firms that raised funds and were hunting for deals.

Over the next 3-4 years, lots of companies and projects got launched. Most struggled to get adoption by hospitals and patients. They also ran into lots of regulatory speedbumps and walls. And many struggled to find viable business models.

By 2019, most of the new businesses had shut down. Along with many of the PE firms. And few people were talking about China digital health.

My Two Strategies for Digital Health in China

But, if the early years of China digital health were overly optimistic, I think the later years were overly pessimistic. If you understand the space and can work on a longer time frame, big changes can happen. And that is what has been happening.

By 2019, I thought there was a clear path forward in China digital health. Which I thought was two basic strategies. There are others, but these were the ones I was tracking.

1. Build direct-to-consumer tools and apps. Basically, avoid hospitals (which are complicated, highly regulated and slow to adopt) and sell to consumers on their smartphone. Solve simple problems for consumers and get paid in cash (mobile pay). This is the best strategy for most. And it has the shortest distance from service to adoption and cash flow.
2. Solve larger system-wide problems in partnership with the government. Act like a quasi-SOE and be a technology resource for local, provincial and national government objectives. This is a great opportunity. But only a few digital giants can do this. Like Tencent, Alibaba and some others. 

The first strategy (go direct to consumer smartphones) is based on the idea that there is a supply-demand gap at the center of Chinese healthcare. And it is growing. That is the opportunity to target. Consumers want more and can pay but can’t get the services they want. Solve that.

Basically, the healthcare demand picture looks better and better every year in China.

• As mentioned, healthcare demand in China is increasing as the population ages.
• Healthcare demand is also increasing as China develops and urbanizes. There are more chronic diseases (common to developed countries), such as diabetes and obesity.
• And Chinese consumers are becoming wealthier and more sophisticated in their expectations for healthcare. They are exercising. They are eating better. They want better services.

Overall, the demand for healthcare in China is growing with a rising Chinese middle-class. It’s a really great, long-term trend.

But the supply is not increasing with this demand. That is the problem and opportunity. There is increasing unmet demand. 

• Chinese public hospitals remain overcrowded, with changing financial incentives and generally poor service (customer service, not clinical care).
• Private hospitals are growing by number but are still small by bed count. They are more like large clinics that full secondary care hospitals. And consumers trust public hospitals much more.
• Public insurance does extend to 95% of the population. But this coverage is somewhat limited. Users are frequently required to pay 10%-35% of the cost of inpatient care.
• Private insurance is still in the early stages. 

Private insurance is the biggest healthcare opportunity in China. Without private insurance, private hospitals struggle to find larger and more stable revenue flows. Efforts in private health insurance have, thus far, been limited by:

• Regulatory constraints.
• Too few private full secondary care hospitals (by bed count).
• Poor consumer awareness and adoption of full health insurance.
• Inaccessible, limited and non-standardized medical data for underwriting and pricing.

So, the first strategy is about targeting this growing supply-demand gap, where there is pent-up demand, by going direct to consumers on their smartphones. And getting paid by mobile payment. I’ll detail the exact strategies below.

The second strategy is about targeting this supply-demand gap by working with the government on the larger system-wide problems. And being the “go to” technology provider.

Which brings me to my meeting with the Tencent healthcare group.

Tencent Healthcare Is Connecting Stakeholders and Information

Tencent is arguably the single best company in China for the second strategy.

2. Solve larger system-wide problems in partnership with the government. Act like a quasi-SOE and be a technology resource for local, provincial and national government objectives. This is a great opportunity. But only a few digital giants can do this. Like Tencent, Alibaba and some others. 

There are several others (Alibaba, JD, PingAn). but Tencent is uniquely positioned to tackle the very large, system-wide problems because they are in the connections business. And before healthcare in China can be improved, you need to get the stakeholders and the information connected. You need a digital nervous system for communication, patient care, and financing.

Tencent really has a unique ability to connect China’s 1.4B individuals with hospitals, clinics, pharmacies, healthcare businesses, employers and government agencies. 

Additionally, Tencent is a cutting-edge technology provider. So, they can pioneer new tools and then deploy them at scale.

This is what I was thinking as I walked into the healthcare meeting at the Tencent headquarters. Phase one would be connecting all the stakeholders. Phase two would be building new tools and services on this system.

At the meeting, I saw a good presentation on some of Tencent’s many healthcare projects. It began with a summary of the big challenges in China healthcare, most of which I listed above (aging population, chronic disease, insufficient supply, unequal quality of care, etc.).

But they also pointed out some interesting hospital and government-specific problems – specifically:

• Hospitals are not uniformly connected. To each other. To government agencies. To payors.
• Medical records are not easily transportable. So, patients can move within the system. And care can be coordinated across sites.

A quick clarification: All these opinions and information are from me and not from Tencent. These are my conclusions only. They may well disagree with my assessment. 

Tencent appears to be targeting the biggest problems (i.e., system-wide) that also line up with their biggest strengths. That’s smart. This includes:

• 1.4B connected users on WeChat. And these are not just consumers. It also includes employers, merchants, SMEs, hospitals, pharmacies, content creators, government agencies, etc. WeChat, its mini programs and WeCom are best tools you could hope to have to connect a healthcare system.
• Content creation businesses. Tencent is a giant in content and publishing. They have TV, movies, books, etc.
• Technology. Obviously Tencent is one of the world’s leading tech companies, especially in AI, cloud, and data. Which is increasingly important in healthcare.

So phase one for China’s digital health system is creating connections between the various stakeholders. And then getting everyone engaging and interacting (adoption is a real challenge). This also includes getting information standardized and shareable. You want information moving back and forth between the stakeholders. 

A good starting point for this is to enable some very basic transactions, such as making appointments, making payments and ordering non-prescription products. You need simple use cases to get people connected and adopting.

So it wasn’t surprising when Tencent said they had focused on solving payment issues (i.e., a simple transaction and use case). And also on getting the system linked to China’s social insurance card.

Another mentioned early use case was providing medical knowledge to the public (outside of the hospital setting). Tencent is active in healthcare in TV and media. And they have created a medical version of Wikipedia called Tencent Medipedia, which is accessible with through WeChat.

I’m simplifying all this dramatically. But healthcare is big and complicated so I’m just hitting the main approach and functions.

DTC Healthcare Is the Fastest Strategy for Adoption

As mentioned, strategy 1 is a good place to focus. 

1. Build direct-to-consumer tools and apps. Basically, avoid hospitals (which are complicated, highly regulated and slow to adopt) and sell to consumers on their smartphone. Solve simple problems for consumers and get paid in cash (mobile pay). This is the best strategy for most. And it has the shortest distance from service to adoption and cash flow.

And I think this lines up with a lot of what Tencent has been doing.

You can break this into 8 consumer-facing digital services in healthcare. And you can see the Tencent use cases I mentioned fit nicely on this list (#3 and #8).

1. Core clinical services
2. Ancillary clinical services
3. Insurance and payment
4. Government services and portals
5. Prescription products
6. OTC products, medical products and medical devices
7. Health and lifestyle management and services
8. Information and communication services

If you’re curious, here is my breakdown of direct-to-consumer opportunities. It’s from 2017, but it is still pretty accurate. I’m pretty sure I could find lots of Tencent Healthcare projects in each of these buckets. 

Tencent Healthcare Is Building Tons of Digital Services and Tools at Scale

Once you get everyone connected (i.e., the digital nervous system), you can then roll out lots and lots of tools and services. Including insurance and financing solutions (It’s impossible to price insurance without data).

And this is where Tencent Healthcare gets super complicated. They appear to have new apps, functions and services popping up everywhere. And they are really pushing the boundaries with new AI capabilities. Hunyuan and AI cloud are going into everything. It’s pretty hard to keep track what they are doing as an outsider.

But here are the 5 big initiatives I am following:

1. WeChat Intelligent Healthcare

Launched in 2014, this is a simpler tool for patients. It mostly uses mini programs and WeChat Pay.

WeChat Intelligent Healthcare integrates a growing list of healthcare services into WeChat. Such as online medical consultations, appointment booking, bill payments, and so on. Accessible through WeChat’s Official Accounts, Mini Programs (including Tencent Healthcare), and other tools.

It is used by hospitals for patient engagement and operational efficiency. Hospitals can create branded mini programs to offer services like registration, test result access, and health records management.

It is also used by Pharmaceutical Companies for patient education, medication purchasing, and adherence. They can also leverage WeChat’s e-commerce capabilities for drug promotion and sales.

2. Tencent Healthcare

This WeChat-based program was launched in 2019. It also provides a one-stop platform with a growing list of functions – such as booking medical appointments, paying hospital bills, purchasing over-the-counter medicines, and consulting doctors via messages or livestreams.

But Tencent Health is a broader healthcare service platform. It has a wider scope that includes additional technologies like cloud computing, AI, and big data.

This is the service I am watching the most.

• It provides services like online medical consultations and access to healthcare information, similar to WeChat Intelligent Healthcare. But with an emphasis on advanced technological integration (e.g., AI-driven diagnostics and cloud-based solutions).
• It includes the mentioned Tencent Medipedia (launched in 2017) for sharing authoritative healthcare information on disease prevention, diagnosis, treatment, and rehabilitation.
• It also incorporates AI solutions like the “Hunyuan” medical AI model for improved medical instructions and diagnostics, and tools like Tencent Healthcare E-Drug (THED) for pharmaceutical services via WeChat’s “Scan” feature.

3. Tencent Healthcare E-Drug (THED)

I like this one.

This is a WeChat-based service for pharmaceutical services, focusing on medication access and management. It matches users with pharmaceutical services via a scan feature, facilitating medication purchases and information dissemination.

It has features for pharmaceutical companies which include direct medication sales, patient education, and adherence monitoring through a scan-based interface.

It also supports supply chain integration for drug distribution.

4. AI Medical Innovation System (AIMIS)

This is an AI-driven platform for medical imaging and diagnostics, primarily used by hospitals and research-focused pharmaceutical companies.

This has lots of AI-assisted medical image analysis – for diseases like diabetic retinopathy, lung cancer, and esophageal cancer. It claims accuracy rates up to 97.2% for colorectal cancer. It supports screening and diagnosis in over 100 major Chinese hospitals.

5. Next Generation Engagement Suite R4

Last one.

I was recently speaking with Sanofi China and they had some fascinating digital initiatives for pharma sales and education in China. With a focus on compliance. Most pharmaceutical companies have armies of sales representatives that work with doctors and hospitals. This is obviously expensive. And digital tools are viewed as a way to make this process more effective and efficient. 

This Tencent initiative appears similar. I think the objective is to help pharmaceutical multinationals use AI technology to increase efficiency and to ensure compliance. This includes multi-channel marketing, meeting management, and Customer Relationship Management (CRM).

I’m looking into this. 

***

Ok. That was a bit of healthcare. I think the digital strategy aspects are pretty interesting. Plus, what Tencent Healthcare is doing is pretty cool.

Cheers, Jeff

——-

Related articles:

• The Characteristics of Unattractive Industries with Cutthroat Competition (1 of 3) (Tech Strategy)
• 5 Misconceptions About Barriers to Entry (Tech Strategy)

From the Concept Library, concepts for this article are:

• Digital Health

From the Company Library, companies for this article are:

• Tencent Healthcare

——

I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.