Can ehealth solve China's Healthcare challenges (McKinsey presentation)

CHIC, Shanghai
April 2nd, 2015
Can eHealth solve China’s
Healthcare challenges?

| 1
Impact on the
Healthcare
value chain
Today’s discussion
Context for
eHealth in
China
Implications
for industry
participants

| 2
What is….the Context for
eHealth emergence in
China?

| 3
Potential for disruption – Some context
Many issues in China HC system… …while a fertile ground for ehealth market
Conflicts between
doctors and patients
Significant mark-up in
distribution channel
Poor quality
of supply
Lack of access
in rural areas
Inefficient hospital
operations
Heavy burden
of chronic diseases
Huge adoption of
mobile platforms
Government support
for e-Health
Access to capital
Largest e-Retail
market
Large and creative
IT community
Giants and hopeful
start-ups piling in

| 4
Average 3 hours spent
on smart phone everyday
Mass adoption of mobile platform - infrastructure supports the
rapid growth of mobile health sector in China
SOURCE: McKinsey Global Institute (MGI); MIIT; Enfodesk; GBI; CMPMA
700
million
active smart devices
in 2014
477
million
3G users
in 2014
Market size RMB
in 2014
3.0
billion
12.5 billion
Forecasted to reach RMB
By 2017
Growth
rate
27%
YOY
2,000
Over
healthcare related
smartphone apps in
the market

| 5
Number of mobile phone
internet users
GMV breakdown for Alibaba on
Singles Day
of internet users are mobile
phone internet users
SOURCE: China Internet Network information Center 34rd Statistical report released July 2014
525
500
420
356
300
201413201220112010
Huge adoption of mobile platforms - almost everyone is a
mobile internet user in China
1 Data mentioned in January 2014 report only, not in July 2014 report
Millions Percentage of sales
57 Mobile43
83%

| 6
Total investment (mn USD) No. of deals
Access to capital – money started to flow in with 80+ deals
closed in China eHealth industry in 2014, for a total amount
of $1.7b
SOURCE: Literature search, team analysis
10
189
1
104
258
23
73
75
99
204
621
Social media apps
Physician tools
Others
Health apps
Online community
Health monitoring
Web-based portals
Hospital information
system
Drug e-sales
Remote consultation
/ scheduling
Mobile devices
9
8
2
1
1
9
3
5
10
13
20

| 7
April 2009 November 2011 August 2014
SOURCE: Literature search; Team analysis
Government support - The Chinese government started to
support development of eHealth services a few years ago
2 3 4 5 61
August 2012 May 2014 January 2015
A USD 9.8 billion budget plan to
standardizing the IT system in major
hospitals, building a public EMR
system and regional medical
information platform
– MOH “Strategic Report on
Healthy China 2020”
Plans to enable sales
of selected Rx drugs
through online
channels
– Draft version of Internet
supervision and management
of food and drug
Telemedicine pilot schemes
in 5 provinces: Ningxia,
Yunnan, Inner Mongolia,
Guizhou and Tibet
– NDRC Approval notice
“To support
informatization
and IT integration
in healthcare”
– NDRC & MOII “IT
industry restructuring
and revitalization plan”
“The latest technologies in
informatization, internet, and
cloud will be the key for elec-
tronics healthcare development”
– MOC “12th five-Year (2011 - 2015) plan
on medical equipment industry”
Allows online service providers to
offer medical suggestion & only
healthcare institutions can provide
remote medical treatment
– NHFPC “Guideline for
Remote medical service”

| 8
iCloud system
Develop "iCloud system" to improve healthcare management
High-tech facilities
Take advantage of Internet, IOT, cloud computing, wearable
devices, tele-medicine to promote healthcare service
Big Data
Promote the application of big data in healthcare system
Personal healthcare information system
Establish digital databases for EHR and patient information,
target to cover almost the entire population by 2020
Healthcare information network
Build robust health information platforms in four levels (national,
provincial, city-level and county-level) and achieve integration
Government support – Most recently, the State Council
announced a five-year roadmap for healthcare service
development, with e-health listed as one key area of focus
SOURCE: Literature search, McKinsey analysis
Wide adoption
of eHealth

| 9
Customer
Value
proposition
Care
value
chain
Technology
Payor
SOURCE: McKinsey analysis
As in the broader digital space, China’s uniqueness is already evident in
the eHealth arena
Why?
▪ Inefficient healthcare system
with patient’s access as the
biggest pain point
Most offerings are
“patient centric”
Offerings to physicians,
hospitals, and patients
▪ Different healthcare system
and priorities
▪ Limitations in big data driven by
hospital IT systems and
technical capabilities in China
Focus on building
“platforms” to
improve access
and efficiency
Increasing focus on big
data-enabled solutions
to improve quality of
care
▪ High barriers to integrate core
healthcare services provided by
fragmented and government-
owned hospitals in China
Each solution
covers a small part
in healthcare value
chain
End-to-end integration,
e.g. from diagnosis to
follow-up
▪ As seen in other sectors, China
is still largely at the “imitation”
stage
Mostly leverage
existing
technology
Leading innovation in
technology
▪ Un-sophisticated public payors
and underdeveloped private
insurance in China
Individual users
pay for services for
most solutions
Insurance companies
and corporates are
important payors

| 10
… the impact on
China’s healthcare
value chain?
What is …

| 11
eHealth has started to shape China’s healthcare landscape
on 5 dimensions
5 Empowering PERSONAL healthcare
3 Offering online DISTRIBUTION options
4
Transforming physician & patient
COMMUNITIES
1 Solving ACCESS challenges
2 Enhancing healthcare DELIVERY

| 12
Delivery
Personal
care
Accessibility
Distribution
Community
On each dimension, new solutions appearing to address key needs in
provision of China’s healthcare
New solutionsKey HC system needs
▪ EMR
▪ Integrated registration, pay-
ment and e-report platforms
▪ Enhance experience in hospitals
▪ Enhance diagnosis and treat-
ment capability and efficiency
▪ Healthcare knowledge &
disease management
▪ Wearable devices
▪ Body function and life style
▪ Increase in awareness of
disease on large scale
▪ Better management of personal
health
▪ Online scheduling
▪ Remote consultation
(Platform/family doctor)
▪ Improve access to quality
healthcare services
▪ Eliminate inefficiencies in
hospital operations
▪ Drug sales O2O
▪ Online Consumer
Health/OTC platforms
▪ Purchase drugs with more
convenience and at lower cost
▪ Physician & patient networks
▪ Complied knowledge /
database
▪ Social media
▪ More knowledge sharing and
support among physicians and
patient communities

| 13
Delivery
Personal
care
Accessibility
Distribution
Community
Many players – both small and large – are actively ridding the trends
Launch of
“Jiangkangyun”
Example of
players Digital giants Healthcare ITEntrepreneurs

| 14
4
COMMUNITIES

| 15
Chunyu is the largest remote physician consultation platform
in China
SOURCE: Interviews; literature search; McKinsey analysis
▪ Free consultation
services for vast
majority of users
▪ Paid members can
consult specified
doctors (RMB 10-
100 per inquiry) via
“Air Hospitals”
▪ Response time is
3-30 minutes
▪ Most physicians
are from Class 2
hospitals
▪ For “free
consultation”
services,
physicians are paid
by Chunyu RMB
1.5 per inquiry
▪ For services
delivered via “Air
Hospitals”,
physicians will be
get paid by patients
(transferred by
Chunyu)
ACCESSIBILITY – REMOTE CARE
# of active users: 30M # of daily inquiries: 50K
Pay for
partial
services
Subsidize
and
transfer
payment
Consultation,
appointment services
Physicians Patients
# of physicians: 40K

| 16
Public institutions have also started to test the remote care models, with
active support from the government
SOURCE: GBI, press search
ACCESSIBILITY – REMOTE CARE
China’s 1st online hospital
approved by NHFPC (Feb 2015)
▪ Patients to gain medical advice
from doctors in the Guangdong
No. 2 Hospital (3A) via online
video conferencing access
points in community and village
healthcare centers, pharmacies
or other designated sites
Telemedicine pilot schemes
approved by NDRC (Jan 2015)
▪ 5 participating provinces:
Ningxia, Guizhou, Tibet, Inner
Mongolia and Yunnan
▪ 3 participating hospitals from
Beijing make medical resources
available for remote care
China's rare disease diagnosis platform adopted
in Shenzhen 2nd People's hospital (Jan 2015)
▪ Patients to upload imaging data to the site
▪ Access to over 200 leading imaging experts
around the country
▪ Expert consultations guaranteed within 48 hours

| 17
Established in 2010, Guahao has connected 900+ hospitals in 23 provinces, has 30M
registered members and 100k affiliated physicians
Basic functions
Online
appointment
(core)
Hospital
information
inquiry (new)
Online
consultation
(new)
Guahao (Weiyi) is the largest online appointment platform
in China
692
900
20141312
100
2011
8
Number of hospitals covered
72
100
28
201413122011
7
Number of appointments
Million patients/times
ACCESSIBILITY – ONLINE SCHEDULING

| 18
4
COMMUNITIES

| 19
▪ Covers ~20% of Chinese
physicians at this stage
▪ Hopes to start making profits
after achieving 50%
coverage
▪ Most revenue is from
advertising today, but
expected to tap into big data
business through EHR
resources in the future
SOURCE: Literature research; McKinsey analysis
Xingshulin: Empower physicians with clinical tools
Clinical tools
▪ EHR Pile: Enable physicians to record, manage and share EHR
conveniently by photos or audios
▪ Medical pocket: Contents include frequently-used clinical guidelines,
labs handbook, pharmacopeia, etc.
▪ Medical literature: Bilingual medical literature library containing 300+
first-class journals for 70+ subjects
Xingshulin
Pharmacos
Physicians
Marketing service
Service fee
Clinical tools
DELIVERY – PATIENT CARE

| 20
▪ As part of hospital information system, mobile nurse
station is offered by various IT service providers
▪ Mobile nurse station is currently a pure 2B business,
in which hospitals pay for software development and
mobile terminal purchasing, with potential to
eventually evolve into a big data business in the future
▪ High cost is the major barrier for wider adoption of
mobile nurse station
Mobile nurse station: Making patient care by nurses more efficient
Identify patients
via exclusive QR
code
Record vital signs
via PDA at wards
Consult doctors
in real time
(IM, IV, labs, etc.)
Physician
terminal
Hospitals adopting mobile nurse stations for
multiple reasons:
▪ Reduce medical accidents caused by patient
misidentification
▪ Store and share patient data more efficiently
▪ Better execute doctor’s advice in shorter time
▪ Evaluate nurses’ performance based on reaction time
documented by mobile nurse station
DELIVERY – PATIENT CARE

| 21
▪ 47 hospitals in 10+ provinces
have enrolled in “future
hospital” plan as of January
2015, and 300k+ patients have
used this platform
▪ 100+ hospitals are expected to
join the plan by the end of 2015
▪ Alibaba hopes to link “future
hospital” to online Rx drug
sales, and establishes big data
platform based on that
Alibaba “future hospital”: Improve hospital operation
efficiency and move hospitalizing activities online
SOURCE: literature research; McKinsey analysis
“Future hospital” officially released in May 2014, with aim to improve the efficiency
of hospital operations and move offline hospitalizing activities online
▪ Alibaba makes its Alipay payment system and mobile platform available to healthcare
providers, and helps them establish an online hospital platform
▪ After following hospitals’ official service accounts on Alipay, patients can use online
appointment, payment, labs results checking, online settlement of medical
insurance and other functions of their hospitals
Future hospital
IT service Hospitals
Patients
Depute Alibaba
to operate online
services
Online services
DELIVERY – OPERATION

| 22
4
COMMUNITIES

| 23
China’s online retail market is growing very fast
1,130
436
285
204
120
7444
2018E201420132012201120102009
As % of
total retail
SOURCE: iResearch; McKinsey Insights China database; McKinsey Global Institute analysis;
iConsumer 2015 China; Team analysis
China’s online retail market already the largest in the world
1 Based on 2011 terms, 1USD=6.46RMB NOTE: Numbers may not sum due to rounding.
2 iConsumer 2015 China
2.1 3.4 4.7 6.2 10.6
Reached
US 2002
size
Reached
US 2004
size
Reached
US 2008
size
Reached
US 2011
size
DISTRIBUTION
Chinese consumers are
comfortable with e-commerce
Percentage of online shopper2
Percent of digital respondents
Never 33
Online shopper
67
China’s e-tailing market size, 2009–18
USD, $ billion, in 2011 USD1
7.9 18.3
Exceeded
US 2013
size

| 24
▪ CITIC 21 CN, now renamed as Alijiankang, mainly
engages in services for drug authentication,
tracking and logistics, which can help to lead
safer drug supply
– Coded all the medicines listed in the national basic
medicine categories as well as imported medicines
– Got approval and qualified to sell medicine on a
third-party website
▪ Alibaba plans to develop a pharmaceutical product
information platform and get access to online drug
market, aiming to greatly improve medical industry
Alibaba plan to help fund a pharmaceutical information platform
being developed by CITIC 21CN
Alibaba and Yunfeng bought control of CITIC 21CN Co. for $171 million to enter
the drug-data industry in 2014
▪ Alibaba and Yunfeng together hold 54.3% of CITIC 21 CN on completion of the deal
▪ Alibaba aims at developing a pharmaceutical product information platform by
leveraging CITIC 21CN’s vast pool of pharmaceutical product data and
combining this with Alibaba’s e-commerce, cloud computing and big data
capabilities
SOURCE: Literature search, Mckinsey Analysis
DISTRIBUTION

| 25
Drug electronic
administration
code inquiry
Scripts
synchronization
Drug
purchasing
Ali-Health replicates the “bidding” model of the taxi market
Ali-Health spearheads the O2O prescription drug sales model
Pilot started in Shijiazhuang and Hangzhou in Nov 2014
200k downloads, 60k registered members in a month in Shijiazhuang
Ali-Health plans to expand to Beijing, Shanghai, Guangzhou in 2015
Basic functions
▪ Scan drug electronic administration code to
acquire drug information
▪ Check and download scripts from partner
hospitals of Ali Health
▪ O2O sales: Customers send requests by
uploading picture of scripts, and choose
pharmacies among those who bid for their
orders. Selected pharmacy will deliver drugs
and settle payments offline
▪ Direct purchase from Tmall drugstore
DISTRIBUTION – O2O

| 26
Guahao.com took over
Jxdyf.com, an online
pharmacy platform
Jointown
officially
launched
Qumaiyao and
Ehaoyao apps,
its (O2O) drug
purchase
platforms
GSK China
opened an official
shop on Tmall
JD.com received type A
online drug transaction
certification from the
China Food and Drug
Administration
Shanghai Pharma will
form an online drug
distribution JV with
Zhongxie Pharma
Yihaodian, a subsidiary of Ping An,
received type A online drug
transaction certification from the
CFDA
Other players are rushing into this space as well
DISTRIBUTION – O2O
SOURCE: Literature search, McKinsey Analysis

| 27
4
COMMUNITIES

| 28
With Tencent’s backing, DXY now has the resources
to accelerate its development
Biomedicine trade platform
Recruiting
Job hunting
Medical information
Survey platform
Doctor and hospital
information, drug guide
Physicians
Hospitals
General public
Survey platform
Data services
Pharmacos/marke
ting research
companies
Main audience
DX doctor
Social media
Academic
journals
Medical record
Medication
assistant
BBS
SNS
Blog
Medical
knowledge
COMMUNITY – PHYSICIAN
▪ Established in 2000
▪ 4 million registered
members with average
daily page view of 1.8
million in 2014
▪ Helped over 700
pharmacos, life science
companies and marketing
research firms to reach
Chinese physicians and
scientists in the past five
years
▪ Received a $70 million
investment by Tencent
in 2014

| 29
Entrepreneurs set to tackle the deep “trust issue” between physicians
and patients
COMMUNITY – CONNECTING PHYSICIANS AND PATIENTS
Descrip-
tion
Target
users
Key
features
▪ Mobile platform that
connects doctors and
patients for follow-up
consultation and drug
refills via the app
▪ A mobile medical guide
that is based on patient
peer reviews and
recommendations on
medical services
▪ Launched in 2015 as the
first clinical evaluation of
mobile intervention in
China with focus on chronic
and post acute care
▪ Doctors and
patients
▪ Patients ▪ Doctors and
patients
▪ Registration
▪ Remote
consultation
(via Phone /
message)
▪ Drug refill
▪ Patient management (for
doctors)
▪ Registration
▪ Off-line
consultation
▪ Payment
▪ Drug fill
▪ Review &
recommendations
▪ HCP & care
giver
monitoring
▪ Personalized
care plans
▪ Open source
clinical protocols
▪ Hospital to clinic care
coordination
SOURCE: Literature research; company annual report; McKinsey analysis

| 30
4
COMMUNITIES

| 31
▪ Baidu announced the
establishment of a standalone
mobile health division in 2015
– Plan to collaborate with top
domestic hospitals to provide
registration services
– Aim to integrate various mobile
health and medical businesses
▪ Baidu partners with 301 hospital
for online medical platform
– Will work to establish a mobile
phone app and website
– Provide services including
registration, e-payments, and
telemedicine
Internet services giant Baidu has taken steps into the
medical field
Baidu raised its mHealth activities during 2014,including providing wearable health
device, establishing the Beijing Health Cloud for patient data, and launching doctor
appointment app, and will compete with Alibaba and Tencent in this area
Product PicturesDescription
PERSONAL CARE
Dulife
▪ Baidu’s first wearable health
device
▪ Provide cloud computing to
analyze users’ physiological
indexes
Beijing
health
cloud
▪ Partnered with the Beijing
municipal government
▪ Use big data technology to offer
pre-diagnosis assessments for
users
Baidu
Doctor
APP
▪ An APP for patients to access to
physicians and make online
appointment
▪ Available to check patients’
ratings and provide feedback

| 32
▪ ~500 apps for
diabetes
management in
China market,
most of which
have stopped
▪ Mainstream
diabetes apps
include
Boyibang/Wellt
ang, D Nurse,
Control
Diabetes
SOURCE: Press search, McKinsey
A large number of Diabetes Management apps already on market
Monitor
Docu
ment Reminder
Educa-
tion
Consul-
tation Description
   ▪ “Hardware + supporting app“ business
model
▪ It is estimated that Diabetes Nurse sold ~9K
glucose monitors and ~15K boxes of test
paper from its launch at the beginning of
2014 to August 2014
D Nurse
    ▪ Control Diabetes offers an end-to-end
solution
▪ Has ~200 physicians in total, including
some CHC GPsControl
Diabetes
▪ Welltang reached ~3M downloads from
Android markets since launch
▪ However, accessible physicians are still very
few on this platform
– 4 “in-house” physicians and dietitians
– 42 affiliated physicians from public
hospitals
   
Boyibang/
Welltang
  ▪ Diabetes Space is a very simple app for
diabetes knowledge education and
reminders
D Space
PERSONAL CARE – CHRONIC DISEASE MANAGEMENT
SOURCE: Press search, McKinsey

| 33
iHealth, a leader in mobile medical devices, received an
investment by Xiaomi in 2014
SOURCE: Literature research; company annual report; McKinsey analysis
iHealth, a wholly-owned subsidiary of Andon with branches in the US, HK and Europe, started
to manufacture branded smart remote medical devices in 2011
iHealth received USD25 million investment from Xiaomi in 2014
iHealth has 5 categories and 10+ products today
1 Currently glucose monitor and SpO2 tracker not available in mainland China mainland
Basic functions
Monitor1
▪ Monitor activities and life signs, e.g.,
BP, SpO2, glucose, weight, steps,
sleeping
Document
& visualize
▪ Document historical data and visualize
the results on smart devices
(smartphones/ tablets)
Sharing &
reminding
▪ Automatic share monitoring results with
family members remotely, also
available for sharing on SNS
PERSONAL CARE – MOBILE DEVICES

| 34
… the implications
for industry
participants?
What are …

| 35
Fragmented public
hospital sector
Regulatory
uncertainty
Lack of insurance
coverage of drugs
in retail/on-line
channels
Scarce talent base
SOURCE: McKinsey analysis
Challenges and uncertainties for sustainable growth of eHealth
▪ Customized interface required with each hospital due to fragmented
hospital sector with isolated HIS. This creates barrier to scaling up
solutions targeting hospitals as users
▪ Lack of motivation of many public hospitals creates additional
constraints
▪ No clear regulation on remote physician consultation
▪ Significant uncertainty around government posture due to lack of
effective control mechanisms
▪ Restricted Rx online sales. Little clarity as to when and how much
online channels will open up
▪ Government insurance has little coverage for retail pharmacy channels,
constraining the shift of prescription fulfillment from hospitals to retail /
on-line pharmacies
▪ Scarce mHealth talent with interdisciplinary knowledge, e.g., knowledge
in disease, healthcare system, hospital operation, and patient behaviors

| 36
Investment
community
Insurance
companies
Pharma and
MedTech
companies
Providers (private
hospitals, etc.)
Implications for industry participants
SOURCE: McKinsey Analysis
▪ Stay competitive by digitalizing the full value chain, from sales to
distribution to product design and analytics
▪ Develop ecommerce and mobile facility, which can provide an
opportunity to solve the ongoing costly problem of distribution
▪ Requires a multifaceted approach to understand the underlying drivers
in healthcare sector – sources of growth, pools of profit
▪ Seek more ways to monetize the service, either with direct revenue
from service or indirect revenue through analytics and ability to reach a
stable user base
▪ Develop a better and real time understanding of patient/consumers’
demand through better segmentation with big data
▪ Explore and scale digitalized methods to better promote products
▪ Form e-Health partnering team to explore disruptive models
▪ Figure out a strategy to make better clinical decisions with more robust
clinical decision support system based on real time data
▪ Adapt a people intensive operating model to a more digitized workplace,
and try to improve productivity and efficiency

| 37
Looking forward, eHealth players also need answers to …
▪ How to utilize big data to enhance design, positioning
and targeting of my offering?
▪ How to offer an integrated end-to-end solution, or to
be part of the integration?
▪ How to transform from a one-time sale of a great idea
to a long-term partnership with the customers?
▪ How to organize my company to adapt to rapid
changes in the eHealth market environment?

| 38
Industry insights Collaboration with CPA
iTunes Store –
“McKinsey on
China”
Our China healthcare leadership team (Partners and Associate Partners)
For more on China healthcare …
www.mckinseychina.com
▪ Data driven periodic reports
▪ TA specific deep-dive (e.g.,
oncology, immunology)
▪ Next issue coming up in Q2
▪ How sick is China's
pharmaceutical market?
▪ Will market forces revolutionize
Chinese healthcare?
▪ What healthcare system can
China afford?
▪ Will the next medical
equipment champion come
from China?
▪ Obesity – How big will China
get?
1
2
3
4
5
2014
2013
2012

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