China’s new policy calls for regulation of China’s fast-growing Internet healthcare industry

15 Dec, 2021 05:15

Singularity Financial Hong Kong December 15, 2021 – Companies that operate telemedicine platforms have been among the biggest beneficiaries of the coronavirus pandemic, thanks to a surge in demand from people seeking online medical advice and drug prescriptions. In China, however, increased regulatory scrutiny and impending rule changes for the internet healthcare industry have taken the wind out of the sector’s once-highflying stocks.

Shares of Ping An Healthcare & Technology Co. , Alibaba Health Information Technology Ltd. and JD Health International Inc., which are listed in Hong Kong and backed by some of China’s largest and most innovative companies, have plunged between 50% and 70% in the year to date. That compares with a roughly 13% drop in the city’s Hang Seng Index, and has placed them among the worst-performing internet-technology stocks this year.

On October 27, 2021, China’s National Health Commission (NHC), the authority responsible for the medical industry, issued a new policy that calls for the regulation of China’s fast-growing Internet healthcare industry. The policy is expected to push China’s internet healthcare industry into the era of standardized development.

The document, titled “Rules on the Regulation of Online Medical Consultation (Draft for Comments)”, states that physicians are required to authenticate their real identity before providing consultations to ensure that such online consultations are provided by the say doctor. Other people, AI software, etc. are not allowed to impersonate or replace the physicians themselves. As a result, some companies that focusing on using AI technology to provide consultation services may be negatively impacted.

China does not allow Internet healthcare platforms to use consultations as a tool for the sale of prescription drugs. The policy proposes that the occurrence of unified prescriptions and prescription refills is prohibited, that the personal income of healthcare workers must not be linked to income from drugs and medical examinations, and that doctors must not designate locations to purchase drugs and consumables.

Liao Jieyuan, founder of China’s largest digital medical service platform WeDoctor, believes that the policy has released a clear signal that online medical consultation should be of the same quality as that provided by physical institutions, reflecting China’s determination to develop digital medical services, which is essential for the standardized development and market expansion of the Internet healthcare industry.

China’s 1.4 billion people have a huge demand for healthcare services and physical hospitals are unable to meet this demand. Platforms such as WeDoctor have leverage technology to help alleviate the demand and supply imbalance in China’s healthcare industry.

According to the the National Health Commission, as of June 2021, the number of Internet hospitals in China has exceeded 1,600, the Internet hospital is the provider of online medical services such as online consultations. The first Internet hospital in China was established in 2015 in Wuzhen, Zhejiang province by digital medical service platform WeDoctor.

The tighter rules for the telemedicine platforms could slow the sector’s expansion. Several brokerage analysts recently cut their stock-price targets for the listed online healthcare companies, saying they expect a growth slowdown in sales of online prescription drugs.

Many remain bullish on the industry. “It seems unlikely the regulator wants to completely prohibit the use of A.I. in online medical services. Rather, it appears focused on curbing unethical and irresponsible conduct,” said Leon Qi, an analyst at Daiwa Capital Markets, in a recent report about Ping An Healthcare. The firm has a buy rating on the stock and a target price of 60 Hong Kong dollars, which is nearly double its current level. Ping An Healthcare’s revenue has been growing strongly, but the company has yet to turn an annual profit.

In recent months, Chinese authorities have highlighted the important role telemedicine can play in care for the elderly, and in improving efficiency in the medical system, said Charlene Liu, an analyst at HSBC who covers the sector. That all points to the “government’s support towards the long-term growth of the sector,” she added.