Digital technology and medical care are two interesting investment themes in China. Medical informatization, the area that can combine digital technology and medical care is attracting investors’ attention.

3 December 2020

Medical informatization construction, as a combination of digital technology and medical care, shows increasing importance due to the outbreak of COVID-19. What is the development of medical informatization in China? What kind of opportunities can medical informatization bring? Yang Liu, Chief Analyst, Head of TMT Department & Executing Director of SWS research, and Yizhen Hong, TMT Senior Analyst of SWS Research, shared their thoughts on the opportunities in medical informatization. 

The opportunities of medical informatization

With the depending on population aging and the increase of health awareness of residents,

medical informatization will be an irreversible trend in China. Since the establishment of National Health Commission in 2018, medical informatization related policies published frequently, medical informatization will be included as the focus of internet security and informatization construction. We see opportunities in the following two sectors:

• Internet diagnosis

One sector is internet diagnosis. The components of total medical expenses in China are public medical insurance (50%), personal expenses (40%) and commercial medical insurance (10%). Due to the outbreak of COVID-19, the shortage of medical resources forced some patients to get advice with the help of Internet diagnosis. Residents have started to get familiar with this kind of diagnosis, we believe internet diagnoses will grow rapidly even after the pandemic.

According to whether it is covered by public medical insurance, the current Internet diagnosis business model can be classified into two categories:

1. Covered by public medical insurance: This kind of business place emphasis on hospitals, Internet diagnosis and treatment is still limited to follow-up visits for common and chronic diseases, and some medical services. Most of the players are traditional medical IT companies;
2. Not covered by public medical insurance: This kind of business does not rely on hospitals, including online health consultation, Internet medical support services, such as drug delivery, etc. Players in this area are internet companies.

Both types of companies have their own advantages: the strength of traditional medical IT companies lies in serving hospitals. They can help hospitals in information construction, etc. While the Internet companies have less cooperation with traditional hospitals, but their strength lies in the internet traffic access points, and they have accumulated a lot of medical services experience that are not covered by public medical insurance. With the development of internet diagnosis business and the introduction of the relevant policies, we can expect more cooperation between traditional medical IT companies and internet companies.

The number of Internet hospitals grew rapidly in the first three quarters of 2020. According to a press conference held by the State Council Information Office on 28 Oct 2020, currently, there are 900 Internet hospitals in China, covering more than 24,000 medical institutions in all major cities and more than 5,500 hospitals can provide online services.

• DRGs

In addition to the internet diagnosis, medical informatization also promoted the development of DRGs (Diagnosis-related group) and HIT (Health information technology) companies DRGs is the core of medical insurance payment reform, 30 cities including Beijing, Tianjin, and Handan City in Hebei Province have been designated as pilot cities for DRGs, and each pilot city is required to ensure simulation operation of DRGs in 2020 and start actual payment in 2021.

The introduction of DRGs imposes requirements on hospitals for delicacy management. Cost control and cost reduction have become important considerations for the hospital’s future management and operation. It will also force hospitals to purchase software that can provide data quality control, medical insurance cost control, cost management and other data services. Stimulated by this demand, HIT companies that help hospitals achieve delicacy management will usher in a golden development period.

Watch the interview video