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Digital Medical Care: What Will Be The Best Model?

May 11, 2018 by Yun Nie
Digital Medical Care: What Will Be The Best Model?

A “telemedicine + financial lease” paradigm that had pushed Beijing Remote Horizon Group to the summit dragged the company into an abyss within half a year. The consequent financial crisis stimulated intense debate on the topic: what would be the best model for digital medical care?

Within five years of commencement, Remote Horizon gained a revenue of CNY 6 billion in 2016, becoming an example to other medical companies that share a similar business pattern. It was also honored as a “National Innovative Enterprise” in the China Medical Innovation Forum 2017.

However, as a financial crisis broke out in the company, Remote Horizon as well as other enterprises riding the same wave had to develop a better model of Internet-based medical care and seek an effective system to earn profits.

Problems hidden behind the model

Chairman of Remote Horizon, Han Chunshan believed that the “telemedicine + financial lease” formula was their innovation and a good one at that.

Remote Horizon purchased medical equipment and devices at low prices and sold them to leasing companies at a high price. These companies then provided equipment rental services to hospitals and organizations while the ownership of said equipment still belonged to Remote Horizon. Hospitals and organizations had to pay rent until the contract was terminated on the expiration date.

From 2014 onwards, Remote Horizon began to offer freebies to local hospitals, such as free medical equipment and devices, telemedicine software and hardware services, and the services of leading experts in large-scale hospitals who could help to improve local clinics. Thus, although local hospitals had to pay expensive rentals, it was hard for them to reject Remote Horizon’s tempting deal.

Similar to many Internet companies that relied heavily on such giveaways to expand in the market, Remote Horizon encountered a road block - losing patients - as free deals were cancelled. For example, Remote Horizon donated CNY 55 million to China Foundation for Disabled Persons in August 2015, which gave anything between CNY 800 to CNY 1,000 to poor patients suffering from cataract, as financial support. Thanks to the generous offer, local hospitals in collaboration with Remote Horizon operated upon 100,000 cases of cataract surgery in 2016.

But when the bonus was withdrawn in 2017, an increasing number of patients turned to large-scale hospitals, instead of local clinics. Moreover, even if experts were able to assist local clinics via telemedicine, they would recommend patients to go to city hospitals because they felt overwhelmed by the sheer variety of hospitals.

In fact, for most local clinics, revenue from collaborative telemedicine programs failed to pay equipment rental, let alone gain profits. “Many local medical originations are unable to pay the rent because their total revenue would be less than a few millions”, Wang Bo, an investor said.

What is the future of digital medical care

In Han Chunshan’s terms, the troubles faced by Internet-based medical enterprises like Remote Horizon, were caused due to an obscure profit model.

The majority of these companies saw “transit” as being profitable. They attempted to transform offline registration, diagnosis, follow-up care, and health management into online medical services that utilized images, videos and other digital tools to complete telemedicine.

However, from Han Chunshan’s perspective, traditional diagnosis-treatment services were not a long-term profit source. He said “I have discussed with specialists and we believe that hospitals should rely on drugs, materials, and medical equipment to increase revenue, rather than diagnosis and treatment.”

He aimed at building a new paradigm - “platforms + services + products" - to benefit from a double-layered business structure. The first layer included telemedicine programs through which medical enterprises can integrate resources and connect to experts, city hospitals, and local clinics. The second layer consisted of services and products that would boost revenue via equipment sales, drugs and etc. The detailed profit sources covered front-end fee from membership and patients, back-end revenue from medical organizations, and third-party gains from a combination of medical health and insurance.

Remote Horizon developed a strategic plan following 3 steps: B2B, O2O, to HMO. B2B refers to establishing connections with large and small-scale hospitals, relying on equipment rentals to enhance revenue. However, simply following the first step to survive was proving to be problematic. O2O highlights profit of drugs sales. Doctors diagnose, hold meetings, provide consulting services, and prescribe medication based on the Internet, and patients can buy those drugs in certain offline pharmacies. HMO emphasises on health management, including medical robots, smart and wearable digital devices, and more profitable products. For instance, a CNY 10,000 combo will offer diabetes patients wearable digital devices, intelligent robots, and relevant services. Remote Horizon gained income from HMO cards that can be purchased on an installment plan.

Building a profitable model requires integrating resources that cover the whole commercial chain, ranging from experts, equipment, materials to local hospitals, agencies, etc. However, uncertainties will continue to challenge policy makers in Remote Horizon and similar Internet-based medical enterprises since too many individuals, groups, and organizations are involved in the process.

Yun Nie

Yun Nie is a New York-based tech reporter. She focuses on India-China financial market, global IT giants and technology-centric market trends. She can be reached at Yunnie@thepassage.cc.

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