The Regulators Have Arrived and the Licenses Already Handed Out Could Be Void Any Day — Can Internet Hospitals Still Be a Business?

In industry regulation, the only certainty is uncertainty.

Companies that want to run internet hospitals had a busy week.

The biggest of them met in Yinchuan last Friday. Two months earlier they had gathered in the same city to sign agreements with the local government, celebrating the internet hospital licenses they were about to receive. This time they were discussing the possibility that those licenses would disappear.

The reason was a scanned document that leaked out last Wednesday. Its full title was "Letter Soliciting Opinions on the Administrative Measures for Internet-Based Medical Consultation and Treatment (Trial) (Draft for Comment) and the Opinions on Advancing the Development of Internet-Based Medical Services (Draft for Comment)," signed by the General Office of the National Health and Family Planning Commission.

Chu Yang, vice president of the physician community DXY and head of DXY Doctor, told QDaily that they had never seen the "red-letterhead document" themselves. "We heard about it the way you did — from the news," he said.

On the Commission's official website we could find no trace of the document. Some suspect it was never the final draft meant for release, but a trial balloon floated to see how the various parties would react.

Yicai, citing people with knowledge of the matter, reported that the document was genuine and that comments were being gathered internally. The Paper got a response from a staffer at the Commission's Department of Medical Administration: there would certainly be changes later on.

Still, no company was taking it lightly. On Thursday night, DXY and several other internet companies had already sent the Commission a joint response.

What does the Commission's document say?

The draft Measures runs seven pages and thirty-nine articles, in six chapters: "General Provisions," "Access to Internet-Based Medical Consultation and Treatment," "Practice Rules for Internet-Based Medical Consultation and Treatment," "Supervision and Administration of Internet-Based Medical Consultation and Treatment," "Legal Liability" and "Supplementary Provisions."

Four of the articles drew most of the attention from internet companies.

Article 2: For the purposes of these Measures, "internet-based medical consultation and treatment" means using internet technology to provide patients and the public with disease diagnosis, treatment plans, prescriptions and other such services.

This was the first time the Commission had defined "internet-based medical consultation and treatment," and the definition decides whether internet health companies' existing businesses fall inside the scope of the Measures. The paid consultation services offered by Haodf, Chunyu Doctor and DXY Doctor, for instance, do not count: the doctors involved provide no treatment plan and cannot write an electronic prescription, only a reference opinion.

Article 4: The internet-based medical consultation and treatment activities permitted are limited to telemedicine services between medical institutions and chronic-disease contract services provided by primary-care institutions.

This confines online consultation and treatment to dealings between hospitals. A patient cannot simply open an app, pick a doctor and ask for a diagnosis.

The patient must first register and be seen at one hospital, which then sends a telemedicine request to a second hospital; only then can the patient meet a doctor from that second hospital online and be treated.

Sun Hongtao, associate chief physician of cardiac surgery at Fuwai Cardiovascular Hospital of the Chinese Academy of Medical Sciences and founder of Dajia Yilian, told QDaily that the draft still follows the old Physician Practice Law's rules and its definition of internet medicine. "In practice this is telemedicine between one medical institution and another, and it has always been regulated that way. This moves neither forward nor backward," he said.

Article 7: Internet-based medical consultation and treatment activities shall be provided by medical institutions holding a Medical Institution Practice License. Until the health and family planning department of the State Council issues the corresponding medical institution categories and basic standards for medical institutions, local health and family planning administrative departments at or above the county level may not approve virtual medical institutions on their own authority.

In other words, running an internet hospital requires a physical medical institution behind it. Haodf's Smart Internet Hospital has no physical hospital; last year it obtained a license issued by the Yinchuan city government. Under this article, every Medical Institution Practice License that localities handed to internet hospitals before the Measures take effect is waste paper — and the purely online "virtual medical institutions," those with no physical partner at all, must be revoked.

The third-to-last article sets a deadline for that: "Internet hospitals, cloud hospitals, online hospitals and the like approved before the release of these Measures shall be revoked by the local health and family planning administrative department at or above the county level that approved them, within 15 days of the release of these Measures, and their internet-based medical consultation and treatment activities shall be administered anew in accordance with these Measures."

Article 10: Medical institutions conducting internet-based medical consultation and treatment activities shall use the name on their Medical Institution Practice License, and may not use names such as internet hospital, cloud hospital or online hospital.

Take the Wuzhen Internet Hospital, run jointly by WeDoctor and Tongxiang No. 3 People's Hospital in Zhejiang province. It could no longer call itself "Wuzhen Internet Hospital"; in public it would be plain "Tongxiang No. 3 People's Hospital."

At the end of the document, in the article saying the Measures take effect on a given month and day, the date was left blank. But at the top of the scan, in the official letter that accompanied the draft, the deadline for comments was "May 12, 2017" — last Friday.

Of everything in internet medicine, this hits the most important part: diagnosis

What is it like to see a doctor at an internet hospital?

In December 2015, at the first World Internet Conference, Professor Wang Jian'an, president of the Second Affiliated Hospital of Zhejiang University School of Medicine, wrote the country's first electronic prescription at Wuzhen Internet Hospital. The patient was not a first-time visitor: two years earlier she had had an interventional procedure performed by Wang himself.

This internet hospital, run jointly by WeDoctor Group and Tongxiang No. 3 Hospital, is built around follow-up visits. In effect, Tongxiang No. 3 Hospital runs an online consultation platform, while WeDoctor Group recruits the medical talent and builds the system.

That day the doctor and the patient talked for a quarter of an hour over video, and the prescription told her to keep taking medication she was already on. Once it was written, a pharmacist from Sinopharm reviewed it online, the patient paid, and Sinopharm delivered the drugs.

For internet medicine this was a big breakthrough. Until then, so-called internet medicine amounted to pulling doctors online to give advice. They could not prescribe, and patients still had to go to a hospital to finish the whole process. None of that could support a business.

Wu Chong, senior investment director at Jinshang Union Holdings, spent two years as a healthcare investor and still sits as a supervisor at several healthcare companies. He told QDaily that the "internet medicine" concept had been ebbing since 2016. Partly capital had turned cautious about cash-burning businesses, and internet medicine is a textbook cash-burner; partly companies had tried plenty of things — appointment booking, health education content — none of which is the core of the healthcare industry.

The first electronic prescription Wang Jian'an wrote was that "core."

Over the past two years, more than 70 internet hospitals have opened one after another, a large share of them led by internet companies. WeDoctor Group alone has opened internet hospitals in 19 provinces.

The biggest difference from the old online-advice model is that an internet hospital can diagnose online and write an electronic prescription.

Chronic-disease patients who need regular follow-ups no longer have to make trip after trip to hospitals in Beijing or Shanghai. Add online pharmacies, and a patient can get care without leaving home.

Look at where internet hospitals sit today and the largest numbers, and the friendliest policies, are in provinces with relatively weak medical resources: Ningxia, Sichuan, Guizhou.

In October 2016, Sichuan's Development and Reform Commission and its Health and Family Planning Commission issued pricing guidance for internet medical services. In Guizhou, the Guiyang Internet Hospital can already run the entire consultation and treatment process through a phone app, handling more than 1,000 consultations a day — as many as a tier-three hospital in Guiyang.

Yinchuan has been the boldest of all.

At the end of 2016, the internet hospital built jointly by Haodf.com and the city government went online, after Haodf.com obtained a Medical Institution Practice License from Yinchuan.

It is an internet hospital with no outpatient clinic, no beds and no pharmacy. All it needs is servers and staff to run it online. Doctors and patients alike are spread across the country. "On the internet hospital license we received, the department of practice is written as 'online consultation and treatment only, no offline consultation and treatment,'" Haodf CEO Wang Hang said in an earlier interview.

Behind the tiered diagnosis and treatment pilots in Ningxia, Sichuan, Guizhou and elsewhere, the core problem is still the shortage of medical resources. Internet hospitals are an attempt to solve it with internet technology. The Commission has issued documents more than once on building "medical alliances" between tier-three hospitals and primary-care hospitals, aimed at the same problem.

Internet hospitals do not produce more doctors, but they can take some of the pressure off the handful of hospitals in Beijing and Shanghai that every patient rushes to, and let doctors' time be used more efficiently.

The same goes for patients.

A patient in a region short of medical resources can reach a Beijing specialist directly, which saves not only travel, food and lodging, but — more important — treatment time.

Xu Peng, founder of Maidou Doctor, gave us an example. An out-of-town patient came to the neurosurgery department at Tiantan Hospital; the specialist recommended an MRI, but on the spot the earliest slot was two weeks away. Two weeks later the patient traveled to Beijing again, then had to wait another two weeks to collect the scan report and have a doctor read it. Three trips to Beijing, four weeks of waiting.

If the patient could be seen where she lives, at least two weeks would be saved.

Now internet health companies' experiments have run into a policy reversal

Internet-based consultation and treatment rests on one thing above all: in the past few years, doctors were genuinely allowed to practice at more than one location.

Under the Law of the People's Republic of China on Practicing Physicians, a doctor could only practice where he was registered.

"Multi-site practice" means a doctor who meets the qualification requirements can see patients or operate at several hospitals.

The new round of healthcare reform launched in 2009 already produced a pilot policy on multi-site practice, which said plainly that doctors meeting certain conditions could apply to practice at more than one site — so that scarce medical talent, expensive to train, could serve more people.

Yet for years barely any doctors stepped outside the public system. Whether the hospital where they first registered would let them go, and whether they themselves could give up the evaluation standards built inside the system, were the worries of doctors inside that walled city.

With policy unclear, "multi-site practice" came to mean moonlighting at other institutions in the hours left over from a main hospital job. Without enough freely moving doctors in the market, talk of marketizing healthcare stayed talk.

From 2014, multi-site practice slowly became real. That year Beijing dropped the requirement that a doctor get written consent from his own hospital before practicing elsewhere. Two years later the policy was extended nationwide, and hospitals were barred from letting multi-site practice affect a doctor's promotion or academic standing.

The Measures for the Registration and Administration of Physician Practice, which took effect on April 1 this year, locked all of this in, and the institutions where a doctor may practice under multi-site rules are no longer limited by geography.

Eight years on, multi-site practice became possible. That is the legal foundation of internet-based consultation and treatment, the thing that lets a doctor treat a patient remotely. Internet hospitals appeared as the multi-site rules loosened.

In January 2015, Ningxia, Yunnan and three other provinces and regions began piloting the inclusion of telemedicine fees in the basic medical insurance pooling fund and in the reimbursement scope of the New Rural Cooperative Medical Scheme, which would effectively bring the cost of telemedicine down.

In September 2015, the State Council issued a directive to advance tiered diagnosis and treatment, requiring that by 2017 telemedicine services cover more than 50% of counties (cities, districts) in the national pilot regions, and that primary-care institutions handle more than 65% of total consultation volume.

Yinchuan mattered most. At the end of 2016, the internet hospital jointly run by the Yinchuan city government and Haodf.com went online, and 11,000 doctors were registered with the Yinchuan Administrative Approval Bureau, allowing them to practice "legally."

Business registration records show that on February 14 this year DXY set up "Yinchuan DXY Internet Hospital Co., Ltd." in Yinchuan, with registered capital of 10 million yuan and an office address at the Smart Yinchuan Big Data Center. Registered at the same address are other internet health companies, including Haodf, Guangzhou Jinglian, Qilekang and Taoyibao.

On March 19 this year the cooperation widened. The Yinchuan city government held a mass signing ceremony for internet hospitals, at which 15 internet health companies — DXY, Beida Yixin, Chunyu Doctor, Medlinker, Jinglian Technology, Qilekang, Giant Network, Elephant Doctor and Taoyibao among them — signed with the city government, obtained internet hospital status, and moved into the Yinchuan Smart Internet Hospital Base.

The city had built the frame of an internet-medicine city. If every other city did as Yinchuan did, a doctor practicing online would have his worries about legality, promotion, professional title and pay settled, and a patient could pay from a medical insurance account exactly as at a physical institution.

Add the multi-site practice measures that formally took effect in April, and online hospitals looked to have an open business environment at last.

It was not that simple.

According to Southern Weekly, two days after the big signing ceremony in Yinchuan, the National Health and Family Planning Commission's Department of Medical Administration convened a discussion on internet hospitals. The core message: "The internet is a vehicle and a tool. The final anchor is the hospital, so there must be an offline medical institution to rest on."

Representatives of the Ningxia Health and Family Planning Commission, the Yinchuan Administrative Approval Service Bureau, Haodf.com and WeDoctor Group all attended. The meeting did not explicitly halt internet hospitals, but the worries about how to define internet medicine, and how hard it would be to regulate, were already in the room.

Sun Hongtao told QDaily: "The central government was against it from the start, and there were fierce arguments — local governments got dragged in too. In the end the Commission gave an explicit order to stop the practice."

Before Yinchuan made all these moves, the Yinchuan Health and Family Planning Commission had filed a report with the national Commission, which agreed to let it "try first." But on whether the policy was right, the national Commission said nothing — "because they weren't sure themselves whether the policy fit reality."

On March 22, word went around online again that Haodf.com's internet hospital had been ordered to stop by the national Commission.

Haodf denied the rumor that same day, under the name "Haodf Smart Internet Hospital." Less than two months later, the new draft for comment dropped policy uncertainty on the head of every internet company all over again.

If the document stands as written, then for the companies that have spent the past few years building internet hospitals, everything starts over.

"If the final version reads the way the draft does, all we can say is that we'll be somewhat disappointed," Chu Yang said. "Right now, with your own phone and very little money, you can solve a lot of problems before and after a consultation, and many people benefit from that. This ought to be the trend and the direction for the future. If the earlier (Yinchuan) policy had carried on, the whole of society would have gained."

Most other companies would not say anything publicly. Haodf.com, Chunyu Doctor and WeDoctor all declined to respond directly to QDaily. Of the eight or nine companies we contacted, most mentioned "sensitive timing."

Judging by the regulatory turns that ride-hailing and cross-border e-commerce met earlier, caution from commercial companies is unlikely to move policy much. And the one thing these companies can be certain of is the uncertainty of regulatory policy.

Cover image from Presidencia de la República Mexicana via Visualhunt.com / CC BY, Visual hunt