Left to right, TechNode's acting editor-in-chief David Cohen, Linda Li, and Mark Zhang. (Image credit: TechNode)

The Covid-19 pandemic has brought users and funding opportunities to healthtech startu­ps, but the industry is shifting away from B2C models due to high user acquisition costs, according to an early-stage investor speaking at TechNode’s Emerge 2020 conference on Thursday.

Many B2C healthtech startups, like Ping An Good Doctor, have followed a model popularized by China’s e-commerce platforms: They don’t care how much capital they spend on user acquisition, thinking that eventually it will pay off, said Linda Li, managing director and co-founding partner of investment firm Vickers Venture Partners.

Some startups have chosen B2B models, which Li said will win out for three reasons: Firstly, “They are more capital efficient.” Secondly, once you convince doctors to use your platforms, patients will follow doctors’ orders, she said.

Li also thinks that the B2B model will help democratize healthcare. The success of B2B models will lead to the development of infrastructure, especially that which creates information transparency. This infrastructure will serve as the base for democratized, patient-centric healthcare.

Mark Zhang, partner at law firm King & Wood Mallesons, said during the discussion that a major inflection point for China’s healthtech boom came two years ago in the form of comprehensive regulation.

“Before 2018, there was no nationwide framework to regulate online healthcare,” even though the industry had been growing for 10 years, he said. Platforms couldn’t really go into healthcare so the industry was focused on tasks like making appointments with hospitals. “The law was against anyone providing healthcare solutions online,” even though “everybody knew that the major platforms were playing around in that area,” he said.

Starting in 2018, three pieces of regulation cleared the way for healthtech innovation, Zhang said. The first allowed hospitals to use online platforms to collaborate; one hospital can assist another hospital’s activities. This could “solve the imbalances of resources across regions,” he explained. A second regulation allowed offline hospitals to provide online solutions, using their own physicians and nurses.

The most exciting piece of regulation opened the door to companies to enter the healthtech space, Zhang said. Under this law, any company can set up an “internet hospital” so long as it works with an offline hospital. “This internet hospital can draw doctors and nurses from various hospitals to practice on this platform,” he said.

In 2020, Covid-19 drew a lot of patients to online consultation services. In February, many patients didn’t feel that hospitals were safe. Even in late March to early April, when the Covid-19 outbreak was under control in China, “it was still very troublesome to go to the hospitals as they had to face more complicated procedures” because of the pandemic, Li said.

Some hospitals saw their business drop by 70%, then losses were gradually reduced to 50%, she said. But some hospitals say their business is still down about 30%, Li said.

“If people are not going to hospitals, they must go somewhere. This somewhere is online,” she said. With the support of China’s advanced delivery and logistics infrastructure, online prescription services have boomed along with online consultations, she said.

“Entrepreneurs and startups have been having a very easy business development time.”

Linda Li, managing director of Vickers Venture Partners

Following this surge in user growth was a jump in revenue, and funding for startups is now triple the average size compared to three to four years ago, Li said.

Better funding has helped startups make their case to hospitals, she said. Credibility and trust are very important to Chinese hospitals, who “don’t want to talk to small startups. If capital is really pushing some companies to be leaders, that solves some of these problems,” Li said.

At the same time, regulators are cautious: They “want to make sure the door is opened slowly and gradually,” and different cities are experimenting with different regulations, according to Zhang. Regulators are trying to find the right balance between growing the sector and protecting consumers.

Cybersecurity and privacy have emerged as key areas of compliance risk for healthtech companies. Many companies in healthcare, especially pharmaceutical, are attracted to China because of its immense data resources, Zhang said.

But multiple layers of new laws regulate data security and privacy, from data collection to storage and handling. Patient records, population data, personal information, and genetic data come with different compliance requirements, making data processing a tricky business, Zhang said. These days, “Data as a resource is very attractive but you have to be careful.”

Li agreed:“The data actually belongs to the hospital,” so a startup that wants to provide services must set up a server in the hospital instead of using servers or external servers.

READ MORE: INSIGHTS | High tide for healthcare apps?

Eliza Gkritsi

Eliza is TechNode's blockchain and fintech reporter. When she isn't obsessing over the rise of distributed ledger technology in China, she helps with editing.