China's healthcare revolution goes digital

Anthony Wallace | AFP | Getty Images

For the better part of two years Alan Han has been sending the staff of his health startup Yao Xin across China to woo women. Not high rollers with money to burn or freshly minted graduates with aspirations to indulge, but the underpaid assistants who stock shelves and ring up bills in the country's nearly half million drug stores.

"We have studied the in-store assistants so deeply that we know what they need and we know how to engage them," said Amy Lei, Han's deputy at Yao Xin.

While most have no medical background and would make just as much money ringing up groceries, seismic shifts in China's healthcare industry may set them at the nexus of big pharma amid an aging population of 1.3 billion customers.

China's healthcare revamp

A seasoned player in China's pharmaceutical and tech industries, Han spotted one of many openings for private companies to capitalize on healthcare's digital revamp. That opening could prove lucrative; analytics firm IDC predicts the digital revamp will yield $5.6 billion in investment from corporations and private investors into health IT by 2017, according to Reuters.

Health care tech funding surge
Health care tech funding surge   

As new policies shift the bulk of drug sales from hospitals to stand-alone drug stores that often lack trained pharmacists, Yao Xin aims to develop in-store assistants. Through a mobile application Yao Xin bombards in-store assistants with virtual customers suffering any number of woes. Players who probe with the most adept questions and administer the best advice to their virtual clients qualify for bonuses that range as high as four months' pay.

The field of drug store applications has drawn heavyweights and startups alike. Tencent and Alibaba, who are able to lure customers with discounts, are vying for market share alongside startups like Apricot Forest – a suite of applications linking doctors to patients, records, colleagues, drug information and new research. The government has poured billions into its own projects including a cloud hospital based in the eastern city of Ningbo and using remote technology to serve the entire country.

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Opportunity, however, can be ephemeral.

The combination of rapid change paired with increasing government oversight makes for a sector of perilous risk offset by rich rewards for startups with deep pockets, institutional knowledge and far-reaching networks.

"There is not a regulator system telling you what you can and can't do in mobile health and that makes the market a big mystery," said Damjan DeNoble, who heads Rubicon Strategy Groups China hospital practice. "You can dream up all of these ideas, but you could have the government say 'no.'"

Strong competitor

Han and Lei, who also has a background in big pharma, believe they have the knowledge and networks to compete with the likes of Alibaba.

Today, some 80 percent of Chinese drug sales take place within hospitals, a situation that has bred corruption and made drugs hard to access for patients who live in rural areas or do not have the time for long hospital dispensary lines in urban areas.

However, there are not enough pharmacists to staff each of China's nearly half million freestanding pharmacies – Han and Lei estimate there are 100,000 pharmacists in China today, half of whom work for pharmaceutical companies. One pharmacist's photograph and credentials may appear in several stores. Doctors facing anywhere from 50 to 60 patients each day do not take time to explain the drugs they prescribe, leaving untrained store assistants as the only source of information available to customers.

Often that information is not very good. Assistants, who earn little more than $300 a month in big cities and much less outside, are paid by suppliers to promote certain products. When it comes to prescription drugs, they don't have the medical training necessary to advise on drug interactions and side effects. Yao Xin's video games challenge them to listen carefully for their customers' symptoms and to build knowledge about the products they sell, offering substantial cash prizes for those who learn the most.

How private firms are changing healthcare
How private firms are changing healthcare   

Han and Lei predict that drugstore profits of $287 billion will double or even triple as an unprecedented flow of merchandise is rerouted through the hands of drug store assistants ill equipped to handle an accompanying barrage of questions from customers who may be sick or pregnant, elderly or newborn.

"Lots of the assistants told us they feel guilty," said Yao Xin's Lei. "If they had a choice they would like to choose the safest product for their consumers."

Lei said Yao Xin works hard to establish independence from pharmaceutical companies – using a team of in-house pharmacists to vet the information that goes into their app, which will soon pilot patient-facing features that remind patients when and how to take their medicines, alerting them to any contraindications or side effects.

Work cut out

Yao Xin hopes to tap into education budgets that drug companies would typically spend wooing doctors with luxurious conferences, by allowing them to provide sponsored content that would amount to virtual conferences with extraordinary reach. The app can also record customer receipts allowing suppliers and manufacturers to see valuable patterns in consumption.

But before any of these things can happen Han reckons Yao Xin will have to keep hoofing it door to door to grow the number of drug store assistants using their app from 30,000 to 50,000, a number he thinks investors and the government will take seriously.

For many, access to market share is contingent upon government approval. While reforms support privatization, 90 percent of healthcare still happens in public hospitals. That means access to data, doctors and personnel comes via a government wary of growing patient wrath in a sector where missteps are often fatal. Health startups must have the data to prove they can work.

"Whatever you do you have to ask whether the government will adapt your solution," said Rubicon's deNoble.

Startups have been vying for years to help patients virtually jump long hospital queues. Some invested years of work and signed on thousands of subscribers only to have the Ministry of Health suspend the use of applications linking doctors to patients, according to deNoble.

"The best case scenario is enough patients to do a randomized control trial or enough data to be meaningful," he said. "In any case, the burden of persuasion is on you as the app maker."