Caixin
Oct 30, 2021 05:55 AM
BUSINESS

Online Health-Care Stocks Plunge on New Industry Rules

Online health care has been booming in China in recent years, but a unified national regulation is still absent
Online health care has been booming in China in recent years, but a unified national regulation is still absent

China proposed detailed rules to regulate the country’s fast-growing internet health-care industry, spelling out requirements for businesses’ qualifications and operations.

Stocks of major online health-care companies dropped on the news, although analysts said the rules will benefit the sector in the long run. Ping An Healthcare and Technology Co. declined 14.94% Friday in Hong Kong, extending its weekly loss to 30.5%. Ali Health dropped 22% for the week, while JD Health lost 12.5%.

The National Health Commission released draft rules Friday for the online health-care industry, seeking public comment through Nov. 26. The new rules would close some industry loopholes with bans on misuse of prescriptions and stricter management of doctor registrations, changes that analysts said will have far-reaching effects on the industry.

“The draft rules went through a rigorous process which invited many experts and professionals to discuss,” said Wang Hang, founder of Beijing-based online health-care company Hudong Feng Technology, which operates the website Hao Daifu. “It mainly meets the industry’s expectations.”

The proposed rules set requirements for industry players to improve service quality and tackle hot issues such as kickbacks on medicines, drug sales without a necessary prescription and using robots for diagnoses, Wang said.

“The key to this policy is to synchronize the online and offline regulations,” said Zhao Heng, founder of medical strategy consulting firm Latitude Health. “Traditional and internet hospitals should be treated and regulated by the same standards.”

Online health care has been booming in China in recent years, but a unified national regulation is still absent. By October 2020, about 30 Chinese provinces established local regulatory frameworks for online medical services.

The new policy would require physicians to authenticate their real identities before providing consultations to ensure that online services are provided by human doctors. Other people or artificial intelligence (AI) software are not allowed to offer diagnoses. The new policy will increase the labor costs of online health-care providers, according to Zhao.

AI technology is increasingly being adopted by online health-care platforms in consultation services. Wang Kun, senior vice president of Ping An Healthcare, earlier told investors that more than 2,000 diseases can be treated by human and AI machine combinations, with an accuracy of more than 95%. About 90% of the company's 1 million daily consultations can be taken care of by AI, Wang said.

The new rules will regulate the use of AI in doctor diagnoses while health consultation services will not be affected, industry analysts said.

The new rules are also likely to trigger a talent war among health-care platforms as they set stricter requirements for doctors, Zhao said. Under the rules, doctors must register for every platform they work with, meaning doctors will become more selective about platform partners in the future, Zhao said.

The policy also proposes stricter requirements on the management of prescriptions and would bar linking the income of health-care workers to sales of medications and medical examinations.

In addition, the rules include a set of requirements for medical institutions, raising a barrier to entry. Internet hospitals should establish special departments to manage medical service quality, safety and pharmaceutical services.

The new requirements will eventually benefit large platform companies that have already invested in technology and operations as the operational costs increase, said Zhang Songqi, director of investor relations at WeDoctor, one of China's largest digital medical service platforms.

The new policy also would set a higher compliance and quality standard for internet hospitals, pushing the development of platforms including an annual inspection.

“It will be beneficial to good platforms rather than an impact,” Hudong’s Wang said.

Contact editors Han Wei (weihan@caixin.com) and Bob Simison (hello@caixin.com)

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