An Initial Reason for AliHealth Stock’s Falling is Given
On Feb 22, 2016 it Alibaba Health Information Technology Ltd. (AliHealth), stock price plunged 14% in Hong Kong after it was announced that the government had suspended a drug-monitoring system that the unit created and operated.
This was interpreted by some market analysts as the end of the line for AliHealth’s foray into online-based healthcare services, and no doubt the development was likely cheered by many Chinese public hospitals who saw AliHealth’s foray into drug prescriptions as a direct competitor to their main revenue channel.
But AliHealth’s Stock Should Have Never Fallen
That being said, selling Alibaba Health Information Technology stock is a crazy move for any serious long term investors, and the announcement which preceded its stock plunge is but a mere bump for what has been and should continue to be an overwhelmingly successful and dominant run for AliHealth’s core “Future Hospital” platform.
Let’s consider AliHealth’s current dominance and its likely future dominance in turn. At the present time AliHealth may be the only digital health platform in all of China to have figured out how to actually monitize digital health transactions within the confines of the current healthcare reforms, something that neither Guahao nor iKang can claim, despite their hefty sums of investment raised. And this is notable in its own right, but others have written about this, so I won’t focus on it.
Consider, however, that in addition to actually finding a way to monitize digital healthcare technology, AliHealth can also boast of having done the following in just under two years since launching its Future Hospital Strategy in May 2014:
- Partnered with 400 hospitals nationwide to offer reservation and payment services
- Served over 50 million people through this service
- Created a novel supply chain that brings prescription drugs to a patient’s home after a video conference with a medical professional
- Become the key partner of the Central Hospital of Wuhan, a Class 3A hospital, and made it possible for the hospital to transition effectively from a drug-prescription based revenue model to one based on medical services
AliBaba’s and Jack Ma’s Political Power a Tremendous Advantage
There are a three key things to notice in the above list that are important for understanding why AliHealth is actually the dominant player in the digital health space and will continue to be so in the near- to mid-future.
The first is how quickly AliHealth has been able to scale its public hospital partnerships. We’ve written over and over again about how difficult creating partnerships with China’s public hospitals is for both Chinese domestic and foreign players, well capitalized or not. Not so for AliHealth. In under two years that it has served 50 million, mostly rural patients (more on the significance of the patients being rural in a minute).
When I spoke to Douglas Corley, Managing Director of Beijing Healthcare Forum, a health networking platform and event company in Beijing that focuses on working with digital health start ups, he said that AliHealth’s ability to scale its public hospital partnerships is a function of its political power, with AliBaba Chairman Jack Ma essentially being the “Chosen One” for ushering China into the digital health age. As a consequence, Alibaba’s ability to enter and continue entering into relationships with government healthcare sector hospitals is unparalleled both for the scope of the partnership and the speed with which they can be formed.
Consider that Tencent’s GuaHao, aka We Doctor, has only announced one partnership – a digital hospital in Wuzhen, where it is a co-investor – and this is despite the fact that its current model doesn’t allow it to turn a profit and depends on being able to branch out into “real life” investments like hospital services. Not only does Tencent’s distant also-ran position to AliHealth speak of perhaps a lack of a good plan for GuaHao, but it also must speak to AliHealth’s political strength and the ability to keep Tencent out of certain public hospital markets that are key to GuaHao’s success. If Tencent could partner with hospitals by simply using its deep pockets, it would have by now.
And AliBaba Has a Very Sophisticated Strategy for Courting China’s Healthcare Providers
The second thing to notice is that Alibaba is not merely introducing technology into China’s hospitals. Rather, Alibaba has recognized that hospitals will never, on their own initiative, move to install new telemedicine technologies themselves, and that the transition to move drug sales out of the hospital would be particularly painful without outside assistance. Indeed, the transition away from drug sales has failed despite repeated attempts over at least three decades. Yet, in under two years, one major 3A hospital, the Central Hospital of Wuhan, has completed the transition. This success, the first of its kind in China, is dependent on a novel value proposition made possible by Alihealth’s technology.
AliBaba’s proposition is that it could solve for the Central Hospital of Wuhan a critical question – once drug sales are no longer part of the hospital’s revenue model, how will it make money. Alibaba Health gave Central Hospital of Wuhan a new avenue for pursuing revenue through the referrals created by Alibaba’s healthcare platform. The online telemedicine technology would allow the hospital to quickly deal with patients that didn’t need to come in to see a doctor and to identify patients that needed services that will make the hospital money. Simultaneously, this solution loosens pressures on hospital crowding, and creates a healthy stream of revenue-generating patients.
This is, simply put, a miracle pill for the drug prescription problem plaguing most, if not all, of China’s public hospitals. This solution is going to bring Alibaba not only political capital with Chinese government authorities, but also from other large hospitals who will be increasingly looking for digital health partners in the years to come.
AliBaba is Targeting Rural Areas
Finally, the third thing to notice is that AliHealth has succeeded where generations of health policy experts and reformers have failed all over the world. It is solving, on a large scale, health access issues in rural areas. This is the holy grail of global health and public health. Again, no one has been able to do it on a large scale, with the backing of a sustainable business model.
If Alihealth continues to make advances in this area, its technology may well be exported to all corners of the world.
AliHealth’s Future Prospects
AliHealth essentially has sold itself as a very efficient, first of its kind patient identification and referral tool, and this alone may position it in a place that other competitors in the digital health space can’t match, because no one else seems to have as sophisticated an understanding of public hospital needs when it comes to the twin pressures of having to reform their revenue streams while having to do so with limited resources.
Politically, AliHealth is solving a major headache that hundreds of billions of dollars invested into health reforms since 2008 by China’s government so far haven’t been able to – creating a mechanism for successfully decoupling hospital profits from drug prescriptions in a sustainable way. Contrary to other reports, this, not the taking over of drug prescriptions from hospitals, is AliBaba’s main accomplishment in the healthcare arena and will likely win it a protected place atop the pile of would-be digital health mega-businesses in China. For now, none of Alibaba’s competitors in digital health have positioned themselves to handle the problems within China’s troubled hospital system that reformers haven’t been able to solve.
According to Douglas Corley, aside from Alibaba, the rest of the players like Tencent, iKang, Wanda, and other smaller players betting on the increased privatization of China’s healthcare system are building models that depend on the healthcare system reforming itself. AliHealth is making no such bets, but is going out to help the reformers make the required changes.
In China’s economy, where politics and economy have always been and forever will be linked, anyone looking at AliHealth needs to keep in minds its dominant position within both of these arenas relative to other players. The temporary or the permanent shutting down of the drug-monitoring system is more akin to a suspended or shuttered government experiment than a condemnation of AliHealth’s intrusion into the hospital and pharmacy market. If anything, China’s government is singing the praises of AliHealth, which has finally solved a couple of very large problems that have plagued China’s healthcare system since its inception. And the world should look on with keen interest at a technology and system that may soon change the way that rural communities everywhere access healthcare services.