New Infrastructure Construction in China - Internet + Healthcare Projects

The Action Plan for Promoting New Infrastructure Construction in Shanghai (2020-2022) adopted by the Shanghai Municipal Government Executive Meeting on April 27, 2020 covers four major construction actions and 25 construction tasks. The total investment is expected to be about 2700 billion RMB. The construction of Internet + medical infrastructure is positioned as part of the construction of new terminals. Internet+ healthcare will be further supported in the aspects of public data development and market demand cultivation.

The regulatory document relatively clearly defining the "Internet + healthcare" is the Opinions of the General Office of the State Council on promoting the development of "Internet + healthcare" (the State Council [2018] No. 26, hereinafter referred to as the "Opinions"). According to the Opinions, under the broad concept of Internet + healthcare, the application scenarios of the Internet include: medical services, such as Internet hospitals and other forms of Internet diagnosis and treatment; public health services, such as optimizing vaccination services and using wearable devices to obtain vital signs data; drug supply services, such as online prescription drug distribution and centralized drug procurement services; other scenarios, such as family doctor contracting services, medical insurance settlement, medical education and science-based artificial intelligence applications.

The legal framework for Internet medical services is highlighted below.

I.               Internet Hospitals

According to the "Measures for the Administration of Internet Hospitals (for Trial Implementation)" issued by the State Health and Welfare Commission and the State Administration of Traditional Chinese Medicine on July 17, 2018, Internet hospitals include (1) Internet hospitals that serve as the second name of physical medical institutions; (2) Internet hospitals established separately but relying on physical medical institutions. Both types of virtual hospitals have to be bound with physical medical institutions. Unlike the case (1), in case (2), a third-party (mostly Internet service enterprises) may establish Internet hospitals with medical institutions on the basis of cooperation agreements.

Thus, foreign investment’s participation in Internet hospitals can be realized in two ways, namely, participation in medical institutions or participation in a third-party that provides Internet services.

Participation in medical institutions: pursuant to the Special Management Measures for Foreign Investment Admission (the “Negative List”, 2019 Edition), medical institutions remain limited to joint ventures and cooperation with Chinese partners. The relevant regulations limit foreign shareholding to no more than 70% (except for Hong Kong and Macau investors).

Participation as Internet service provider: Internet service provision is subject to a number of shareholding restrictions and license restrictions for value-added telecommunications services. Value-added telecoms licenses relating to the Internet healthcare projects may involve different licenses, such as the ICP license and/or EDI license, for which foreign shares should not exceed 50%. Regarding the structuring of the project, please refer to the previous article about foreign participation in IDC projects.

From an operational point of view, the services that can be provided by Internet hospitals include the provision of follow-up services for some common and chronic diseases and the issuance of online prescriptions based on the patient's medical history. However, this limitation to common and chronic diseases may be surpassed in certain circumstances.

Internet hospitals shall set up its medical departments in accordance with those of the physical medial institutions upon which they rely. Physicians of the Internet hospital shall be physicians practicing in China and are not limited to the physicians of the physical hospital on which the Internet hospital is based, i.e. a physician may practice at several Internet hospitals. From the perspective of data protection, the servers of Internet hospitals that store medical data may not be stored outside China, and their information systems shall implement the third level of information security protection.

II.             Internet Diagnosis and Treatment

According to the "Administrative Measures on Internet Diagnosis and Treatment (for trial implementation)" issued on the same day by the same authorities as mentioned above, "Internet diagnosis and treatment" refers to a medical institution’s using physicians registered with the institution, through the Internet and other information technology, to render diagnosis and treatment services on some common diseases and chronic diseases. Compared to Internet hospitals, the scope of Internet diagnosis and treatment is reduced to a small number of diseases. Medical institutions can only use physicians registered with the institution who meet certain practice experience requirements. Thus, Internet diagnosis and treatment is essentially an extension of what physical medical institutions provide with over the Internet.

Third-party enterprises (e.g., IT technology service companies) can participate in Internet diagnosis and treatment projects by cooperating with medical institutions to set up Internet treatment service information systems. If a medical institution cooperates with a third-party company to establish an information system for Internet medical services, it shall submit a cooperation agreement between the two parties to the competent authority, and the cooperation agreement shall specify the rights and obligations of each party in terms of medical services, information security, privacy protection, etc.

III.            Telemedicine

According to the third regulatory document issued on the same day by the same authorities as mentioned above, i.e. the "Administrative Code on Telemedicine (Trial)”, telemedicine refers to the use of information technology such as the Internet for remote consultation and remote diagnosis between medical institutions. It is limited to medical services provided between medical institutions through third-party platforms. Once the relationship between the medical institution and the patient is involved, it falls under the Internet diagnosis and treatment relationship in the preceding II.

Third-party companies other than medical institutions may participate in the project by way of building a telemedical service platform, in which the "demand side" publishes the demand on the platform, the "supply side" responds to the demand, and after a successful match, the supply side provides medical support to the demand side for patient treatment. The three parties, i.e. the platform operator, the supplier and the demand side, should define their responsibilities and rights by agreement.

From the perspective of foreign investment, the second and third types of business also must rely on physical medical institutions. The way of foreign participation is basically the same as that under Internet hospitals. The difference is that in the structure of the Internet hospital, the third-party, being an IT platform provider, may act more in an active way by leading the whole application procedures of Internet hospital establishment, while in the latter two models, the third-party is mainly a passive technical supporter of the whole project.

IV.           Internet Health Services Platform

In addition to in-depth medical services like diagnosis and treatment, many health-related platforms provide preliminary disease consultation and advice (i.e., no definitive diagnosis or treatment plan is given, and no prescription is issued), registration appointment services, etc. Such activities are not deemed as medical activities in the strict sense and currently not required by law to rely on physical medical institutions. Therefore, the licenses required for the operation of such platforms are mainly value-added telecommunications business licenses (e.g. ICP and/or EDI) and qualification licenses related to the specific types of information provided, such as the Internet Pharmaceutical Information Service Qualification Certificate.

V.             Cross-border Medical Services

Given the recognition of the leading position of Western European countries and the USA in the field of Western medicine, there are some market demands for cross-border medical cooperation in practice. This includes both telemedicine services between medical institutions and Internet-based consultations where foreign doctors treat Chinese patients directly. The PRC laws and regulations so far do not provide clear regulations for these practices.

With regard to telemedicine services between transnational medical institutions, the Opinions on Promoting Telemedicine Services among Medical Institutions (form the former State Health and Planning Commission [2014] No. 51) mentioned that "telemedicine services between medical institutions and overseas medical institutions shall be implemented with reference to the Opinions." Yet this simple provision undoubtedly leaves too many questions unanswered for practice, such as whether the foreign party must be a medical institution (given that many foreign doctors are freelance), whether the foreign doctor must be qualified to practice in China, whether the foreign institution can participate as a diagnostic party (i.e., determining the treatment plan and prescribing drugs) or only as a consulting party.

In the case of foreign doctors directly treating Chinese patients on the Internet, risks of violation of PRC laws is very high. As mentioned above, the only forms of online diagnosis and treatment currently permitted by law are remote diagnosis and treatment by Chinese medical institutions and Internet hospitals, and the doctors involved should be Chinese practitioners (foreign doctors should be licensed to practice in China). Internet diagnosis and treatment that does not conform to the aforementioned forms should be deemed illegal. In addition, under this form of diagnosis and treatment, the implementation of all treatment programs and the importation of medicines are risking to violate the regulations related to registration and importation of medicines and medical devices from abroad.

Therefore, service providers building such intermediary platforms should strictly limit their services to health consultations and "preliminary consultations". In other words, doctors outside China may only provide medical and health advices and may not perform medical diagnosis and treatment.

Authors: Li Huini and Alban Renaud