Asia’s healthcare systems are on the brink of necessary change, driven by digitalization, consumer expectations, and fragile existing infrastructures. In this episode, Axel Baur, former senior partner from McKinsey, speaks with three McKinsey colleagues about the emerging digital healthcare ecosystems that are emerging in Asia to address these challenges. He chats to Senthu Arumugam, partner from the Kuala Lumpur’s office; Mengwei Xin, partner from the Shanghai office; and Hann Yew, partner from the Boston office.
This podcast was previously recorded and published on September 2, 2021.
Oliver Tonby: Hello, I am Oliver Tonby. Welcome to the Future of Asia Podcast series. The Asian century has begun. Asia is the world’s largest regional economy, at the center of the technology revolution and consumption growth, hosting the consumers of the future. It's at the center of climate risk and the solutions devised to mitigate it. As our economies evolve, Asia has the potential to fuel and shape the next normal. In each episode of the podcast, we feature conversations with leaders from across the region to discuss what Asia's rise means for businesses everywhere.
Axel Baur: Welcome, everyone. I am Axel Baur and I will be hosting today's podcast around the future of healthcare in Asia. I'm joined by three colleagues: Senthu Arumugam, a partner in the Kuala Lumpur office, who recently came to Asia from the United States; Hann Yew, a partner from the Boston office; and Mengwei Xin, an associate partner in Shanghai. Asia is primed for rapid healthcare change. This is driven by shifting demographics, but also by consumers’ rising expectations, technological innovation, and the limited legacy healthcare infrastructure in the region.
In addition, digital healthcare is fundamentally changing the way healthcare is delivered today. Billions of people are already using digital healthcare in Asia. This use increased over COVID-19 and is only going to increase further. We expect that through digital health, a value of approximately $100 billion will be created until 2025. This will be driven through consumer-centric digital ecosystems emerging throughout Asia.
These ecosystems, however, have not yet fully evolved. So what does an ecosystem within and across Asia look like? It would be good first to understand what the fundamental forces are that are driving healthcare and its transformation here in Asia. Senthu, could you give us your opinion on this?
Senthu Arumugam: The way I see it is that there are five forces at play here. First, the population is getting older. We anticipate that Asia by 2025 will have about a half-a-billion seniors over the age of 65—that's roughly 10 percent of the population. It represents a massive demographic shift that is quite unprecedented: a 14 percent growth from today. The second trend that I see in Asia, and also saw in the United States, is that consumers are getting more demanding and that healthcare itself is becoming “consumerized”. Many of our commercial needs are on demand now and we’re starting to expect that in healthcare. There's more transparency than ever on cost and quality of care, and consumers are flocking to telehealth to get on-demand access.
The third trend is around cost itself and the growing financial burden of care across Asia. As people get older, they get more ill and, naturally, the cost of healthcare goes up for them. In some markets, we aren't spending enough, and in other markets, we aren't spending in the right way. I think there is too much focus on curative care and hospital-centric care versus preventive care. And the fourth trend is around labor market pressures. We are going to have fewer providers than before to take care of us. I believe it was the WHO that estimated there's going to be a shortfall of around nine million nurses globally and some of the countries worst hit by this are going to be in Asia.
I also think that technological innovation is accelerating at a faster pace than ever before—around 40 to 50 percent of global venture-capital partner investments in digital health are in Asia, which will set the foundation for ecosystems to flourish.
Axel Baur: Mengwei, which of these trends do you think could apply to China?
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Mengwei Xin: I think there are three things that link to what Senthu said. First, China is aging fast. At the same time, the government is trying to encourage population growth and there has been a relaxation around the number of children a couple is allowed to have. The second thing is about the care continuum. It is not only about being preventative, but also about rehabilitation and chronic-disease management. Investments are going into chronic-disease management, both in virtual and real form. Government investment is also going into rehabilitation. The third point is about technologies. Investment is coming into this area as well; both on the business-model side with regard to digital, as well as the science-driven side of technological innovation.
Axel Baur: Hann, is there anything you would like to add about this with regard to Singapore?
Hann Yew: I would emphasize that some of these forces were in place before COVID-19. I think there is a tendency to think about digital health as being a recent push that has come out in the post-pandemic era. But many of these forces and innovations had started in 2017 to 2018, or even earlier. In Singapore, in particular, there was a strong move around the transformation and digitalization of the health system. Consumer expectations had already changed and were accelerated with the pandemic. We sometimes call this the “consumer flight to safety”, where consumers increasingly recognize the importance of health and hygiene and are therefore more open to addressing them. Physicians, too, are more willing to adopt telemedicine and other digital channels to reach their patients.
I think there is a tendency to think about digital health as being a recent push that has come out in the post-pandemic era. But many of these forces and innovations had started in 2017 to 2018, or even earlier.
Axel Baur You all mention technological innovation as one of the big trends, so can we talk about what kind of consumer-centric digital ecosystems are emerging? Hann, could you start?
Hann Yew: I'll start by saying that creating better access to healthcare is one of the biggest imperatives that we see across the various emerging ecosystems. When we look at the overall value pools, two-thirds of the $100 billion that you mentioned is in telemedicine. That is the nexus of the first type of ecosystem that we're see around broadening access to primary care. This will support patients in rural areas, or in areas where they have less access to care. They will be able to access physicians more easily through teleconsultations, rather than spend hours waiting in line at a hospital.
The second type of ecosystem that we're seeing is around improving health and wellness. In the post-pandemic era, there is more interest in health, improving hygiene, and investing more heavily in wellness. We also see that players are interested in this: health insurance companies are leveraging digital technologies to nudge patients and consumers to change their behaviors and take better care of their health. For example, the Health Promotion Board in Singapore runs the Healthy 365 program, which gamifies overall health and wellness for consumers by giving people the chance to earn points if they exercise more, if they buy healthier goods and products, and so forth. This focus on prevention and wellness therefore reduces their consumption of downstream care services.
A third part of the digital ecosystem that is emerging is the attempt to increase and expedite access to acute care in terms of appointment bookings for hospitals—how to create digital front doors for hospitals to engage with patients more easily and also after their visits to a physical site. Then the last part, which is further downstream, is the focus on chronic-disease management. This is to help manage patients with chronic diseases like diabetes or cardiovascular disease in a home setting, and encourage them to improve their behaviors to improve their conditions.
Oliver Tonby: Asia's standing in the world has changed. And it's clear that where the focus once was on how quickly the region would rise, the reality is now about how Asia will lead. Keep listening to the Future of Asia Podcast.
Axel Baur: In the way you described the four models, it seems that there is a kind of prioritization. Is it fair to say that the first two are the most prevalent that you're seeing across Asia and the latter two are still nascent ecosystems that are evolving?
Hann Yew: I would say that's right. The first two are definitely ones that we're seeing more across the board. There are country specifics here, however, so I think the third ecosystem model (expediting access to acute care) is more prevalent in China.
Axel Baur: We've seen ecosystems evolve significantly in China, from typical providers to insurance, but also to technology players. Mengwei, what are the dominant models in China?
Mengwei Xin: Let me take a step back to talk about what is meant by an “ecosystem”. We have seen individual businesses, like pharmaceuticals or hospitals, as verticals. Now, though, one of the important reasons why ecosystems are being formed is that people realize that these entities are, in fact, interlinked throughout the healthcare system. So, there are the strong bonded kinds of ecosystem where there is investment or close collaboration to form cross-business bonding. There are also the kinds of ecosystem that are more linked via digital means. So, when we talk about ecosystems, we mean a cluster of businesses with organic connections that aim to provide better care for the patient.
In China, we see two types. There is the more provider-based type that originated from renowned hospitals. There are thousands of internet hospitals registered in China. And there are also ecosystem players like Tencent, Ping An Insurance, Baidu (an internet company), or Alibaba, that are trying to build broader and bigger ecosystems. So, we are seeing bigger ecosystems emerge here in China versus the small verticals that we have been seeing other places in Asia.
Axel Baur: What should we consider when building and scaling ecosystems? I think that from your varying vantage points, there are probably different areas of focus. Why don't I start with you, Senthu, and then Mengwei and Hann add to that?
Senthu Arumugam: I believe it is important to think about ecosystems from the perspective of the patient and the patient journey. Healthcare is ultimately an omnichannel experience for patients. So, if you are thinking about engineering an orchestrated ecosystem, are you in a position to create the omnichannel experience for patients as they move between digital and brick-and-mortar interfaces, where they're getting care and how they're engaging?
Second, we should not lose sight of the importance of chronic care and management. The reason I think that chronic-care management ecosystems, for example, in the US have taken off at a faster pace than in Asia is the fact that value-based care is more mature in the other markets. As that begins to shift, which is inevitable, and more value-based care comes to fruition here, risk is increasingly going to be placed on the backs of carriers and providers. When that happens, it’s going to pivot the type of ecosystems. We're going to see more chronic-care types emerging because that's where value is going to be created.
Axel Baur: Hann, please go ahead.
Hann Yew: I think a key consideration is how you, as a stakeholder, are going to interface with governments or regulators, because the public healthcare system is such a big part of how healthcare operates in almost all countries in Asia. So you need to think about the impact of reimbursement and the different regulations for telemedicine to be utilized most effectively when trying to develop a healthcare ecosystem. It is exciting that in Asia many non-traditional entrants are looking to come into digital health. There is interest even from banks or telecommunications companies, for example, that see this as an opportunity to expand into a new vertical. However, healthcare is extraordinarily complex and the time horizon to driving value can be long in some cases. This is not a situation where you come in, build an ecosystem in six months, and turn a quick profit. The investment needs to be over years to be able to build all the elements of the patient journey, and to be able to orchestrate the relationships with providers, patients, and regulators.
When business leaders start thinking about building an ecosystem, they need to consider what the ultimate value add is to patients and customers—that should always be the starting point. Then they can start thinking about profitability and the value that can be created out of the model.
Mengwei Xin: Yes, I agree. When business leaders start thinking about building an ecosystem, they need to consider what the ultimate value add is to patients and customers—that should always be the starting point. Then they can start thinking about profitability and the value that can be created out of the model. Business leaders are eager to see some of the tangible financial results of their investments . Having said this, we also have seen successful ecosystems originate from the strengths of the investors themselves. For example, the tech giants in China are starting to look at the consumer side of business flow to begin building a healthcare ecosystem. We’re also seeing insurance companies tapping into their customers to start their own healthcare ecosystems. So, besides being patient-centric, it is important to consider what unique advantage that you have when you build an ecosystem.
Axel Baur: I think a big decision is around ecosystems is whether you choose to participate in an existing one or build one yourself. If you were to put yourself into a system, how do you decide whether you participate or whether you shape a system as a player?
Hann Yew: I think that you need to have a clear strategic advantage to be able to orchestrate an ecosystem. One market can only have so many ecosystems in it. (China and India aside, because there will likely be regional variations.) If you really believe that you have a winner-take-all dynamic, you have to have an incumbent advantage—such as broad access to a large number of patients or consumers, or access to a large number of physicians. You have to be in a strong position to orchestrate an ecosystem. If you’re not, then it could be worth considering what specialty knowledge or capabilities you have that could allow you to be a meaningful participant.
Mengwei Xin: To add to Hann’s point, I think we must take a different view on whether to participate in an ecosystem and how to orchestrate one. For example, if you are a specialty provider or a pharmaceutical company, there will be various therapeutical areas in which you have expertise. In such cases, it's possible that, regardless of your market, you can consider starting your own ecosystem. However, if you wish to focus on care at a population level or a cross-disease level of care, then you need to consider whether you have the advantage of being able to access a group of consumers. So, it depends on whether you have some type of specialty knowledge or you have access to a broader population to look across different diseases to orchestrate it.
Senthu Arumugam: The way I see it is that the decision to orchestrate or participate comes down to one thing, and that is your ability to seamlessly knit together the patient’s omnichannel journey. That comes from one of two sources. Number one is whether you have unique and differentiated access to customers, or whether you have unique and differentiated access and ownership of the assets across that journey. If you have one or the other, then you are well positioned to play an orchestration role. If you don't have access to assets or patients, it becomes difficult to knit together the journey in a way that is meaningful to patients and to consumers.
Axel Baur: Health ecosystems are here to stay. If they are centered around the consumer, they are likely to be successful. And if built well, healthcare ecosystems will create great value for those who either participate in them or orchestrate their buildup . Thank you all for participating.
Oliver Tonby: You have been listening to the Future of Asia Podcast by McKinsey & Co. To learn more about McKinsey, our people, and our latest thinking, visit us at mckinsey.com/futureofasia, or find us on LinkedIn, Twitter, and Facebook.
