This commentary first appeared on Sheji Ho’s LinkedIn article. Republished here with permission. You can access the other commentaries from the author on the same website as well. An edited version of this article was published earlier on Tech in Asia.
As the world leaves the Covid pandemic behind for good but braces itself for a recession, questions linger around the future of healthcare technology in fast-growing Southeast Asia. Will telehealth adoption continue its rapid rise, or will it regress to its pre-pandemic trend line just like in the ecommerce space? Will telehealth evolve and in what form? How will the looming recession impact healthcare consumption in SEA? Will we see increased applications of Web3 and AI in healthcare? Will medical tourism return with a vengeance?
Let’s look at some predictions for digital health in SEA in 2023.
1. Telehealth and telemedicine volumes decline significantly versus pandemic levels.
According to a 2022 report by Trilliant Health, a healthcare think tank, the vast majority of patients still prefer in-person care:
Granted, this is data for the US but if a market that has all the ingredients – consumer awareness, policy support, payment infrastructure, a long-tail of private family physician practices, etc. – still has industry experts pessimistic about its future, what does this mean for an emerging region like Southeast Asia?
2. Telehealth-centric startups will pivot their business model (if not already).
A. Pivot distribution from B2C to B2B (employer and insurance coverage) due to increasing CAC (customer acquisition costs) versus low LTVs (customer lifetime values).
Back of the envelope: $30 CAC; $10 AOV @ 20% take rate; and 2x usage in 12 months -> we’re looking at a 7.5 years payback period. Throw in 10-20% of telehealth sessions come with medicine purchase and no matter how you tweak the model or parameters you’re still looking at many years before breakeven on just CAC.
This B2C to B2B pivot will potentially work in ‘Western’ SEA markets like Singapore due to the ability to get B2B to pay for it, but much harder in emerging markets like Thailand, Indonesia, and Vietnam where private health insurance penetration is much lower and the workplace wellness movement is still super nascent.
Telehealth LTVs are low because most people only use it once, and with CACs rising (thanks Apple), this renders the business model unsustainable:
B. Pivot value proposition from just telehealth towards broader, usually condition-focused, virtual care. This transition is oftentimes complemented by opening up or buying up physical clinics.
Again, this pivot will be more feasible in markets like Singapore versus emerging ones like Thailand, Indonesia, and Vietnam. However, this move is increasingly more difficult with capital being more expensive these days, especially when physical clinics are involved. Also, condition-specific (vs. primary care) treatments are frequently episodic or transactional in nature, leading to questions around viable unit economics and payback periods.
3. Telehealth companies that did manage to pivot distribution to B2B will have their commercial agreements renegotiated in light of the recession.
If not already, original frothy ‘Per Member, Per Month’ (PMPM) models will increasingly shift towards more frugal ‘Per Visit/Use’ models spurred by low utilization in the former. In the US, telehealth leader Teladoc is infamously known for having only 1-5% utilization.
Is B2B distribution really a panacea? Some healthcare investors would disagree:
“[In the telehealth business model, ] margins are driven down by:
- High CACs as providers first sell to employers and payers to get their services “covered.”
- Difficult communication to members — platforms need to somehow ensure that the patients who are eligible know they have this benefit and call in to use it; yet, the telemedicine companies don’t control the marketing channel to the patients!
- Low utilization — partially as a result of the above, only 2–4% of patients who have the benefit ever use telemedicine.”
4. SEA healthcare D2Cs will pivot to ‘higher value’ markets in Asia and globally.
Apple’s App Tracking Transparency (ATT) roll-out in addition to inflation have led to an increase in Facebook and Google advertising CPCs (often 3x if not more). This will force more SEA healthcare D2Cs to re-focus on higher ARPU (average revenue per user) markets in an attempt to make the CAC-LTV equation work. Singapore, ANZ, Japan, Korea, Hong Kong, Taiwan, etc. This transformation may or may not be complemented by an offline retail distribution strategy.
But by shifting focus towards higher ARPU markets, SEA healthcare D2Cs will put themselves on a collision course with their Chinese counterparts now rebooting their cross-border initiatives with China re-opened. Chinese (incl. Hong Kong) sellers account for 63% of top sellers on Amazon. Sellers outside of China and the US make up for less than 2% of all sellers.
What’s the moat for an SEA healthcare D2C versus a Chinese one with both selling on Amazon and buying the same ad inventory but one sitting smack-next to the factory?
5. There will be little to no consolidation activity in the telehealth / telemedicine space.
Unlike forecasts of an uptick of consolidation in other verticals in light of a recession and funding downturn, there will be little consolidation in the telehealth space. Why? Telehealth technology is a commodity and the service is often undifferentiated so no point in buying up your competitor.
“Just because telemedicine is beneficial for the healthcare system overall doesn’t necessarily mean you can build a massive business around it. In this case, I believe that telemedicine adoption will continue to rise, but telemedicine companies will struggle.” – Scott Xiao, In Silico Healthcare
6. More and more healthcare providers (i.e. hospitals and clinics) will adopt telehealth as a tool / feature, specifically for areas like chronic disease management and remote patient monitoring. In doing so, they will increasingly bypass third-party telehealth platforms.
It’s really not that hard. And hospitals and clinics are happy using Zoom for telehealth. This will solidify telehealth’s role as one of a ‘CRM’ tool instead of the originally intended scalable patient acquisition channel.
“Telemedicine in a post COVID-19 world: more providers will provide telemedicine within their own practices.” – Healthy Ventures
“COVID-19 mostly reinforced the adoption of telehealth among those already using the technology, rather than bringing new patient groups (which would be good for telehealth service providers) into the fold.” – Acute Condition
7. As we leave the pandemic behind us and enter a global recession, there will be new SaaS startups aiming to make healthcare providers more efficient. They will raise VC money but will eventually hit a wall.
Selling into the supply-side without a strong “demand-side carrot” is extremely difficult in target low-efficiency healthcare markets like emerging SEA countries. Same issues faced by many in the broader SME space, who are eventually forced to pick sides.
8. Web3 and AI in healthcare in SEA will remain ‘all sizzle no steak’.
Have you ever seen an actual surgery performed in the metaverse? Do you really want a robot to do your hemorrhoid surgery? I mean, ChatGPT is great and WebMD is scary but would you really trust the former for medical advice?
In the long-run however, there will be plenty of opportunities for AI in healthcare. How can startups benefit from this? The difference makers will be the ones that have access to unique healthcare training data, whether it’s through the elusive ‘EMR’ (electronic medical record) or some other way to collect a lot of data across the patient journey such as a platform or marketplace approach. This will be way more defensible and practical than trying to arbitrage or replicate the ChatGPT API.
“I don’t think startups are going to be able to create the AI themselves, but they might be able to benefit from the API’s. I’m not sure about how much potential there is yet for VCs to participate because right now, it seems like this is something that’s going to be done by really big companies.” – David Sachs, All-In Podcast
“I think that Google will open source their models because the most important thing that Google can do is reinforce the value of search. So if you’re a startup, you can build a reinforcement learning pipeline. How? You build a product that captures a bunch of usage. We talked about this before. That data set is unique to you as a company. You can feed that into these models, get back better answers, you can make money from it.”
“And I would just encourage entrepreneurs to think, where is my edge in creating a data set that I can use for reinforcement learning? That I think is interesting. That’s kind of saying, I buy the ingredients from the supermarket, but then I can still construct a dish that’s unique. And the salt is there, the pepper is there. But how I use that will determine whether you like the thing or not.”
9. Medical tourism will return, leading to new startups. Some specifically focusing on Chinese inbound medical tourism.
But customer acquisition will remain a major challenge in making the medical tourism business model work. Unless you have a proprietary and/or creative distribution channel, you’ll be looking for a needle in a haystack burning marketing dollars on Google Ads while competing with the big travel OTAs.
10. China’s aging population will drive more demand for lower-cost elderly and home care in more affordable SEA markets like Thailand and Malaysia, while China’s declining birth rate will increase cross-border demand for IVF treatments in SEA.
This will coincide with an influx of Chinese entrepreneurs (see Asia Partners’ 2023 report; page 52) as well as individuals looking to diversify their financial portfolio away from China. Chinese ‘Chuhai’ entrepreneurs will have an advantage if they can bring domestic distribution channels.
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Sheji Ho is a healthcare entrepreneur in Southeast Asia.