Digital Healthcare 2022

Last Updated June 30, 2022

China

Law and Practice

Authors



Global Law Office was one of the first law firms in the People’s Republic of China (PRC), with more than 465 lawyers practising in its Beijing, Shanghai, Shenzhen, and Chengdu offices. Its life sciences and healthcare (L&H) practice group is one of the leading advisers in China, having provided "one-stop" legal services for every sector of the L&H industry, including R&D, clinical research organisations, pharmaceuticals, biotechnology, medical devices, supply producers and distributors, hospitals and other healthcare providers and investment funds. GLO advises clients on challenging L&H legal issues such as regulatory compliance, structuring transactions and contractual arrangements, realisation of pipeline and geographic expansions, capital-raising and project-financing, M&A, re-organisations, IP protection, licensing and distribution arrangements, settlement of disputes involving adverse effects in clinical trials and medical treatment. The firm has close links to industrial associations and makes recommendations on industry codes of conduct and compliance management standards.

Digital healthcare, digital medicine and digital therapeutics are not legal terms defined in People's Republic of China (PRC) laws and regulations but are frequently referred to in commercial contexts and industry policies.

Digital healthcare usually refers to healthcare technologies developed based on information technologies used by and for the public in general, including healthcare management, disease awareness, telemedicine, online sale of pharmaceutical products and other healthcare-related activities conducted through digital platforms.

Digital medicine usually refers to the application of information technology in the process of diagnosis and treatment, which can only be performed by qualified medical institutions.

Digital therapeutics usually refers to the software-based products that are used for therapeutic interventions, either as monotherapy or in combination with other conventional medical therapies. Such products usually fall into the category of medical devices, and therefore are subject to regulatory administration to ensure their safety and efficacy.

Digital healthcare, digital medicine and digital therapeutics are not legal terms defined in PRC laws and regulations but are frequently referred to in commercial contexts and industry policies. Nevertheless, should any service or product in the fields of digital healthcare and digital medicine fall into the category of pharmaceuticals, medical devices, or be used for the diagnosis and treatment of human diseases, administrative regulations correspondingly apply.

Given the broad application scope of key technologies and the fact that digital healthcare and digital medicine are sometimes used interchangeably in practice, it would be difficult to accurately distinguish between the two fields.

Generally speaking, for digital healthcare, key technologies may include big data that can be used in public health monitoring, healthcare cost control, and internet of things and related sensor technology, global positioning system (GPS) technology and 5G technology that enables smart home and elder care, hospital management, telemedicine, etc.

For digital medicine, key technologies may include artificial intelligence (AI) and machine learning that are being used for assisted diagnosis and treatment, medical imaging, etc.

The key emerging legal issues in digital health may include the following.

Regulatory Framework

Digital healthcare activities, based on different scenarios, are governed by:

  • PRC physician practising laws and telemedicine-related regulations;
  • PRC drug administrative laws and regulations in relation to online sale of pharmaceutical products;
  • PRC advertising laws;
  • PRC laws and regulations on cybersecurity and data protection; and
  • PRC laws, regulations and industry standards on telecommunications and information technology. 

However, a unified and systematic law or regulation to specifically govern digital healthcare industry is still under development.

Cybersecurity and Data Protection

As digital health involves a large amount of personal data, especially that of a sensitive nature, the design and implementation of life-cycle protection of such data needs to be carefully considered, under the cybersecurity and privacy protection laws and regulations, especially regulations of the PRC Personal Information Protection Law that came into effect on 1 November 2021.

Liability

As AI technologies are more frequently used in diagnosis and treatment by healthcare institutions, under the circumstances where personal damages are caused to patients due to the application of such technologies, which party should assume the responsibilities needs to be further analysed.

The demand for digital healthcare technologies and healthcare services has grown significantly during the COVID-19 pandemic.

Prior to the outbreak of COVID-19, most patients in China typically visited physical healthcare institutions such as public hospitals, private hospitals or clinics. However, due to the restriction on movement necessitated by the pandemic, there has been a rapid widespread the adoption of digital technology in the delivery of healthcare services, such as telemedicine, online appointments and patient monitoring, and in AI-assisted diagnosis and treatment, as well as the online sale of pharmaceutical products.

A series of notices and opinions were issued in 2020 and 2021 to encourage healthcare institutions to leverage telemedicine for the purpose of relieving the pressure on the offline delivery of healthcare services. Based on public statistics, as of the first half year of 2021, the number of internet hospitals in China had reached more than 1,600. In addition, since 2021 certain regions of China have been exploring a unified system for the online prescription and sale of drugs and settling of online medical insurance claims to increase the accessibility of pharmaceutical products to patients.

Many healthcare institutions and AI technology companies have collaborated to enhance the use of computed tomography (CT) in the diagnosis of COVID-19 by using AI for detection and classification of COVID-19 based on CT scans, and for assessing disease severity.

The authorities involved in the regulation of digital healthcare technologies mainly include the following, at a national level, and their subordinate branches, as applicable.

The National Medical Products Administration (NMPA)

The NMPA regulates drugs, medical devices and cosmetics in China, responsible for the safety supervision and management of the same from registration and manufacturing to post-market risk management. Technology and devices, including software that falls into the category of a drug or medical device, are also subject to regulation and supervision by the NMPA and its subordinate branches.

The National Health Commission (NHC)

The NHC primarily formulates and enforces national health policies and regulations pertaining to healthcare institutions, healthcare services and healthcare professionals (HCPs). Internet-based diagnosis and treatment (including internet hospitals) and remote consultations between healthcare institutions and patients are both regulated by the NHC.

The clinical application of medical technologies for the purpose of diagnosis and treatment (including AI-assisted diagnosis and treatment) by healthcare institutions and professionals, is also regulated by the NHC.

The National Healthcare Security Administration (NHSA)

The NHSA is primarily responsible for implementing policies related to basic medical insurance (BMI), such as reimbursement, pricing and the procurement of drugs, medical consumables and healthcare services.

Regulatory Developments on Telemedicine

“Internet Plus healthcare”, ie, healthcare in combination with application of internet, is now a key national strategy in China. In order to regulate diagnosis and treatment provided remotely, ie, teleconsultation by HCPs or internet-based diagnosis, in July 2018 the NHC and the National Administration of Traditional Chinese Medicine issued:

  • the Administrative Measures for Internet-based Diagnosis (for Trial Implementation) (the “Internet-based Diagnosis Measures”);
  • the Administrative Measures for Internet Hospitals (for Trial Implementation) (the “Internet Hospital Measures”); and
  • the Good Practices for Telemedicine Services (for Trial Implementation) (the “Rules on Telemedicine”).

These measures clarify how teleconsultation and internet-based diagnosis should be carried out and set forth the regulatory requirements thereof.

In addition, the growth of internet-based diagnosis also boosted the demand for internet sales of medicine. Currently, internet sales of over-the-counter drugs are allowed while relevant regulations on internet sales of prescription drugs (especially the Implementation Regulations of PRC Drag Administration Law, a draft of which has been publicised for comments until 9 June 2022) are expected to be officially released in the near future.

Regulatory Developments on Electronic Medical Insurance

In August 2019, the NHSA issued the “Internet Plus” Medical Service Prices and Medical Insurance Payment Policy and launched the electronic medical insurance system, which regulates the prices and insurance policies to allow for internet-based healthcare services to be covered by China’s medical insurance system. Implementation policies were further issued in 2020 and local enforcement rules have been gradually issued by local authorities since 2021.

Regulatory Developments on AI-Assisted Diagnosis and Treatment

In February 2017, the NHC issued updated administration regulations on both AI-assisted diagnosis technology and AI-assisted treatment technology, together with the applicable quality control criteria for clinical application, reflecting the most recent regulatory position of the NHC to encourage, while strictly regulating, the development and cybersecurity application of AI-assisted diagnosis and treatment for safety considerations.

In 2019, the NMPA issued the Key Considerations for Review of Medical Device Software Using Deep Learning Technology for Assisted Decision Making, laying out its concerns for registration review of the relevant medical device software, including software development, software updates and related technical considerations. In 2021 and 2022 respectively, the NMPA issued the Guiding Principles for the Classification and Definition, and Guiding Principles for Registration Review of AI Medical Device, the latter laying out the application requirements and technical review standard of AI medical devices.

Regulatory Developments on Data Protection

In July 2018, the NHC issued the Administrative Measures on the Standards, Security and Services regarding National Healthcare Big Data (the “Measures on Healthcare Big Data”), announcing the direction of regulating the use and application of the healthcare-related data from a compliance perspective, and implementing industry-specific data protection requirements. In December 2020, a recommended national standard, the Information Security Technology – Guide for Healthcare Data Security was released to provide comprehensive guidelines in protecting healthcare data, particularly in light of the rapid development of digital healthcare. More healthcare data-related regulations are expected to be issued in the not-too-distant future.

Additionally, in April 2021, the NHSA issued the Guidance on Strengthening Network Security and Data Protection, which requires the establishment of a more solid foundation for network security and data protection mechanism in digital medical insurance and digital healthcare.

From a general perspective, two important data protection laws, the PRC Personal Information Protection Law and the PRC Data Security Law, finally took effect in 2021, which indicates the continuous strengthening of and focus on data protection.

Currently, the key areas of regulatory enforcement in digital healthcare include cybersecurity, personal data protection, and internet-based diagnosis and treatment (including internet hospitals).

In terms of cybersecurity, the implementation of the Multi-Level Protection Scheme (MLPS), which is a compulsory legal obligation under the PRC Cybersecurity Law and relevant regulations, is now becoming an enforcement focus for most industries including sensitive information, including healthcare.

The MPLS is composed of a series of technical and organisational standards and requirements that need to be fulfilled by all network operators in China. As the development and operation of digital healthcare heavily relies on networks and IT infrastructure, it is critical for digital healthcare providers to enforce and complete the MLPS grading process. Pursuant to the Internet-based Diagnosis Measures and the Internet Hospital Measures, healthcare institutions providing internet-based diagnosis services and internet hospitals shall be graded and protected as Grade III under the MLPS regime. Failure to complete the MLPS would lead to administrative penalties including warnings and fines issued by the Public Security Bureau (PSB).

In terms of personal data protection, relevant data protection authorities such as the Cyberspace Administration of China (CAC), the Ministry for Industry and Information Technology (MIIT) and the PSB have been actively enforcing personal data protection requirements across industries, including healthcare. Industry supervision authorities such as the NHC and the NHSA are also involved in those enforcement actions on healthcare institutions.

In terms of internet-based diagnosis and treatment (including internet hospitals), other than the basic Licence of Practice of the Medical Institution, issued by the NHC, medical institutions are also required to have the equipment, facilities, information system, technicians and information security systems that meet level-3 information security protection, to be assessed by the PSB.

The Cyberspace Administration of China

The CAC is responsible for the overall planning and co-ordination of network security and relevant supervision and administration. In terms of digital healthcare, the CAC’s involvement may include regulating the collection and utilisation of personal information, cross-border transfer of healthcare data, and the cybersecurity review of internet hospitals, etc.

The Public Security Bureau

In terms of cybersecurity, the PSB is mainly responsible for enforcing the MLPS and investigating cybercrimes. With respect to digital healthcare, the PSB’s involvement may include record filing for MLPSs completed by healthcare institutions including internet hospitals, conducting inspections related to MLPS on healthcare institutions and investigating crimes related to digital healthcare, such as the infringement of personal data and illegal access to information systems.

Ministry for Industry and Information Technology

The MIIT is responsible for regulating information technology and communication industry, recording filing and approval of Internet Content Provider (ICP), and formulating policies and standards on data security, etc. In terms of digital healthcare, MIIT’s involvement may include regulating related technology development, such as the development of and security requirements for AI technology. In addition, the MIIT is actively leading personal data protection campaigns on mobile applications, including apps used in the healthcare industry.

New healthcare technologies have already prompted cooperation and joint enforcement among various authorities in healthcare and non-healthcare industries, especially related to areas such as IT infrastructure, personal data protection and AI technology.

Preventative care is not a legal term defined in PRC laws and regulations and can be interpreted broadly. In practice, if a preventative care concerns general healthcare consulting, elder care, nursery, massage, fitness or wellness, without making judgement about diseases or giving targeted recommendations towards specific health issues or conditions, it may not fall within the definition of diagnosis and treatment and will not be subject to special regulation. On the other hand, if a preventative care falls into the area of diagnosis and treatment activities (eg, disease screening or vaccination), it can only be performed by a doctor qualified to practice in a medical institution.

National polices have increased the awareness of preventative care. The State Council’s Opinions for Implementing the Key Tasks Laid out in the Government Work Report of 2022 indicates that the State Council will adhere to the "prevention first" strategy in the "Healthy China Action" and strengthen health education and health management. The government policies also focus on improving services, such as elder care, and supporting the revitalisation and development of traditional Chinese medicine (TCM), which will encourage awareness of preventative care.

The social trends also reveal the increased need for preventative care. On the one hand, as a result of the rapid development of the national economy and the expansion of the middle class, more and more consumers began to pursue a better quality of life and are willing to pay for preventative care. On the other hand, the outbreak of COVID-19 and the stress of the ageing population with limited social endowment insurance has also contributed to public health awareness.

Under PRC law, there is no clear separation of personal health data and fitness and wellness information. If certain fitness and wellness information also falls within the scope of personal information, information on human genetic resources (HGR) or healthcare big data, it will be regulated accordingly. The legal considerations can be reviewed in 10.1 The Legal Relationship Between Digital Healthcare and Personal Health Information and 11.1 The Utilisation of AI and Machine Learning in Digital Healthcare.

Currently, there are no detailed regulations focusing on preventative healthcare. Despite this, in the 14th Five-Year Plan for the National Development of Undertakings on the Elderly and for the Elderly Service System, issued by the State Council, it is clearly stated that "preventative healthcare" for the elderly shall be strengthened. This is also the prerequisite for developing elderly care services, combining medical treatment and elderly care. With this national strategy, it is expected that the government will make efforts to promote the elder care industry.

The healthcare industry is subject to relatively strict regulations in China. When a non-healthcare company enters the market by introducing new technologies and the application of existing technologies to healthcare, it shall evaluate:

  • whether the device using such technologies will be deemed as a medical device; and
  • whether the application of such technologies will be deemed as provision of medical services.

In either way, entrants into the relevant market must first obtain a licence.

Technology Developments Enabling the Enhanced Use of Connected Devices

Connected devices involve a wide range of technologies, including sensing technology, display technology and wireless communication technology. The development of endurance technology also enables the enhanced use of connected devices.

With the above-mentioned technology, the telemedicine platform can automatically collect a number of vital signs data, upload the data to the hospital control centre and analyse the data in real-time, to provide doctors with an early warning to facilitate the provision of telemedicine services.

If a telemedicine platform is aimed at providing health education or caring services rather than medical services, the user may claim for liability against the platform owner.

If a telemedicine platform is registered as a medical device and is used by physicians during their practice, the doctor or the medical institution will be held accountable for malpractice. On the other hand, if the product is proved to be defective, the patient may also claim for product liability against the manufacturer or the seller.

In an on-premises or local computing environment, healthcare institutions need to set up and maintain an IT system with a solid foundation for network security and data protection mechanisms. Taking reference from a series of policies, guidelines and recommended national standards, the healthcare institutions will install and upgrade anti-virus software, detect Trojan viruses, monitor the access authority on open ports, manage the system and carefully keep a system security diary. Meanwhile, the healthcare institution shall also carry out daily information security monitoring and early warning checks, establish security incident reporting and response procedures and formulate emergency response plans.

A connected device intended for medical purposes is deemed to be a medical device and is subject to the regulations of the NMPA on medical devices.

Due to the features of a connected device, a series of guiding principles have been formulated to address the cybersecurity and information security issues embedded in such devices. For example, in applying for the registration of the connected device as a medical device, the NMPA will ask the applicant to submit materials to prove its capability on cybersecurity, in accordance with the guiding principles. The NMPA also imposes requirements on the manufacturers to ensure the information security of medical device software, ie, to ensure the confidentiality, completeness and availability of the health data in the software.

Definition and Regulatory Authorities

Under applicable PRC laws and regulations, standalone software medical device (SaMD) refers to software which has one or more medical uses, does not require medical device hardware to accomplish the intended use, and runs on a common computing platform. An SaMD can be used in conjunction with multiple medical device products based on a common data interface, such as picture archiving and communication systems (PACS), central monitoring software, or in conjunction with specific medical device products based on a common, dedicated data interface.

As for software product that uses AI, whether it is administrated as an SaMD depends on it intended use, processing object and core function, among other factors. When a software product processes medical device data and its core function is to handle, measure, model calculate or analyse such data for medical purposes, the product falls within the scope of an SaMD.

SaMDs, like other medical devices, is regulated by the NMPA and its subordinate branches, including the development, registration, manufacturing, sales, and post-market risk management and adverse event reporting, etc.

Classification of an SaMD

Under applicable PRC laws and regulations, medical devices are classified into three classes based on their risks:

  • Class I is the lowest risk, for which implementation of customary regulation can ensure their safety and effectiveness;
  • Class II is moderate risk and requires strict control to ensure its safety and effectiveness; and
  • Class III is high risk and demands special measures to ensure its safety and effectiveness.

For SaMDs, the main factor to be considered when rating the risks is the impact of the SaMD on diagnosis and treatment results. SaMDs having slight impact on diagnosis and treatment results are classified as Class II medical devices, and SaMDs having substantial impact on diagnosis and treatment results are classified as Class III medical devices.

Generally, SaMDs used for image processing, data processing and image file transmission are classified as Class II devices, while most of the SaMDs used for assisting treatment (eg, formulating a treatment plan) and for assisting diagnosis (eg, giving clinical diagnosis and treatment basis and/or advice) are classified as Class III devices.

Regulations on SaMDs

Registration and updates of SaMDs

Class II medical devices manufactured in China must register with medical product administration on a provincial level, Class II medical devices manufactured outside of PRC and Class III medical devices shall register with the NMPA. Software updates of SaMD could be divided into major updates and minor updates. Major updates refer to enhancement that affects the intended uses, environment of use or core function of medical devices. Minor updates refer to enhancement that does not affect the safety or effectiveness of medical devices as well as corrective updates.

Major updates are subject to technical review and prior approval from the authorities while minor updates do not require approval in advance but should be reported in the following registration for post-market change or renewal.

Manufacturing, sale and use of SaMDs

Manufacturing and sales of SaMD are subject to corresponding licensing requirements. In addition, the clinical use of certain types of SaMD may be subject to additional regulations, eg, using AI-assisted diagnostic technology is subject to self-assessment and filing with the relevant health commission, and shall meet the specific rules applicable to the clinical use of such technology.

Internet Hospital

Under the Internet Hospital Measures, internet hospitals could be divided into two categories:

  • offline healthcare institutions with their associated internet hospitals, eg, internet hospital of a certain public hospital; and
  • independent online hospitals set up relying on offline healthcare institutions, eg, internet hospital set up by internet companies in co-operation with public hospitals.

Under both categories, internet hospitals may provide internet-based diagnosis and treatment to patients, which are limited to the follow-up visits of some common and chronic diseases and no internet diagnosis and treatment activities shall be carried out for first-time visits.

Under the Internet Hospital Measures, provided that specific requirements are met, physicians can prescribe for patients on internet-based medical services. Specifically, physicians may issue prescriptions online for certain common diseases and chronic diseases diagnosed previously in an offline hospital, and such prescription shall contain the electronic signature of the physician issuing it. After being reviewed and verified by a pharmacist, the healthcare institution or drug supply company may engage an eligible third party to deliver the relevant drugs to the patient.

In terms of online prescription, regulations and policies have been issued on facilitating circulation of electronic prescriptions issued in internet-based medical services to retail pharmacies, and on allowing internet sales of prescription drugs, with implementation rules on both expected to be released in the near term.

Family Doctor Contracting Services

Family doctor contracting services are mainly provided by community healthcare institutions. After signing a family doctor service agreement with residents, family doctors provide relevant services according to the requirements of the agreement, which may include health management services, health consultation services, outpatient services, rehabilitation, smart aided therapeutics, drug delivery and medication guidance services, etc. The residents could execute service agreements, make appointment, accept health consultation and follow up of chronic diseases through online channels such as websites and apps.

Third-Party Information Platform

In addition to internet hospitals and healthcare institutions that provide internet-based medical services, there are third-party information platforms that provide information services in the industry. These platforms establish partnerships with a large number of healthcare institutions or physicians and facilitate the medical consultation services between the physicians and patients.

Cross-Border Telemedicine

Currently, there is no clear restriction on provision of internet-based diagnostic services by healthcare institutions or healthcare professionals located outside of China made to patients located in China, yet in practice the platform providing such services may be exposed to regulatory risks as physician and nurses permitted for providing internet-based diagnostic services under the Internet-based Diagnostic Measures shall only be those registered in the national electronic registration system in China.

Consulting services provided online regarding health status or diseases by healthcare professionals to patients, to the extent such services are provided without giving diagnosis or prescriptions, are not internet-based diagnosis regulated by the Internet-based Diagnosis Measures.

For telemedicine, the NHC issued a series of notices and opinions in 2020 to encourage healthcare institutions to leverage telemedicine to release the pressure of offline delivery of healthcare services. Although there has been a rapid acceleration of telemedicine, some gaps and issues remain to be resolved and clarified from a national policy perspective, such as the expansion of the scope of internet-based diagnosis and treatment, and the application of internet-based diagnosis and treatment on first-time visits.

During COVID-19, the NHSA and the NHC issued further guiding opinions promoting implementation of BMI reimbursement for internet-based diagnosis. In November 2020, the NHSA issued further detailed opinions on the scope of reimbursement and the requirements for application thereof, laying down the regulation framework for the BMI reimbursement of internet-based diagnosis. Under these opinions, qualified offline healthcare institutions providing internet-based diagnosis may apply for an establishing reimbursement arrangement for its internet-based diagnosis services via the BMI agencies. BMI reimbursement for internet-based diagnosis services may cover both medical consultation fees and drugs.

Typical Application Scenarios of the Internet of Medical Things (IoMT)

Life cycle monitoring of medical devices

The use of radio frequency identification (RFID), infrared sensor, GPS and other information sensors could help to achieve real-time intelligent identification, tracking, supervision and management of medical devices in order to enhance hospital management.

Intelligent operating rooms

The operating room is a core department of hospital business operation. With the development of the IoMT, the intelligent operating rooms can effectively enhance the integration of modern medical technologies and information technologies. Surgeons can obtain and share information through the IoMT, which helps to significantly improve the efficiency of an operating room and allowing for more efficient and focused operations.

Wearable health monitoring devices

Wearable health monitoring devices refer to devices using wearable biosensors to collect data on an individual's movement and physiological parameters for health management purposes. A wearable health monitoring system is an integrated system with non-invasive detection of human physiological information, wireless data transmission and real-time processing functions.

Technological Developments That Drive the Internet of Medical Things

5G networks

The application of 5G networks has greatly facilitated the IoMT. As the IoMT devices have different functionalities and data requirements, 5G networks are usually able to support them all.

NB-IoT

The Narrow Band Internet of Things (NB-IoT) network helps the healthcare industry to accelerate the upgrade of its information technology. NB-IoT cellular technology, as a global unified mobile IoT standard, relies on the cellular network to build a network with wide coverage, low power consumption, large links, low cost and high security, and can meet a variety of application scenarios for low-rate services.

Sensors

Sensors are the basic components of various medical devices. The IoMT is an intelligent service system that connects things, people, systems and information resources according to agreed protocols through sensing devices such as RFID tags, wristbands, wearable devices, to process information and react to the physical and virtual world. Currently, the most common applications of IoMT are sensor-based monitoring applications.

Regulatory issues for the IoMT

Currently, regulators in China are still developing the applicable laws and regulations for the IoMT. The main issues under discussion include cybersecurity and personal data protection, especially for handling security risks such as network vulnerabilities. It is critical to timely identify any vulnerabilities and take corresponding remediation measures.

The Impact of 5G Networks

For digital healthcare development, one of the biggest challenges is the transmission of bulk data, especially for application scenarios such as emergency treatment, where the need for transmission of bulk data in a secured and stable manner is highly demanded. A typical scenario is where the doctors in an ambulance could use 5G medical devices to complete a series of examinations such as blood tests, electrocardiograms (ECGs) and ultrasounds, and transmit a large amount of data such as images and condition records back to the hospital in real time through the 5G networks, thus substantially enhancing the management of emergency treatment.

In areas such as remote monitoring, remote analysis, remote control and remote diagnosis, where data is collected from various sources in disorder format, 5G networks also helps to solve the issues of data sharing and cleaning to support the development and application of AI technologies.

The Commercial and Contractual Considerations of Healthcare Institutions

Key commercial and contractual considerations faced by healthcare institutions in entering into arrangements with telecoms providers to deploy and manage the 5G networks may include the following:

  • whether industry application standards are well developed and applied;
  • whether 5G frequency resources are adequately ensured;
  • whether 5G application security risk is properly assessed and addressed; and
  • whether adequate support for cross-industrial innovation could be supplied.

Key Legal Issues in Using and Sharing Personal Health Data

Under the PRC data protection framework, general privacy laws and regulations such as the PRC Cybersecurity Law, the PRC Civil Code and the PRC Personal Information Protection Law regulate the protection of personal data and set up the fundamental principles and general requirements, while the healthcare regulation of personal health information provides more specific protection requirements on healthcare data.

Defining personal health data

Under relevant PRC laws, regulations and national standards, personal health data is defined broadly as data that can identify a specific natural person and reflect the physical or mental health of a specific natural person. Informed consent is, in principle, the default mechanism for any collection, use and sharing of personal health data while under special circumstances such as involving public interests or personal security, consent would not be required.

Broad data requirements

In terms of scientific research and clinical settings, the general requirement of consent would apply for the collection, use and sharing of personal health data unless the data is processed as “limited data set”, which means the data is subject to certain degree of de-identification but may still identify the specific individual because health data is personalised. The possibility of re-identification is addressed through other technical and organisational protection measures such as strengthening the internal control process by limiting the data access on a need-to know basis.

Nevertheless, if de-identification is applied, which facilitates the purpose of preventing the specific individual from being re-identified without additional information, the data then would not be deemed as personal health data, but as general health data, subject to a relatively low-level of protection. As for data aggregation, it would not change the nature of personal heath data unless the aggregated data does not contain any personally identifiable information that could be used to identify a specific natural person.

Consent

In terms of consent, digital healthcare has not yet substantially changed the nature of patient consent, instead, it could provide more alternative means to obtain consent from the perspective of service providers. Informed consent requires a data controller to provide a holistic view regarding the scope and purpose of data collection, use, share, transfer and retention, based on which the data subject could provide a voluntary consent through an active conduct. In practice, consent is frequently obtained through clicking on the consent button of a terminal device by a data subject, handwritten signatures by a data subject in both electronic and paper format, as well as recording the oral expression of consent made by a data subject.

Legal Considerations in Sharing Personal Health Data

Key legal considerations in sharing personal health data with healthcare institutions or non-healthcare institutions would usually include the following.

Restriction on sharing – whether there are any restrictions imposed by PRC laws that prohibit sharing of specific categories of personal health data, eg, HGR, including HGR materials and HGR information, are not allowed to be shared with foreign parties without explicit approval or record-filing from the relevant authorities.

Cross-border data transfer – whether the personal health data would fall into the scope of certain types of data that are required to be stored within the territory of China and are subject to security assessment and approval before being exported to other jurisdictions. 

  • Informed consent – whether informed consent from the data subject is properly obtained and whether special circumstances under which consent is not required are met.
  • Necessity and legitimacy – whether such sharing of personal health data is conducted based on necessity and to achieve legitimate purposes.
  • Data security – whether adequate security measures are designed and implemented for the data sharing.
  • Due diligence on transferee – whether proper due diligence process is completed on the capability of the transferee to ensure data security of the personal health data.
  • Contractual agreement – whether contractual agreement that stipulate the respective rights and obligations (including but not limited to security obligations of the transferee, scope of use by transferee, restriction on sharing, retention period and disposal requirements, assumption of liabilities for data breach) is concluded between the transferor and transferee.

Liabilities

As personal health data largely falls into the category of personal sensitive data under the PRC laws, the scope of liability for data breach or unauthorised use of or access to personal health data in use and sharing are currently the same as personal data and are regulated under the PRC Criminal Law, the PRC Cybersecurity Law, the PRC Civil Code, and the PRC Personal Information Protection Law, which include criminal liabilities, administrative liabilities and civil liabilities as follows:

  • criminal liabilities for infringement of personal data include criminal detention, fixed-term sentence and monetary fines depending on the severity of the conduct and consequence;
  • administrative liabilities for illegally processing of personal data include written warnings, confiscation of illegal gains, monetary fines (up to RMB50 million or 5% of the turnover of the previous year), suspension of business and revocation of business licences under serious circumstances;
  • personal liabilities imposed on the person in charge include fines of up to RMB1 million and prohibition from holding certain positions; and
  • civil liabilities for infringement of personal data could be divided into torts liabilities and liabilities for breach of contract.

AI, Machine Learning and Data Security Concerns

AI in healthcare is developing rapidly in China and has been playing a robust and growing role in the healthcare industry. Since 2016, with the strong support of national policies, China’s giant technology companies have entered into this field and launched different types of AI products. From the legislative perspective, the NMPA issued the Guiding Principles for the Review of Registration of AI Medical Devices in 2022, to regulate the registration of AI products as medical devices. As the most common form of AI, machine learning is widely applied in various aspects such as AI-assisted diagnostics and treatment, medical imaging, precision medicine, pharmaceutical research, followed by data security concerns with respect to the protection of large-scale personal sensitive data and cyber-attacks.

For example, in April 2020, the server of a Chinese healthcare AI company in medical imaging related to COVID-19 diagnostics was hacked, and the research results, source codes and user data were posted on the dark web for sale. The implications of this incident have already exceeded the scope of commercial or business considerations, and from a broader perspective, would even endanger public security and public interests given the involvement of personal sensitive data and important research results for public health.

Likewise, there are strengths and weaknesses of a centralised electronic health record computer system. Strengths include better integration of healthcare resources and more efficient and effective delivery of healthcare services, while the weaknesses would still be the concerns for data security, especially when the centralised nature of the electronic health record computer system makes the whole system and data more vulnerable to cyber-incidents or cyber-attacks.

Data Use and Data Sharing in the Machine Learning Context

Similar to other application scenarios, data use and sharing in the machine learning context are subject to the requirements of informed consent and data security under the relevant laws and regulations such as the PRC Cybersecurity Law, the PRC Civil Code and the PRC Personal Information Protection Law. 

  • Informed consent – the data processor would need to obtain informed consent from the data subjects for data collection, storage, use, processing, transmission, provision, disclosure and deletion, etc (collectively, “Processing”).
  • Data security – the data processor would need to ensure adequate security measures are designed and implemented for data Processing.
  • Entrustment with third parties – if the data processor entrusts third-party data processers to process the user data, such as data tagging, the data controller would need to ensure that the data processor would only process the data within the aligned scope and would implement adequate data security measures through due diligence, contractual agreements and/or data audits.

Additionally, as a sizable amount of data from various data sources is required in the machine learning context, the aggregated data may be deemed as healthcare big data and subject to special rules of data localisation, strict electronic real-name authentication and data access control, data classification, important data backup and data encryption, etc, under the Measures on Healthcare Big Data.

Natural Language Processing

Natural language processing is now widely used in scenarios such as healthcare data mining, converting unstructured healthcare data to structured data, electronic medical records, and medical imaging. As for the regulatory scheme, China is under the process of establishing laws and regulations, ethical norms and policy systems in AI development and application.

As addressed in 11.1 The Utilisation of AI and Machine Learning in Digital Healthcare, companies engaging in new digital healthcare technologies should be aware of the regulatory and legal issues including cybersecurity and data protection and that they are subject to the same requirements.

Unlike traditional medical devices, the development of an AI medical device may need a tremendous amount of data for machine learning and training. According to the national recommended standard on Information Security Technology – Guide for Health Data Security, the development and validation phase of a product where data relating to patients and related populations are required is essentially a clinical study. Collecting and processing personal information in a clinical study is also subject to the informed consent of the data subjects. In practice, as the digital companies may not need such data to be identifiable, they may choose to use a “limited data set” subject to a certain degree of de-identification which will not be deemed as personal information.

Licence to Practice

As addressed in 4.5 Challenges Created by the Role of Non-healthcare Companies, new market players developing new digital healthcare technologies shall first decide (i) whether the device will be deemed a medical device under PRC law and (ii) whether the application of the device and/or the technologies will be deemed as providing a medical service. In either case, entrants to the relevant market will first obtain a licence to operate and continuously follow the regulations of the healthcare industry.

In particular, due to the evolving nature of digital healthcare technology and the need for constant updates, any update of an algorithm due to increased amounts of data may require a change of registration of the medical device, which will need to be submitted to regulatory authorities for re-approval.

Cybersecurity and Data Protection

As addressed in 10. Data Use and Data Sharing and 11. AI and Machine Learning, companies engaging in new digital healthcare technologies shall pay attention to the legal requirements for cybersecurity and data protection.

Pursuant to the requirements of the NHC on the construction of information platforms, the IT infrastructure of a healthcare institution should have:

  • the core functions of data transmission and data interaction;
  • an electronic medical record system; and
  • a hospital resource planning system.

Looking forward, a solid foundation for digital healthcare or “Internet Plus healthcare” could be established through data management and integration of various data resources, unification and standardisation of data resources models, integration of healthcare services and platforms, elimination of information gaps among departments of the healthcare institution, to achieve the goals of resource sharing and business collaboration of healthcare services, supply of medical products, medical insurance and comprehensive management.

From cybersecurity and data protection perspectives, any IT infrastructure needs to complete the MLPS, which is a compulsory legal obligation under the PRC Cybersecurity Law and relevant regulations. The MLPS includes a series of technical and organisational standards and requirements that need to be fulfilled by the operators of the IT infrastructure.

In 2018, the NHC issued the Standards and Norms for Hospital Information Construction in China (Trial), which provides detailed requirements and standards for various levels of medical institutions with regard to software and hardware construction, security protection and application of emerging technologies, with IT upgrades as one of the requirements.

As for regulations on data management practices, other than the oversight of personal health information, as addressed in 10.1 The Legal Relationship Between Digital Healthcare and Personal Health Information, patient information and other sensitive data should be stored within the PRC. A medical institution is required to enhance the informatisation level of clinical diagnosis and treatment and the use of electronic medical records, including strengthening the protection of information systems, safe storage, disaster recovery and backup of medical data, and prevention of information leakage.

Scope of Protection of Intellectual Property Rights

Technologies involved in digital health technologies or products may be protected by patent right, copyright, or as trade secrets.

Patent

The PRC Patent Law protects invention, utility model or design that possesses novelty, creativity and practicality. Under the PRC Patent Law:

  • an invention means a new technical plan proposed for a product, a process or an improvement thereof;
  • a utility model means a practical new technical plan proposed for the shape or structure of a product or a combination thereof; and
  • a design means a new design of the whole or part of shape or pattern of a product or a combination thereof, as well as a combination of colour, shape and/or pattern, which creates an aesthetic feeling and is suitable for industrial application.

There are certain exceptions not protectable by PRC Patent Law due to a lack of technical features or public interest, including diagnosis and treatment methods for diseases, rules and methods of intellectual activities, etc. AI technology can be protected as patent to the extent such technology meets the requirements, for which purpose it should not only be in the form of algorithms, but also have certain technical features. The terms of protection, commencing from the application date, are:

  • for inventions, 20 years;
  • for utility models, ten years; and
  • for designs, 15 years. 

Copyright

The PRC Copyright Law protects works in the fields of literature, art and science which can be expressed in a certain form, including, without limitation, written works, oral works, photographic works, audio-visual works, graphic works and model works (such as engineering design plans, product design plans, maps and schematic diagrams), computer software, etc. Therefore, with respect to technologies and products in the field of digital health, computer software and product designs, among others, can be protected by copyright.

The duration of a copyright depends on the type of author and type of such work, ie, the protection term of right of authorship, right of revision and right to preserve the integrity of the work of an author is eternal, whereas the protection term for the right to publish the works of an entity is 50 years from the completion of the works.

Trade Secrets

Under PRC laws, trade secrets refer to commercial information such as technical information and business operation information not known to the public, has commercial value and for which the rights holder has adopted the corresponding confidentiality measures. Non-public information related to AI technologies, such as certain know-how, can be protected as a trade secret, provided the appropriate confidentiality measures are adopted.

Protection of Data

If data is expressed and exhibits originality, hence constituting a work, such data may be protected by copyright. Data can also be protected as a trade secret in China. With respect to a database, if the selection or compilation of its content shows originality, it may be protected as a compilation work under the PRC Copyright Law. In addition, if utilisation of the data or database obstructs the competition order of the market and constitutes unfair competition, the PRC Anti-unfair Competition Law may also apply.

AI Inventorship and Authorship

Whether AI can be regarded as inventor of invention developed by AI has not yet been clarified under the PRC Patent Law. Currently, work generated with assistance of AI, (ie, an article written by AI but with the input of data, template and writing style determined by the employees of a company) is eligible for copyright protection with such work deemed work-for-hire with the company regarded as the author.

To decide which form of intellectual property protection applies to certain technology, the characteristics of the technology, ie, whether it satisfies the requisite elements of a specific form of intellectual property, needs to be considered.

If the technology satisfies the features of more than one form of intellectual property, commonly between a patent and a trade secret, the technology owner needs to be aware of the advantages and disadvantages of different types of protection.

A patent right can be better claimed, proved and valued as it is reviewed and granted by the Patent Office and officially registered. Such protection is granted on the condition that the technology is reviewed, publicised and the protection duration is limited under the law.

Trade secret protections, on the other hand, require the owner to take relevant measures to keep such technology confidential and the protection does not have a time limit as long as the technology remains unknown to the public. However, in the case of a trade secret infringement, the owner will have to prove the existence of the trade secret, their rightful ownership, the occurrence of the infringement and its value.

The licensing arrangement of intellectual property could be different, depending on the commercial needs.

Provision of Services or Sale of Products

The provision of services or sale of products will not include a transfer of the proprietary in the intellectual property embedded in the services or products to the purchaser of the services or products. Similarly, the purchasers are not automatically granted with a licence regarding the intellectual property except for the use of services or products they purchased for their intended use.

Licence Deal on Digital Healthcare Products or Technology

In a typical licence deal, the licensor will grant a licence to the licensee to develop, utilise, upgrade improve and commercialise the digital healthcare products or technology. Such collaboration will generally include a licence of intellectual property rights included therein and the Parties will agree on the compensation for such a licence, under which the licensee can use the intellectual property for agreed purposes and retain interest generated therefrom. The licensor has the right to collect milestones or profits from the licensee as it remains to the proprietor of the intellectual property. Sometimes, the licensor will also ask for a right of grant-back to enjoy the improved technology and a right of reference of the data generated from the licensee’s use of the licensed products or technology.

Co-Development

For digital healthcare services and products that are at an early stage of development, the parties may agree on a co-development of such technology or product and co-own the intellectual property rights derived therefrom.

Copyright Allocation

With respect to works created by a physician employed by a hospital or a researcher employed by a university while performing their work, unless otherwise agreed the copyright of the work shall be owned by the physician or researcher, provided the hospital or university as employer shall be entitled to use such work within the scope of its operation. However, for works created primarily using material and tools of the employer, ie, the hospital or the university, the copyright shall be owned by the hospital or the university (except that the right of authorship belongs to the employee) unless otherwise agreed.

The copyright of a work jointly created by two or more persons shall be co-owned by the co-authors. Attribution of copyright of a commissioned work shall be agreed between the principal and the commissioned party via a contractual arrangement. Where the contract is not clear or where there is no contract, the copyright shall belong to the commissioned party.

Patent Right Allocation

If an invention is developed by a physician employed by a hospital or a researcher employed by a university while performing their work or mainly utilising material and tools of the hospital or university, the patent right of such invention belongs to the hospital or the university unless otherwise agreed between the parties.

Where two or more entities or individuals co-operate in the development of an invention, or if an entity or individual has been engaged by another entity or individual to develop an invention, unless otherwise agreed, the entities or individuals that have completed or jointly completed the invention shall own or co-own the patent application right and patent right (if granted).

It should be noted that, with respect to patent application for work products generated from international co-operative research (eg, between a Chinese hospital and a foreign sponsor) utilising Chinese HGR, at least with respect to clinical trials for non-registration purpose, such patent application should be submitted and the patent rights owned by both parties of the co-operation.

In the event multiple parties are involved in the creation of a work or in the development of technologies, subject to applicable laws and regulations, the parties should clearly agree on the ownership of the intellectual property rights of the relevant work product and, to the extent necessary, make detailed and clear arrangements on the exercise of the rights and restrictions thereon, such as rights and restrictions on use, licence, transfer and profit distribution. Specifically, in clinical trial agreements involving international co-operative research utilising Chinese HGR, appropriate IP provisions must be included to comply with applicable regulations and protect the legitimate interest of the parties involved.

Generally, with respect to the determination of liabilities in the event injury is incurred by a patient using SaMD, provisions on product liability and tort would apply, ie, the patient can claim compensation from either the manufacturer or the seller if the injury is caused by a defect in the product. In the event the party compensating the patient (either the manufacturer or the seller) is not liable for the defect, such party may recover its losses from the other.

If the defective SaMD was being used by a healthcare institution, including SaMD using AI technology (to the extent the AI technology is not providing a diagnosis and treatment solely on its own), then the patient may also elect to claim for compensation from the healthcare institution, which itself may seek to recover its losses from the manufacturer liable for the defect.

If the healthcare institution is at fault when conducting diagnosis and treatment activities, then it shall also be held liable. The question of whether AI can conduct medical treatment independently and the related liability issues are to be further clarified by relevant laws and regulations.

In terms of potential bias issue of AI, as bias would likely be deemed as an ethical issue, it is to be further clarified by enforcement practice.

Contractually, if the supply chain disruption or the cause thereof constitutes a breach of the agreement between the vendor and the healthcare institution, such as a failure of the vendor to perform certain obligations, then the vendor shall bear contractual liabilities as agreed by the parties. If such failure constitutes violation of applicable laws and regulations, the vendor may also be subject to punishment by the relevant authorities.

Another important hot topic that may or is already impacting digital healthcare is blockchain technology. As critics often complain about the privacy concerns arising from telemedicine or internet hospitals, blockchain technology could be used to promote the secured sharing and distribution of healthcare data.

In October 2020, the NHC issued the Opinions on Strengthening the Construction of a Standardized System of Health Information, which clarifies the trend of exploring the application of blockchain technology in the healthcare industry. This includes exploring and researching blockchain application scenarios in healthcare, accelerating research and developing blockchain information service standards in healthcare, and strengthening norms to guide the integration of blockchain technology and healthcare industry applications.

Under these policies, healthcare institutions are encouraged to explore the application of blockchain technology in medical consortia, personal health records, electronic prescriptions, drug management, medical insurance, smart hospital management, vaccine management, gene sequencing, etc, on the premise of data safety. In practice, internet hospitals are launching pilot programmes for implementing and integrating blockchain technologies.

Despite the above, there are still rising doubts about the security and effectiveness of the technology and its application in the healthcare industry, which need to be further analysed and verified in the process of the exploration.

Global Law Office

35th & 36th Floor
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No.999 Middle Huai Hai Road
Xuhui District
Shanghai 200031
China

+86 21 2310 8200

+86 21 2310 8299

Alanzhou@glo.com.cn www.glo.com.cn
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Trends and Developments


Authors



Han Yi Law Offices is a leading boutique law firm in the private equity investment community in the People's Republic of China (PRC), specialising in the formation and deployment of private equity and venture capital funds, M&A, securities, banking and finance and foreign-related dispute resolutions. With a team of 20 lawyers at its Shanghai offices, the firm regularly represents world-class private equity investors, venture capitalists, active industrial investors, hedge funds and PRC state-owned investment arms. Han Yi Law advises on a wide variety of private equity transactions, including buyouts (leveraged and non-leveraged), early and late-stage venture investments, restructurings, privatisation and recapitalisations and exit transactions. The firm has a proven track record in structuring and executing innovative and complex cross-border private equity and venture capital investment deals and M&A transactions involving buyouts, follow-on acquisitions, IPOs and trade sales, among others.

Overview

Digital healthcare is not yet a clearly defined term under the current People's Republic of China (PRC) legislative framework. In practice, digital healthcare in China is generally referred to as “the application of digital technologies in the medical and health sectors”, which mainly includes internet hospitals, online sale of drugs, AI-based medical devices, big data and medical robots, among others. The rapid growth of emerging technologies and the continuous support from the Chinese government has caused a digital transformation and the acceleration of China’s healthcare sector in recent years. This in turn improves the quality and efficiency of healthcare services and hospital management.

The outbreak of the COVID-19 pandemic in early 2020 drove wider acceptance of telemedicine and forced online platforms to provide a full range of services covering online diagnosis and treatment, drug sale and deliver and online payment as well as medical insurance reimbursement services.

By the end of 2021, the number of internet hospitals in China exceeded 1,900, representing a rise of 400% compared with 2019. The market size of internet hospitals and online sales of drugs has reached around RMB223 billion and RMB36.8 billion respectively, representing an increase of approximately 44% and 52% respectively, on a year-on-year basis. However, offline hospitals have played a key role during the COVID-19 pandemic as the scope of online medical services and dispensing of prescription drugs available online is still quite limited.

China’s digital healthcare sector experienced a boom in 2021 in terms of investment, financing and market size. The market size of China’s digital healthcare reached approximately RMB410 billion in 2021, a 41% increase on a year-on-year basis. The total financing in the digital healthcare industry hit a record RMB18 billion, an approximately 40% increase on a year-on-year basis, while the total number of financing transactions increased by around 70%.

In 2021, the Chinese government continued its efforts to further open up the digital healthcare sector to foreign investors. Following the release of local policies to encourage eligible foreign investments in “Internet plus Healthcare” by the Beijing Municipal Commerce Bureau in December 2021, the State Council released the Revisions to Administrative Provisions on Foreign-Invested Telecommunications Enterprises in April 2022. This regulation is expected to further facilitate foreign investment in the digital healthcare sector by substantially relaxing qualification requirements for such investors in online healthcare platforms that hold the Value-added Telecommunication Business Licence.

However, with respect to business involving collection, storage, provision or otherwise processing of personal information, human genetic resources, sensitive healthcare information, or information having national security concerns, the Chinese government has tightened its regulations on foreign participation.

New Technologies and Applications

With the advances in digital technologies such as the internet, AI, robotics, 5G, blockchain, big data and 3D printing, China’s healthcare sector is entering an era of full digitalisation by applying the new technologies in various healthcare service scenarios, including disease prevention, diagnosis, surgery, hospital management, health management, healthcare data analysis and processing. The following are the main applications of the new technologies in China’s healthcare sector.

Telemedicine or online healthcare

Telemedicine has become one of the most popular and fast developing areas of China’s digital healthcare industry, as a result of the innovative applications of internet technology and the implementation of national polices promoting “Internet plus Healthcare”.

From the regulatory perspective, telemedicine services can be generally divided into the following two categories.

  • Online diagnosis and treatment service – which under applicable laws and regulations are basically limited to online diagnosis, treatment and prescription services for subsequent visits of outpatients with certain common and chronic diseases. Providers of internet-based diagnosis and treatment services are required to be licensed medical institutions (also known as internet hospitals) in addition to meeting the qualifications necessary for the operation of internet platforms.
  • Non-diagnosis healthcare services – which mainly include non-diagnosis medical and health consultation, online hospital appointment registration, drug sales and delivery. Operators providing these online services do not have to be licensed medical institutions, while other qualifications for the operation of internet platforms may still be required.

The establishment and operating models of internet hospitals are becoming more diverse. In the early stages, internet hospitals were mainly sponsored by large internet providers together with certain private hospitals. Driven by the COVID-19 pandemic, many public hospitals launched their own internet hospitals to extend their medical services. Other players in the healthcare system, such as insurance companies and pharmaceutical companies, have also participated in the investment and operation of internet hospitals. Meanwhile, the acceleration of reimbursement of internet medical costs by China’s medical insurance fund since 2021 has further boosted the internet healthcare industry.

However, despite that large internet healthcare platforms saw a significant rise in their revenues in 2021 (especially revenue from the online sale of drugs), their profitability still remains relatively low compared to offline services as the unit price of online services and consumers’ willingness to pay for them are still relatively low.

AI-based applications

AI technology is one of the core technologies fuelling the expansion of the digital healthcare market and is being used in a number of areas including, disease prediction, clinical decision support systems, drug development and auxiliary diagnosis, with a prominent area being imaging auxiliary diagnosis.

Whether an AI-based medical software or system should be regulated as a medical device under PRC laws mainly depends on its intended functions and usages (see Major Regulatory Developments in Digital Healthcare Sector – AI-based medical devices for more details). It is worth noting that, since the National Medical Products Administration (NMPA) approved the first Class III AI-based medical device in early 2020, the commercialisation and approval process of these devices has gradually accelerated. By the end of 2021, over 20 types of AI medical software have been granted Class III medical device licences, most of which are medical imaging AI products. This has enhanced the investment and financing in the AI medical imaging industry. It is reported that a dozen Chinese AI medical imaging companies have been pursuing an IPO since 2021.

Medical robots

The Chinese government introduced policies to promote the use of medical robots in 2012. Their use has been growing rapidly since 2019 and they have been applied in various healthcare scenarios (eg, medical guidance, surgery, rehabilitation and nursing) to produce efficiency and accuracy in healthcare services. However, China’s medical robot market is still in its early stage compared to the United States and Europe, mainly due to its high cost and safety concerns. In February 2021, China’s Ministry of Industry and Information Technology released the Draft Medical Equipment Industry Development Plan (2021–2025) for public comments, to encourage the development of surgical robots. In addition, the National Healthcare Security Administrations (NHSA) and its local counterparts in certain provinces, such as Shanghai and Beijing, also issued relevant policies to cover the costs of surgical robots through local medical insurance funds. These policies are expected to accelerate development of the Chinese medical robot market.

5G teleconsultation

5G technology plays a crucial role in the digital transformation of hospitals, especially in the area of remote teleconsultation, by allowing access to patients’ records in seconds, sharing medical images and obtaining virtual guidance from experts in different fields in real time. It is expected that 5G network coverage will become one of the main goals for hospital infrastructure upgrade. For example, Shanghai has issued a policy for the implementation of 100% 5G coverage in all class A tertiary hospitals by 2023. 5G is expected to be applied in medical scenarios in more innovative ways.

Healthcare data and blockchain

Healthcare data mainly refers to data generated in the process of disease prevention, medical treatment and health management. The tamper-proof feature of blockchain technology could help to build up a system featuring credible storage, compliant sharing and whole-process traceability of healthcare data. In recent years, the National Health Commission (NHC) and its local counterparts have been making efforts to set up a nation-wide healthcare data infrastructure (eg, an all-citizen health information platform) by using big data and blockchain technologies with the intention to facilitate interconnectivity and information sharing between hospitals. Moreover, during the COVID-19 outbreak, information technologies such as big data have been widely used for prevention, control and management of the pandemic. In particular, the application of a “health code” by recording key personal data such as personal health status, vaccination information, COVID PCR testing results, travel and other traceable information has been very helpful in China’s successful control of COVID-19 in the past couple of years.

3D printing

As an important and frontier area in the application of 3D printing technology (also known as additive manufacturing technology), medical 3D printing has been used by hospitals in China mainly in pre-operative planning, surgical guides and patient-tailored implants. Though medical 3D printing has significantly improved the personalisation and accuracy of medical services, currently its application in China is relatively limited and mainly focuses on external medical devices for dental and orthopaedic applications. The Draft Medical Equipment Industry Development Plan (2021–2025) (see New Technologies and Innovation Medical Robots) proposed the development of new products in the field of “3D printing plus medical health” and promotion of customised medical services and devices such as rehabilitation equipment, implants and soft tissue repairing treatment. Some provincial governments have gone further to set up pricing guidance and policies for medical 3D printing devices in an effort to make sure costs related to medical 3D printing are covered by local medical insurance and are more affordable for patients.

Major Regulatory Developments in the Digital Healthcare Sector

The legislative and regulatory developments in China’s digital healthcare sector since 2021 mainly focused on the following areas.

Telemedicine and online healthcare

China launched three regulations in 2018 (the Administrative Measures for internet-based Diagnosis and Treatment, the Administrative Measures for Internet Hospitals and the Good Practices for Telemedicine Services – all for Trial Implementation) to provide a general legal basis for the administration of telemedicine and other online healthcare services. With the rapid development of China’s internet healthcare industry, a variety of non-compliant practices and malpractice phenomena in Chinese internet healthcare industry also sprang up, including:

  • online malpractice by disqualified physicians;
  • online diagnosis by AI rather than qualified physicians;
  • lack of standard operating procedures and guidelines for online diagnosis and treatment;
  • prescription of drugs which could not be prescribed online; and
  • operation of online diagnosis and treatment platforms by unqualified operators.

With an aim to address these issues, the NHC released the Detailed Rules for Regulation of Internet-based Diagnosis and Treatment putting forward detailed requirements for operators of internet diagnosis and treatment platforms, their personnel, business scope, service quality and safety, among others.

in To reinforce the supervision on safety and quality of online medical services, the rules specified that, to the greatest possible extent, the internet-based diagnosis and treatment services provided should be of the same quality as those provided by medical institutions offline. The rules also specified that the platforms of medical institutions providing online diagnosis and treatment services should be connected to a supervision platform established by provincial authorities and ensure the traceability of the entire online medical service.

Furthermore, although the NHSA issued a series of policies during 2019–2020 to propose “equal treatment for online and offline services” in terms of medical insurance reimbursement, the implementation of these policies at the provincial level remains a challenge. To push its local counterparts to improve payment agreements signed by local medical insurance institutions for funding “Internet plus Healthcare” services and to accelerate the implementation of an electronic supervision system to strengthen the management of medical insurance funds, NHSA issued the Opinions on Optimising Convenient Services in Health Insurance in July 2021.

Furthermore, in February 2022, NHC announced that it would make efforts to optimise the pricing management of “Internet plus Healthcare” services and policies via payment by the medical insurance fund. Currently, most governments at the provincial level have issued local pricing policies and guidance for “Internet plus Healthcare” services. It is believed that these regulatory efforts and favourable policies will facilitate the rapid advancement of China’s internet healthcare industry.

AI-based medical devices

In 2017, the NMPA updated the Catalogue of Medical Device Classification to formally classify AI-based medical software (including analysis and processing software for medical imaging and pathology images) as Class II or Class III medical devices for the first time.

With the ever-changing development and innovative adoption of AI technologies in medical software, it is still difficult to determine if a novel application of AI medical software should be regulated as a medical device and which category of medical device it falls into, according to the classification criteria under the existing rules. This has brought compliance uncertainties and confusion to many developers and manufacturers of AI-based medical devices.

In order to establish a clearer regulatory direction for medical AI application, the NMPA issued the Guidelines for Classification and Definition of Artificial Intelligence Medical Software Products in July 2021, which defined AI medical software as AI-powered software to be used for medical purposes by processing data from medical devices. The Guidelines also elaborated key factors to consider when determining the classification of AI medical devices, including the intended use of the product (eg, whether it is for supporting physician’s decision-making) and its algorithm maturity. In March 2022, the NMPA further released three guidelines:

  • the Registration and Review Guidelines for Artificial Intelligence Medical Devices;
  • the Registration and Review Guidelines for Medical Device Software; and
  • the Registration and Review Guidelines for Medical Device Cybersecurity.

These were aimed at further streamlining and optimising China’s review and approval system for AI-based medical devices.

Healthcare data protection

In the absence of unified and specific legislation on data protection in the healthcare sector in China, regulatory requirements on healthcare data protection are scattered in various general laws and regulations, as well as in national standards and industry guidance. A series of new regulations and policies have been announced by the Chinese government since 2021, in an effort to strengthen data protection and online security in the healthcare sector, which include the following.

  • The Personal Information Protection Law issued in August 2021 classifies personal information on medical health as “sensitive personal information” which should be afforded a higher level of protection than ordinary personal information.
  • The Draft Network Data Protection Regulations, issued in November 2021 for public comments, proposed to establish a data classification and graded protection scheme, by classifying data as “important data”, “core data”, and “general data” and granting corresponding protection measures for different categories of data. It is noteworthy that genetic and other healthcare data that meet the scale or accuracy required by relevant authorities are classified as “important data” (detailed catalogues of “important data” are yet to be formulated) and thus will be subject to special protection requirements for “important data”. Healthcare data processors who handle more than one million pieces of personal information are also subject to special requirements for “important data” and may be required to go through a cybersecurity review when seeking for listing abroad. Furthermore, Critical Information Infrastructure Operators in the healthcare industry (the guidance on identifying such operators remains to be further clarified) and cross-border transfer of healthcare data involving personal information will be subject to additional and stricter data protection requirements and government registration, filing or approval procedures.
  • The Detailed Rules for Regulation of Internet-based Diagnosis and Treatment required that platforms providing online diagnosis and treatment services should go through registration or filing procedures applicable for the third level of information security protection system. They should also establish internal mechanism and enter agreements with relevant partners in relation to cybersecurity, personal information protection and data use management.
  • The Registration and Review Guidelines for Artificial Intelligence Medical Device included a specific section to flesh out requirements for cybersecurity and data protection associated with AI medical devices.
  • The Ministry of Science and Technology published the Implementing Rules of Administrative Regulations on Human Genetic Resources Management (Draft for Comments) in April 2022, which beefed up regulations on collection, preservation, utilisation and provision of human genetic resources derived from China (“China HGR”) for non-clinical purposes, especially prohibiting foreign entities or individuals from collecting or preserving China HGR or providing China HGR abroad.

Prospects and Challenges

With the continuous and strong support from the Chinese government and the accelerated adoption of emerging technologies in various healthcare sectors, China’s digital healthcare industry has entered into a golden period of development. It is expected that the Chinese government will maintain its supportive policies for the digital healthcare industry in the coming years, and consumers’ demand for intelligent, personalized and efficient healthcare services will continue to rise. According to statistics, the market size of China’s digital healthcare industry is expected to exceed RMB1.5 trillion by 2025.

Despite the promising future of China’s digital healthcare, however, the following major issues and challenges with the business models and legal frameworks remain to be improved.

Market access

Laws and regulations do not always keep up with innovative applications of new technologies in the healthcare sector. Consequently, relevant market players usually have to keep in close communication with regulatory authorities on a case-by-case basis in order to realise the commercialisation of novel products and services as well as reduce compliance risks.

Data protection

The enormous amount of data generated in the digitalisation of the healthcare sector are sensitive and valuable resources that will be subject to the supervision of various governmental authorities, posing a challenge to the coordination among multiple supervisors which requires clearer guidelines in this regard.

Furthermore, healthcare data leakage and infringements are not uncommon in practice, mainly due to the absence of a specific, comprehensive and operable legal framework for healthcare data protection. Thus, it remains difficult for individuals to pursue appropriate remedies and compensation through effective legal proceedings.

Liability

The existing liability framework may not be able to provide suitable and effective remedies for infringements related to novel digital healthcare services and products. For example, if medical accidents occur when using AI diagnostic tools or surgical robots, how to determine and allocate the liabilities among developers, manufacturers and physicians is still a practical challenge.

Payment methods

Currently only costs related to limited digital healthcare services are covered by medical insurance funds and the roadblocks for expansion to reimbursement by medical insurance funds remain to be lifted.

Han Yi Law Offices

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Shanghai 200235
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Law and Practice

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Global Law Office was one of the first law firms in the People’s Republic of China (PRC), with more than 465 lawyers practising in its Beijing, Shanghai, Shenzhen, and Chengdu offices. Its life sciences and healthcare (L&H) practice group is one of the leading advisers in China, having provided "one-stop" legal services for every sector of the L&H industry, including R&D, clinical research organisations, pharmaceuticals, biotechnology, medical devices, supply producers and distributors, hospitals and other healthcare providers and investment funds. GLO advises clients on challenging L&H legal issues such as regulatory compliance, structuring transactions and contractual arrangements, realisation of pipeline and geographic expansions, capital-raising and project-financing, M&A, re-organisations, IP protection, licensing and distribution arrangements, settlement of disputes involving adverse effects in clinical trials and medical treatment. The firm has close links to industrial associations and makes recommendations on industry codes of conduct and compliance management standards.

Trends and Development

Authors



Han Yi Law Offices is a leading boutique law firm in the private equity investment community in the People's Republic of China (PRC), specialising in the formation and deployment of private equity and venture capital funds, M&A, securities, banking and finance and foreign-related dispute resolutions. With a team of 20 lawyers at its Shanghai offices, the firm regularly represents world-class private equity investors, venture capitalists, active industrial investors, hedge funds and PRC state-owned investment arms. Han Yi Law advises on a wide variety of private equity transactions, including buyouts (leveraged and non-leveraged), early and late-stage venture investments, restructurings, privatisation and recapitalisations and exit transactions. The firm has a proven track record in structuring and executing innovative and complex cross-border private equity and venture capital investment deals and M&A transactions involving buyouts, follow-on acquisitions, IPOs and trade sales, among others.

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