China’s Health Care Reforms

By Sara Hsu

May 25, 2015

http://thediplomat.com/2015/05/chinas-health-care-reforms/

Beijing is tackling reform of the health care sector. 

China’s National Health and Family Planning Commission and State Council have been working to reform the health care sector, which faces excessive dependence on drug sales for income, low pay for doctors, insufficient support from local governments, and low interest in private hospitals. Some ways in which officials are tackling health care reform include addressing drug sales in hospitals, reducing price controls on drugs, promoting the growth of private hospitals, and improving the quality of health care staff.

The State Council laid out health care reform objectives in a May 9 Circular, including the objective to eliminate drug markups as well as plans to make medical services of public hospitals more affordable and improve the quality of the staff. Implementation of performance assessments in hospitals is to help ensure that medical staff who do a better job will be paid accordingly.

The elimination of drug markups is to address the problem of excessive dependence on pharmaceutical income faced by hospitals. China’s leadership has committed to eliminate the mark-up on drug sales in hospitals over the next two years. County-level pilot programs eliminating the markup have faced losses, as an important source of income has been cut, even in the face of increased government subsidies and reduced price controls to hospitals in the initial pilot program. Prefecture-level cities are next as test regions before the reform becomes widespread. Government spending on hospitals is encouraged; currently, government expenditure in the area accounts for 5 percent of GDP.

Price controls on drugs also present a problem for both patients and pharmaceutical companies. China is the third-largest consumer of pharmaceutical products in the world. Price restrictions have, in some cases, led to shortages in production of vital low-cost drugs. The rollout of guaranteed supplies of widely used drugs was carried out in 2014 to ensure the availability of low-cost drugs and pediatric drugs. In addition, price caps on 280 basic medicines manufactured by Western pharmaceutical companies and 250 medicines made by Chinese companies were lifted. China has also pledged to further lift price controls on medicines to promote innovative drugs.

Public hospitals face challenges in providing care to those who need it. To combat this, the number of private hospitals has been on the rise, especially since China lifted restrictions on foreign investment in private hospitals in 2012. Smaller and financially challenged public hospitals have also faced privatization. However, private hospitals still provide less than 10 percent of total health care services. Patients are less familiar with private hospitals, which often have fewer qualified physicians and weaker local government financial support. The State Council has sought to expand use of private health care services to 20 percent in 2015.

Public hospitals are also overwhelmed with demand because patients often tend to travel to larger hospitals even for mild health problems, neglecting local community-level medical institutions. The State Council has emphasized the necessity of increasing the quality of healthcare in local medical institutions. The National Health Family Planning Commission plans to address this issue soon to build up a multi-tier treatment system with two-way referrals.

Health insurance is also on the reform agenda. Although China currently has almost universal health insurance coverage, limitations abound, particularly for those with severe illnesses. Public health insurance is basic, while private health insurance is underused. To encourage use of private health insurance, the government has announced a pilot plan to give tax breaks to private health insurance policy holders. Policyholders will be able to deduct 2,400 RMB per year from assessable income for health insurance premiums.

China’s health care system is fraught with inefficiencies that the leadership is attempting to address. The active reform process undertaken by the State Council and the National Health and Family Planning Commission indicates that over time, these inefficiencies may be eliminated. Some reforms, however, will take longer than others, particularly improving the quality of health care and changing patient views regarding local and private hospitals. Yet these are essential components of building a modern society.