On the mend

How China proposes to fix its healthcare system

On the mend

Emergency treatment: China's $124 billion plan to fix its hospitals

Samuel Goldwyn, the Hollywood film producer, thought a hospital “no place to be sick.”  Many Chinese patients have formed similar opinions. But their phobia is less a fear of scalpels and needles and more an anxiety at the rising cost of treatment.

Healthcare today continues to be largely unaffordable for millions of Chinese. Despite the country’s rapid economic growth over the past two decades, the implementation of an affordable universal healthcare system has been largely overlooked. Medical expenses are mostly borne by patients; indeed, out-of-pocket payments make up more than 60% of health expenditure generally.

For the majority of China’s less affluent families the effect can be financially devastating; a single hospital admission can cost close to the average annual income.  A Ministry of Health survey in 2006 admitted that it was often “expensive and difficult to see a doctor” and acknowledged that almost half of those surveyed were choosing not to receive hospital care because of the expense (see WiC1).

The problem, according to Xinhua, is that virtually all of China’s hospitals are state-run. Due to insufficient funding, most rely on drug sales and expensive tests as a core source of their revenue. This can lead to unnecessarily prescribed tests and remedies. Poorer patients are also being denied life-saving treatments.

To fix the ailing system, the government has unveiled plans to spend Rmb850 million ($124 billion) over the next three years. The goal is to improve access to health services and reduce medical expenses for patients. Last week, the State Council gave some clues as to what the money will bring.

For a start, it will buy more hospitals. A key part of the reform is to improve countryside access to medical facilities. Healthcare services in rural areas have often been neglected, so the government is proposing to build some 29,000 medical centres and 2,000 hospitals, as well as upgrade existing ones. By the end of 2011, every village will have access to at least one medical centre.

Another key aspect to curbing medical costs is managing the price of drugs. Most prescription drugs in China are sold through hospitals and clinics. So the government has proposed that hospitals be decoupled from their affiliate pharmacies to discourage doctors from overprescribing unnecessary medication to patients.

According to last week’s blueprint, the government will also set fixed prices for a list of “essential drugs”. Local governments will also be required to purchase other pharmaceutical products from the lowest bidders in public tenders. In return, hospitals will receive more central funding to make up for any shortfalls in medicine sales.

But critics are already arguing that the proposed reform is less than perfect, since drug manufacturers often change the name and packaging of their drugs to escape price controls, says the China Daily.

Other critics are taking the opportunity to argue for more “marketisation” in the industry.

Caijing magazine believes that the central problem plaguing the healthcare industry is the lack of competition. It suggests that standards of health delivery would improve if patients were given more choice and industry monopolies were broken up. Competition in the marketplace will bring better quality medical service and lower expenses.

But among the proposed reforms, nothing has created more buzz than the announcement of a goal of universal healthcare by 2020. The government says its reforms will build a basic healthcare system that can provide “safe, effective, convenient and affordable” health services to all urban and rural residents.

It is an ambitious objective, which has defeated other countries. Could China end up with a universal healthcare system before the US?

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.