Dec 28, 2007 05:47 PM
New Medicine for China
By staff reporters Zhang Jin, Zhou Qiong, Zhang Yuzhe, Ren Bo and Zhao Hejuan
Retired farmworker Chen Xiuying, 74, is bedridden. She lives with a 54-year-old son who was mentally impaired by meningitis. Together, they struggle to get by.
Chen used to work at the Pingsha State Farm in the community of Zhuhai, south China’s Guangdong Province, but now suffers from a number of chronic conditions, including high blood pressure and the aftereffects of stroke. She receives a small pension and is covered by a medical insurance scheme for municipal employees, which pays up to 80 percent of her daily medical expenses.
But the son is unemployed and has no medical insurance. Last year, he fell and broke a leg. Mother and son could not afford treatment. Fortunately, a neighborhood committee cadre intervened and, after a tortuous process, helped them get financial assistance to treat the leg.
The Lingnan Community Health Clinic, which serves the neighborhood, also has been sympathetic to the family’s troubles, waiving all charges for consultations and home visits for Chen or her son. She’s only had to pay for medicine.
Recently, clinic Director Li Chunying had more good news for the elderly woman. “The consultancy and service fees we waived for you are going to be paid for by the government in the future,” he said. “You mustn’t feel you owe us anything.”
On December 5, the Zhuhai government and local Communist Party announced the launch of a “health insurance for all” program under which “minor ailments would be treated for free, moderate health problems would be covered by health insurance, and relief aid for major illnesses would be provided within an overall planning framework.” The community became the first in China to offer basic health and medical services for every local resident, including the 250,000 in the area without insurance.
Moreover, under provisions of a health insurance scheme for urban and rural residents newly introduced by the Zhuhai government, Chen and her son will be classified as persons “with exceptional hardship,” allowing them to join the insurance scheme by paying an annual fee of just 25 yuan. And they will be insured even if they can’t pay.
“From now on, if your son has to go to hospital or suffers from a chronic illness, he can have the costs of treatment refunded, just like you do,” Li told Chen.
Under the so-called “Three Plus One” healthcare plan, “free treatment for minor ailments” means that registered residents of Zhuhai municipality can be treated free of charge for stipulated types of illnesses or receive stipulated medical services that come within the scope of the program. It does not mean that treatment for all, day-to-day minor ailments will be free.
“Moderate illnesses to be covered by health insurance” refers to an insurance plan aimed at the 250,000 Zhuhai residents not currently covered by existing municipal health insurance policies. These people are now guaranteed to refunds for different levels of costs incurred during any hospital stay, as well as for the diagnosis and treatment of 25 specific medical conditions and illnesses. These are hard-to-diagnose, chronic and serious illnesses, including what are generally considered “major illnesses.”
The proposed “relief for major illnesses within an overall planning framework” means that certain persons unable to pay their own medical expenses will be given government relief. “Major illnesses” does not in fact have anything to do with the type of illness, but merely addresses the patient’s inability to pay for treatment. This is being referred to as the “absolute bottom line program” under this latest round of health reforms, and goes beyond China’s standard household registration system for restricting public services.
Thus, Zhuhai is China’s first municipality where workers from other areas who pay into the city’s health insurance scheme are eligible for medical relief from the municipal budget. Anyone who meets certain conditions and, under the terms of the new medical insurance scheme, cannot pay to treat a major illness, can apply for relief.
“The Three Plus One program is the key fourth step in the 10-year history of health insurance in Zhuhai,” Yan Haobo, director of Zhuhai Labor and Social Security Bureau, told . “Once we take this step, we will have basically achieved our goal of health insurance for all.”
But without major contributions from Zhuhai’s municipal budget, this apparently generous scheme would have been impossible.
Zhuhai is small by Chinese standards, with just 1.45 million residents, including 930,000 registered as permanent residents. But the local economy has grown rapidly in recent years, and the financial burden lingering from the planned economy era is light. These factors have made it possible for Zhuhai to experiment with health insurance for all.
One public health expert who contributed to forming the Zhuhai insurance scheme told that the city’s annual investment for healthcare over the past five years has not exceeded 200 million yuan, or less than 4 percent of the city’s annual expenditures. For 2008, the city plans to spend an additional 203 million yuan, meaning that health spending next year will be twice as high as in recent years. “You really can call it a staggering increase,” the expert says.
Operating Under Budget Constraints
has learned that in the interval between Zhuhai Communist Party Secretary Deng Weilong proposing medical insurance for all as a reform goal in January of 2007 and the actual finalization of a policy in October, policymakers engaged in several rounds of discussions and closely evaluated the budget commitment. Disputes about the “free treatments for minor ailments” proposal were the most heated.
Under the first draft proposal from the health department, the government was to reimburse patients for 50 percent of medicine costs incurred in treating “minor ailments.” Without any precedent to serve as a reference point, this proposal was quite astounding.
“There’s no country that would possibly provide medicines completely free of charge,” said Deng Qunfang, deputy mayor of Zhuhai for health, technology and education. Since medicine can easily be resold, he said, “there could be people who don’t take the free medicine they are given but instead save it up and sell it. Not only would this upset market pricing, it could lead to a crisis in confidence between doctors and patients.”
Another person involved in drafting the insurance scheme told that even more critical questions were raised: Exactly how much was going to be taken out of the budget to cover a waiver of medicine costs, could Zhuhai afford it, and why was Zhuhai moving so quickly with the scheme, since no one else in China was ready to offer free healthcare?
“No one could answer these questions,” the source said, “This would be a bottomless pit; probably even better-off cities would not be able to afford it.”
When the new policy is implemented, all residents will be issued a “Minor Ailments Free Treatment Card.” To reduce pressure on the major hospitals and encourage residents to seek treatment for minor ailments or preliminary diagnoses “within their community or rural township,” these cards would only be valid within the administrative district where the bearer has a household registration. Treatment would not be free elsewhere.
On a national scale, Zhuhai’s budget is considerable. But it’s small by Guangdong standards. The community’s 2006 GDP accounted for just 3 percent of the provincial total. Among the nine municipalities with at least prefecture-level administrative status within the Pearl River Delta, Zhuhai’s GDP ranks second-to-last. Thus, after evaluating and calculating the healthcare program, policymakers decided to follow a “live within our means” principle before settling for a relatively conservative model.
Even so, once the present policy is fully implemented, Zhuhai will allocate some 208 million yuan from its 2008 budget to pay for it. Of this amount, the total allocated for “minor ailments treated free” will be 147 million yuan. For the “moderate health problems covered by insurance” portion, which includes ordinary coverage plans (coverage for 250,000 people at a cost of 150 yuan per person annually will require 30.5 million yuan), and coverage for families on basic income support along with those suffering from major illnesses (an annual cost of 2.45 million yuan), the budget allocation will be in the order of 38 million yuan. Another 18 million yuan will be transferred in urban and rural relief funds to cover major illnesses.
From this baseline, says Mayor Zhong Shijian, Zhuhai in the next few years will increase annual spending on health and medical care 30 percent annually. The amount of budget support to cover “free treatment for minor ailments” and “medical insurance for urban and rural residents” will increase year-on-year.
Only budget constraints have meant that, as with other similar reform proposals, the healthcare plans launched by Zhuhai authorities are not the best solution but a compromise rooted in prevailing realities.
Suqian Takes a Different Route
Seven years ago and 1,000 kilometers north of Zhuhai in Jiangsu Province is the muncipality of Suqian, which has also dared to take the lead in healthcare reform. But it chose a completely different route.
Suqian lies in northern Jiangsu. A decade ago, the municipality took a standard approach by using its budget merely to cover the costs of running official agencies and paying staff. Annual deficits ran to as high as 400 million yuan and, year after year, the city relied on budget transfers from central and provincial governments to pay the bills. A lack of government funds meant health and medical care were poorly developed in Suqian. Quality was low at its basic, ill-equipped healthcare agencies.
Against this background, Suqian in 2000 chose a county-level region called Shuyang to experiment with reforming the ownership of public health agencies. The changes proved to be a prelude to a widely trumpeted privatization of social services. The thinking behind the reforms was that the introduction of market mechanisms to encourage competition in conventional medicine and diversification of medical provision models would increase the supply of medical services. The government would continue supporting public health services that were close to the public interest in nature and barely profitable, making them unattractive to private investors. These services included disease prevention and control, mother and child health, infectious disease control, blood collection and supply, and responses to major public health incidents. This was a model the municipality promoted as “separating out management and services.”
By March 2001, all 38 township clinics in Shuyang had completed reforms of their ownership structures. In October, Suqian set a reform timetable. Soon, each of the municipality’s county-level divisions established offices to direct similar reforms, vigorously advancing the agenda. The slogan was, “If it can be sold off completely, don’t just sell a stake in it. If a stake can be sold don’t just lease it but sell it outright first and offer shares second to make selling the main means of disposal.”
To date, 134 public healthcare agencies in Suqian have implemented reforms to ownership structures. These include 124 township clinics and 10 hospitals at least at the county level. Thus, Suqian became a city almost devoid of public hospitals, and the government declared that it had “basically succeeded in withdrawing government capital entirely from the medical provision.”
Arguments about healthcare reforms in Suqian have continued unabated for the past seven years. In 2006, two surveys were published showing different results. One by Peking University researchers released in July said the Suqian reforms ran contrary to certain theoretical rules of the health sector and not only had failed to resolve the problem of expensive healthcare but had in fact the opposite effect by increasing costs for ordinary people. The potential for health problems was worrying. But a Tsinghua University report released in December said Suqian reforms were “a positive experiment” with clear significance as a reference model for healthcare reforms in economically underdeveloped regions. The clashing reports intensified the debate over Suqian’s effort and, as yet, no generally accepted conclusions about the reforms have emerged.
Reforms in Suqian were followed by a rapid expansion of local health and medical assets, particularly in public health. Mo Zhijian, director of the Suqian Bureau of Health, told that the total value of public health assets in pre-reform Suqian totaled only about 70 million yuan. Funds from the first round of hospital and clinic sales were less than 300 million yuan, all of which was reinvested in public health. Combined with later investments, the current value of medical and healthcare assets is around 2 billion yuan. “The value of public health assets has increased by an order of seven or eight times,” Mo said.
However, a new pattern of competition in the health sector has emerged in the municipality since reform. On one hand, assets in the sector are undergoing a new round of consolidation. “Over three to five years, there’s been a reshuffling of clinic ownership in Shuyang County. A dozen or so first-level hospitals have been bought out and combined, so there’s now a situation where there are three major hospitals competing with each other,” Lu Qibin, director of one of the three hospitals, told . Also, larger and smaller clinics are now competing in similar areas, with few divisions in specialization, and compete to be first to buy new high-tech medical equipment and assets are clearly not being used in the most efficient way.
Lu said pre-reform expenditures for medical care in Shuyang totaled tens of millions of yuan annually, while the total spending for 2007 is predicted to reach up to 400 million yuan, some of which will be unnecessary.
Contesting the Direction of Reform
The contrasting healthcare reform programs in Zhuhai in Guangdong and Suqian in Jiangsu also raise a question that’s part of a long-running debate: Should healthcare reform be led by the government, or market? Further, how should basic, public healthcare interests be supported? And should market-oriented reforms continue?
For some time, these ideologically tinged questions have been the subjects of vehement arguments.
In the days of the planned economy, China’s public purse picked up the costs of healthcare for most citizens. In those days, the government decided how healthcare resources should be allocated. The state directly ran hospitals and clinics and exercised total control over the pharmaceutical sector. Unlike today’s ever-rising health expenditures, budget allocations were squeezed tight and healthcare resources were often lacking. Problems of access to healthcare became more severe.
With this in mind, policymaking bodies in the early 1980s launched a partial reform of the health sector, based on core tenets of devolving powers and benefits, while encouraging health service agencies to be more proactive. It amounted to “giving policy incentives rather than giving money.” Health departments gradually began to implement hospital policies of “subsidy quotas, economic accounting, rewards and punishments based on assessments.” The aim was to encourage hospitals to develop their own income streams so that, when only limited government budget allocations were possible, hospitals would themselves resolve problems of resource shortages for healthcare.
This was labeled as market-oriented healthcare reform thinking, and with its encouragement hospitals showed new enthusiasm for “developing income streams.” At the same time, the amount of money for healthcare from the government was reduced accordingly.
Drawbacks, however, soon became obvious. There were limits to the benefit to be accrued from devolving powers and benefits. Old problems of access to healthcare were not resolved but only replaced by new problems. One new problem was that medical care became extremely expensive. At the same time, maintaining the old system of guaranteed healthcare provision became more difficult.
In 1997, policymakers instituted a complete reform of the health and medical care provision system. In February 2000, the State Council issued the core guiding policy document for this round of reforms, “Guiding Opinions on Reform of the Urban Medical and Healthcare System.” This blueprint outlined a reform in which medical services would be provided in all society, with overall expansion of services, relaxed controls, stronger oversight, and the introduction of competition. However, because it proved difficult to dislodge entrenched vested interests, the reforms never really got off the ground. Actually, the proportion of private expenditures in overall health spending steadily increased. It rose from 20 percent in 1978 to 59 percent in 2000. Although private spending had fallen slightly by 2005, the proportion from private sources was still as high as 52 percent.
Explaining this phenomenon proved difficult.
One explanation appeared in a report from the State Council’s Development Research Center, which was led by Ge Yanfeng and published in July 2005. It said, “Healthcare reform in China has not been a success at its base.” The report highlighted the prevailing decline in equitable access to medical services and the low overall efficiency of investment in health. The report concluded, “The trends toward commercialization and market orientation that emerged in the medical provision and healthcare system are absolute mistakes and run counter to the basic rules of the sector.” This conclusion found public support.
Then the Ministry of Health drafted a new report on healthcare reform for the State Council, maintaining that a lack of “public benefit orientation” in public hospitals was why previous attempts at reform had failed. It called for publicly owned medical agencies to stay in the public sector, with the government guiding their future. The report envisioned the government drafting a unified plan for regional healthcare based on demand for public heath services and basic medical services for the general public. The number and scale of public healthcare institutions should be maintained, it said, and these should be responsible for providing public health and basic medical services.
However, the health ministry’s conclusion also met fierce criticism. Critics said it advocated a return to the planned economy era. Further, some questioned whether market-oriented reform could be blamed for the weak state of China’s healthcare.
These voices held that the core problem with the healthcare system was a supply-side shortage of medical resources. The government had not fulfilled its responsibilities in this regard, they said, and what was being called “market-oriented reform” was in reality just policymaking that created economically independent hospitals and clinics that would pursue profits. No genuine market in healthcare services had emerged to allocate resource distribution, they argued.
Some said the monopoly status of public owned hospitals had remained unchanged and the threshold for private individuals to enter the medical services market remained too high. Pricing of medical services was still set by the government. They concluded that market-oriented reform had not begun.
A Consensus Emerges
In September 2006, the State Council Development Reform Commission and the Ministry of Health took the lead in establishing a healthcare reform coordinating group composed of around a dozen ministerial-level agencies. This set in motion the drafting a new plan for healthcare reform.
In early 2007, this coordinating group asked six domestic and international agencies – Peking University, Fudan University, the State Council Development Research Center, the World Health Organization, McKinsey and the World Bank – to produce parallel independent plans for healthcare reform. Later, Beijing Normal University and Renmin University were added. By the end of May, eight different plans were reviewed in a lively discussion. And in June, a ninth proposal jointly drafted by Tsinghua and Harvard universities, was added.
Amid these competing models, an outline of the issues became clear and a consensus began to emerge. Each of the nine proposals offered funding models, management systems and oversight mechanisms. But all recognized that the extent of health coverage in China is small and that individual expenditures are too high. Too many patients are forced to pay for all medical services, while health funding from government and socialized medical insurance sources is too low.
This points to core problems – a systematic shortfall in resources. A rapidly aging population, advances in medical science and a general increase in public health awareness were also contributing to a sustained increase in demand for healthcare services.
Thus, the gradually emergence of a consensus view that it would be impossible for the market to allocate healthcare resources. Government intervention and investment would be required, and ultimately the proportion of healthcare costs being paid by individuals would have to be lowered. Moreover, in line with other market-oriented reforms in China’s economy in recent years, a market should be introduced in the health sector with regulated prices and competition, on a level playing field for various healthcare providers.
It became more urgent to draw a clear boundary between the responsibilities of government and market. What should the government do, and what should be left to the market? To what extent should the government take charge, and how? Answering these questions would provide technical guarantees for smooth healthcare reform.
By August 2007, the conceptual basis and framework for healthcare reform had taken shape. The nine plans were mined for ideas, and all contributors offered further suggestions which were incorporated into a new healthcare reform plan.
In November 2007, a section of the work report that President Hu Jintao delivered to the 17th National Congress of the Communist Party was devoted exclusively to healthcare reform. “We should establish a basic healthcare system and raise the general level of public health,” thye report said. And by the end of the month, the plan had been submitted to the State Council.
has learned that the overall framework of the reform plan consists of four major systems and eight mechanisms, based on the overall goal of establishing a basic healthcare system. The four systems involved public health services, medical services, medical social security, and pharmaceutical supplies. The eight mechanisms cover management of medical care services, operationss, funds and investment, monitoring and oversight, information technology, human resources, price-setting, and legislative guarantees.
The overall concept is characterized as market-oriented with a clear line separating the roles of government and the market (see “The final push to healthcare reform” in ’s 23rd edition in 2007).
Minister of Health Chen Zhu publicly declared that a future healthcare system should be “a big house with four roof-beams supported by eight main pillars.” He was indicating that if the basic healthcare system is like a house, it would have four sub-systems that support the roof and eight mechanisms like pillars to support them.
Sources say whether or not this attempt at healthcare reform can achieve results will depend on whether it can guarantee the reduction in the proportion of healthcare funding coming from private expenditure while still offering full coverage to the whole population, whether it can achieve proper regulation of pricing signals for health service providers, and whether it can create an open arena for fair competition among health providers.
Supply and Demand Game
Another issue about healthcare reform centers around funding a social guarantee. Should the government directly subsidize healthcare service providers or should supplement health consumer purchases of insurance?
The subsidizing supply model would financially support hospitals. The government would pay all or some costs -- a model that appeals to health departments and social security agencies.
In the past, all government funding came under the subsidy model in the form of unconditional budget support for public healthcare institutions. By the early 1990s, the government started subsidized individuals who bought healthcare insurance.
learned that the new plan adopted a middle approach for subsidizing supply and demand. Thus, while central and local governments support healthcare guarantee systems, the government will under the basic healthcare guarantee package cover costs healthcare providers and subsidize new, rural cooperative health schemes. Beginning in 2008, the coverage will rise to 80 yuan per person from 40 yuan.
Inaugural Year of Reform
Before unveiling the new reform plans, both the Zhuhai “insurance for all” experiment and Suqian’s once famous healthcare reforms were significant examples and held up as possible models for nationwide adoption.
The Zhuhai experiment was received with less fanfare than the reforms in Suqian. If the Suqian reforms could be characterized as a surgical cutting away of dead flesh, Zhuhai by contrast seemed to offer a more comforting approach, with no structural or personnel changes, healthcare guarantees extended, and no agencies infringed upon.
Zhuhai’s reforms involved an payout increases. By boosting budget expenditures, a safety net that guaranteed equal-access healthcare for all was carefully created, providing a free public health service to all citizens and making basic, at-cost medical services available to all.. This is exactly the direction that health service reform in China is currently working toward.
Yet it still remains to be seen to what extent the reforms in Zhuhai can serve as a model for other cities, or the nation. The reforms scarcely touched on problematic issues such as separating medical services and pharmaceutical sales, and dividing oversight and operations, as cited in the central government’s new plan. If no challenge is offered to the present system of managing and providing healthcare, the public will likely get a low-quality service beset by problems.
Though the direction of the national healthcare reforms is clear, mountains have yet to be crossed in terms of operation methods. Examples of such issues include how to clearly define the functions, operating mechanisms and funding guarantees for public hospitals; how guaranteed healthcare coverage should be expanded and ultimately offer equally to all citizens; how to break down the administrative relationships under which health service providers currently operate and limits of ownership to reform hospitals so that privately-run service providers can compete on a level playing field; and how to integrate laws, regulations, policies and information services to improve oversight of healthcare institutions. Even after the reforms are in place, the experimenting that started in Zhuhai and Suqian will continue across China.
1 yuan = 13 U.S. cents
Retired farmworker Chen Xiuying, 74, is bedridden. She lives with a 54-year-old son who was mentally impaired by meningitis. Together, they struggle to get by.
Chen used to work at the Pingsha State Farm in the community of Zhuhai, south China’s Guangdong Province, but now suffers from a number of chronic conditions, including high blood pressure and the aftereffects of stroke. She receives a small pension and is covered by a medical insurance scheme for municipal employees, which pays up to 80 percent of her daily medical expenses.
But the son is unemployed and has no medical insurance. Last year, he fell and broke a leg. Mother and son could not afford treatment. Fortunately, a neighborhood committee cadre intervened and, after a tortuous process, helped them get financial assistance to treat the leg.
The Lingnan Community Health Clinic, which serves the neighborhood, also has been sympathetic to the family’s troubles, waiving all charges for consultations and home visits for Chen or her son. She’s only had to pay for medicine.
Recently, clinic Director Li Chunying had more good news for the elderly woman. “The consultancy and service fees we waived for you are going to be paid for by the government in the future,” he said. “You mustn’t feel you owe us anything.”
On December 5, the Zhuhai government and local Communist Party announced the launch of a “health insurance for all” program under which “minor ailments would be treated for free, moderate health problems would be covered by health insurance, and relief aid for major illnesses would be provided within an overall planning framework.” The community became the first in China to offer basic health and medical services for every local resident, including the 250,000 in the area without insurance.
Moreover, under provisions of a health insurance scheme for urban and rural residents newly introduced by the Zhuhai government, Chen and her son will be classified as persons “with exceptional hardship,” allowing them to join the insurance scheme by paying an annual fee of just 25 yuan. And they will be insured even if they can’t pay.
“From now on, if your son has to go to hospital or suffers from a chronic illness, he can have the costs of treatment refunded, just like you do,” Li told Chen.
Under the so-called “Three Plus One” healthcare plan, “free treatment for minor ailments” means that registered residents of Zhuhai municipality can be treated free of charge for stipulated types of illnesses or receive stipulated medical services that come within the scope of the program. It does not mean that treatment for all, day-to-day minor ailments will be free.
“Moderate illnesses to be covered by health insurance” refers to an insurance plan aimed at the 250,000 Zhuhai residents not currently covered by existing municipal health insurance policies. These people are now guaranteed to refunds for different levels of costs incurred during any hospital stay, as well as for the diagnosis and treatment of 25 specific medical conditions and illnesses. These are hard-to-diagnose, chronic and serious illnesses, including what are generally considered “major illnesses.”
The proposed “relief for major illnesses within an overall planning framework” means that certain persons unable to pay their own medical expenses will be given government relief. “Major illnesses” does not in fact have anything to do with the type of illness, but merely addresses the patient’s inability to pay for treatment. This is being referred to as the “absolute bottom line program” under this latest round of health reforms, and goes beyond China’s standard household registration system for restricting public services.
Thus, Zhuhai is China’s first municipality where workers from other areas who pay into the city’s health insurance scheme are eligible for medical relief from the municipal budget. Anyone who meets certain conditions and, under the terms of the new medical insurance scheme, cannot pay to treat a major illness, can apply for relief.
“The Three Plus One program is the key fourth step in the 10-year history of health insurance in Zhuhai,” Yan Haobo, director of Zhuhai Labor and Social Security Bureau, told . “Once we take this step, we will have basically achieved our goal of health insurance for all.”
But without major contributions from Zhuhai’s municipal budget, this apparently generous scheme would have been impossible.
Zhuhai is small by Chinese standards, with just 1.45 million residents, including 930,000 registered as permanent residents. But the local economy has grown rapidly in recent years, and the financial burden lingering from the planned economy era is light. These factors have made it possible for Zhuhai to experiment with health insurance for all.
One public health expert who contributed to forming the Zhuhai insurance scheme told that the city’s annual investment for healthcare over the past five years has not exceeded 200 million yuan, or less than 4 percent of the city’s annual expenditures. For 2008, the city plans to spend an additional 203 million yuan, meaning that health spending next year will be twice as high as in recent years. “You really can call it a staggering increase,” the expert says.
Operating Under Budget Constraints
has learned that in the interval between Zhuhai Communist Party Secretary Deng Weilong proposing medical insurance for all as a reform goal in January of 2007 and the actual finalization of a policy in October, policymakers engaged in several rounds of discussions and closely evaluated the budget commitment. Disputes about the “free treatments for minor ailments” proposal were the most heated.
Under the first draft proposal from the health department, the government was to reimburse patients for 50 percent of medicine costs incurred in treating “minor ailments.” Without any precedent to serve as a reference point, this proposal was quite astounding.
“There’s no country that would possibly provide medicines completely free of charge,” said Deng Qunfang, deputy mayor of Zhuhai for health, technology and education. Since medicine can easily be resold, he said, “there could be people who don’t take the free medicine they are given but instead save it up and sell it. Not only would this upset market pricing, it could lead to a crisis in confidence between doctors and patients.”
Another person involved in drafting the insurance scheme told that even more critical questions were raised: Exactly how much was going to be taken out of the budget to cover a waiver of medicine costs, could Zhuhai afford it, and why was Zhuhai moving so quickly with the scheme, since no one else in China was ready to offer free healthcare?
“No one could answer these questions,” the source said, “This would be a bottomless pit; probably even better-off cities would not be able to afford it.”
When the new policy is implemented, all residents will be issued a “Minor Ailments Free Treatment Card.” To reduce pressure on the major hospitals and encourage residents to seek treatment for minor ailments or preliminary diagnoses “within their community or rural township,” these cards would only be valid within the administrative district where the bearer has a household registration. Treatment would not be free elsewhere.
On a national scale, Zhuhai’s budget is considerable. But it’s small by Guangdong standards. The community’s 2006 GDP accounted for just 3 percent of the provincial total. Among the nine municipalities with at least prefecture-level administrative status within the Pearl River Delta, Zhuhai’s GDP ranks second-to-last. Thus, after evaluating and calculating the healthcare program, policymakers decided to follow a “live within our means” principle before settling for a relatively conservative model.
Even so, once the present policy is fully implemented, Zhuhai will allocate some 208 million yuan from its 2008 budget to pay for it. Of this amount, the total allocated for “minor ailments treated free” will be 147 million yuan. For the “moderate health problems covered by insurance” portion, which includes ordinary coverage plans (coverage for 250,000 people at a cost of 150 yuan per person annually will require 30.5 million yuan), and coverage for families on basic income support along with those suffering from major illnesses (an annual cost of 2.45 million yuan), the budget allocation will be in the order of 38 million yuan. Another 18 million yuan will be transferred in urban and rural relief funds to cover major illnesses.
From this baseline, says Mayor Zhong Shijian, Zhuhai in the next few years will increase annual spending on health and medical care 30 percent annually. The amount of budget support to cover “free treatment for minor ailments” and “medical insurance for urban and rural residents” will increase year-on-year.
Only budget constraints have meant that, as with other similar reform proposals, the healthcare plans launched by Zhuhai authorities are not the best solution but a compromise rooted in prevailing realities.
Suqian Takes a Different Route
Seven years ago and 1,000 kilometers north of Zhuhai in Jiangsu Province is the muncipality of Suqian, which has also dared to take the lead in healthcare reform. But it chose a completely different route.
Suqian lies in northern Jiangsu. A decade ago, the municipality took a standard approach by using its budget merely to cover the costs of running official agencies and paying staff. Annual deficits ran to as high as 400 million yuan and, year after year, the city relied on budget transfers from central and provincial governments to pay the bills. A lack of government funds meant health and medical care were poorly developed in Suqian. Quality was low at its basic, ill-equipped healthcare agencies.
Against this background, Suqian in 2000 chose a county-level region called Shuyang to experiment with reforming the ownership of public health agencies. The changes proved to be a prelude to a widely trumpeted privatization of social services. The thinking behind the reforms was that the introduction of market mechanisms to encourage competition in conventional medicine and diversification of medical provision models would increase the supply of medical services. The government would continue supporting public health services that were close to the public interest in nature and barely profitable, making them unattractive to private investors. These services included disease prevention and control, mother and child health, infectious disease control, blood collection and supply, and responses to major public health incidents. This was a model the municipality promoted as “separating out management and services.”
By March 2001, all 38 township clinics in Shuyang had completed reforms of their ownership structures. In October, Suqian set a reform timetable. Soon, each of the municipality’s county-level divisions established offices to direct similar reforms, vigorously advancing the agenda. The slogan was, “If it can be sold off completely, don’t just sell a stake in it. If a stake can be sold don’t just lease it but sell it outright first and offer shares second to make selling the main means of disposal.”
To date, 134 public healthcare agencies in Suqian have implemented reforms to ownership structures. These include 124 township clinics and 10 hospitals at least at the county level. Thus, Suqian became a city almost devoid of public hospitals, and the government declared that it had “basically succeeded in withdrawing government capital entirely from the medical provision.”
Arguments about healthcare reforms in Suqian have continued unabated for the past seven years. In 2006, two surveys were published showing different results. One by Peking University researchers released in July said the Suqian reforms ran contrary to certain theoretical rules of the health sector and not only had failed to resolve the problem of expensive healthcare but had in fact the opposite effect by increasing costs for ordinary people. The potential for health problems was worrying. But a Tsinghua University report released in December said Suqian reforms were “a positive experiment” with clear significance as a reference model for healthcare reforms in economically underdeveloped regions. The clashing reports intensified the debate over Suqian’s effort and, as yet, no generally accepted conclusions about the reforms have emerged.
Reforms in Suqian were followed by a rapid expansion of local health and medical assets, particularly in public health. Mo Zhijian, director of the Suqian Bureau of Health, told that the total value of public health assets in pre-reform Suqian totaled only about 70 million yuan. Funds from the first round of hospital and clinic sales were less than 300 million yuan, all of which was reinvested in public health. Combined with later investments, the current value of medical and healthcare assets is around 2 billion yuan. “The value of public health assets has increased by an order of seven or eight times,” Mo said.
However, a new pattern of competition in the health sector has emerged in the municipality since reform. On one hand, assets in the sector are undergoing a new round of consolidation. “Over three to five years, there’s been a reshuffling of clinic ownership in Shuyang County. A dozen or so first-level hospitals have been bought out and combined, so there’s now a situation where there are three major hospitals competing with each other,” Lu Qibin, director of one of the three hospitals, told . Also, larger and smaller clinics are now competing in similar areas, with few divisions in specialization, and compete to be first to buy new high-tech medical equipment and assets are clearly not being used in the most efficient way.
Lu said pre-reform expenditures for medical care in Shuyang totaled tens of millions of yuan annually, while the total spending for 2007 is predicted to reach up to 400 million yuan, some of which will be unnecessary.
Contesting the Direction of Reform
The contrasting healthcare reform programs in Zhuhai in Guangdong and Suqian in Jiangsu also raise a question that’s part of a long-running debate: Should healthcare reform be led by the government, or market? Further, how should basic, public healthcare interests be supported? And should market-oriented reforms continue?
For some time, these ideologically tinged questions have been the subjects of vehement arguments.
In the days of the planned economy, China’s public purse picked up the costs of healthcare for most citizens. In those days, the government decided how healthcare resources should be allocated. The state directly ran hospitals and clinics and exercised total control over the pharmaceutical sector. Unlike today’s ever-rising health expenditures, budget allocations were squeezed tight and healthcare resources were often lacking. Problems of access to healthcare became more severe.
With this in mind, policymaking bodies in the early 1980s launched a partial reform of the health sector, based on core tenets of devolving powers and benefits, while encouraging health service agencies to be more proactive. It amounted to “giving policy incentives rather than giving money.” Health departments gradually began to implement hospital policies of “subsidy quotas, economic accounting, rewards and punishments based on assessments.” The aim was to encourage hospitals to develop their own income streams so that, when only limited government budget allocations were possible, hospitals would themselves resolve problems of resource shortages for healthcare.
This was labeled as market-oriented healthcare reform thinking, and with its encouragement hospitals showed new enthusiasm for “developing income streams.” At the same time, the amount of money for healthcare from the government was reduced accordingly.
Drawbacks, however, soon became obvious. There were limits to the benefit to be accrued from devolving powers and benefits. Old problems of access to healthcare were not resolved but only replaced by new problems. One new problem was that medical care became extremely expensive. At the same time, maintaining the old system of guaranteed healthcare provision became more difficult.
In 1997, policymakers instituted a complete reform of the health and medical care provision system. In February 2000, the State Council issued the core guiding policy document for this round of reforms, “Guiding Opinions on Reform of the Urban Medical and Healthcare System.” This blueprint outlined a reform in which medical services would be provided in all society, with overall expansion of services, relaxed controls, stronger oversight, and the introduction of competition. However, because it proved difficult to dislodge entrenched vested interests, the reforms never really got off the ground. Actually, the proportion of private expenditures in overall health spending steadily increased. It rose from 20 percent in 1978 to 59 percent in 2000. Although private spending had fallen slightly by 2005, the proportion from private sources was still as high as 52 percent.
Explaining this phenomenon proved difficult.
One explanation appeared in a report from the State Council’s Development Research Center, which was led by Ge Yanfeng and published in July 2005. It said, “Healthcare reform in China has not been a success at its base.” The report highlighted the prevailing decline in equitable access to medical services and the low overall efficiency of investment in health. The report concluded, “The trends toward commercialization and market orientation that emerged in the medical provision and healthcare system are absolute mistakes and run counter to the basic rules of the sector.” This conclusion found public support.
Then the Ministry of Health drafted a new report on healthcare reform for the State Council, maintaining that a lack of “public benefit orientation” in public hospitals was why previous attempts at reform had failed. It called for publicly owned medical agencies to stay in the public sector, with the government guiding their future. The report envisioned the government drafting a unified plan for regional healthcare based on demand for public heath services and basic medical services for the general public. The number and scale of public healthcare institutions should be maintained, it said, and these should be responsible for providing public health and basic medical services.
However, the health ministry’s conclusion also met fierce criticism. Critics said it advocated a return to the planned economy era. Further, some questioned whether market-oriented reform could be blamed for the weak state of China’s healthcare.
These voices held that the core problem with the healthcare system was a supply-side shortage of medical resources. The government had not fulfilled its responsibilities in this regard, they said, and what was being called “market-oriented reform” was in reality just policymaking that created economically independent hospitals and clinics that would pursue profits. No genuine market in healthcare services had emerged to allocate resource distribution, they argued.
Some said the monopoly status of public owned hospitals had remained unchanged and the threshold for private individuals to enter the medical services market remained too high. Pricing of medical services was still set by the government. They concluded that market-oriented reform had not begun.
A Consensus Emerges
In September 2006, the State Council Development Reform Commission and the Ministry of Health took the lead in establishing a healthcare reform coordinating group composed of around a dozen ministerial-level agencies. This set in motion the drafting a new plan for healthcare reform.
In early 2007, this coordinating group asked six domestic and international agencies – Peking University, Fudan University, the State Council Development Research Center, the World Health Organization, McKinsey and the World Bank – to produce parallel independent plans for healthcare reform. Later, Beijing Normal University and Renmin University were added. By the end of May, eight different plans were reviewed in a lively discussion. And in June, a ninth proposal jointly drafted by Tsinghua and Harvard universities, was added.
Amid these competing models, an outline of the issues became clear and a consensus began to emerge. Each of the nine proposals offered funding models, management systems and oversight mechanisms. But all recognized that the extent of health coverage in China is small and that individual expenditures are too high. Too many patients are forced to pay for all medical services, while health funding from government and socialized medical insurance sources is too low.
This points to core problems – a systematic shortfall in resources. A rapidly aging population, advances in medical science and a general increase in public health awareness were also contributing to a sustained increase in demand for healthcare services.
Thus, the gradually emergence of a consensus view that it would be impossible for the market to allocate healthcare resources. Government intervention and investment would be required, and ultimately the proportion of healthcare costs being paid by individuals would have to be lowered. Moreover, in line with other market-oriented reforms in China’s economy in recent years, a market should be introduced in the health sector with regulated prices and competition, on a level playing field for various healthcare providers.
It became more urgent to draw a clear boundary between the responsibilities of government and market. What should the government do, and what should be left to the market? To what extent should the government take charge, and how? Answering these questions would provide technical guarantees for smooth healthcare reform.
By August 2007, the conceptual basis and framework for healthcare reform had taken shape. The nine plans were mined for ideas, and all contributors offered further suggestions which were incorporated into a new healthcare reform plan.
In November 2007, a section of the work report that President Hu Jintao delivered to the 17th National Congress of the Communist Party was devoted exclusively to healthcare reform. “We should establish a basic healthcare system and raise the general level of public health,” thye report said. And by the end of the month, the plan had been submitted to the State Council.
has learned that the overall framework of the reform plan consists of four major systems and eight mechanisms, based on the overall goal of establishing a basic healthcare system. The four systems involved public health services, medical services, medical social security, and pharmaceutical supplies. The eight mechanisms cover management of medical care services, operationss, funds and investment, monitoring and oversight, information technology, human resources, price-setting, and legislative guarantees.
The overall concept is characterized as market-oriented with a clear line separating the roles of government and the market (see “The final push to healthcare reform” in ’s 23rd edition in 2007).
Minister of Health Chen Zhu publicly declared that a future healthcare system should be “a big house with four roof-beams supported by eight main pillars.” He was indicating that if the basic healthcare system is like a house, it would have four sub-systems that support the roof and eight mechanisms like pillars to support them.
Sources say whether or not this attempt at healthcare reform can achieve results will depend on whether it can guarantee the reduction in the proportion of healthcare funding coming from private expenditure while still offering full coverage to the whole population, whether it can achieve proper regulation of pricing signals for health service providers, and whether it can create an open arena for fair competition among health providers.
Supply and Demand Game
Another issue about healthcare reform centers around funding a social guarantee. Should the government directly subsidize healthcare service providers or should supplement health consumer purchases of insurance?
The subsidizing supply model would financially support hospitals. The government would pay all or some costs -- a model that appeals to health departments and social security agencies.
In the past, all government funding came under the subsidy model in the form of unconditional budget support for public healthcare institutions. By the early 1990s, the government started subsidized individuals who bought healthcare insurance.
learned that the new plan adopted a middle approach for subsidizing supply and demand. Thus, while central and local governments support healthcare guarantee systems, the government will under the basic healthcare guarantee package cover costs healthcare providers and subsidize new, rural cooperative health schemes. Beginning in 2008, the coverage will rise to 80 yuan per person from 40 yuan.
Inaugural Year of Reform
Before unveiling the new reform plans, both the Zhuhai “insurance for all” experiment and Suqian’s once famous healthcare reforms were significant examples and held up as possible models for nationwide adoption.
The Zhuhai experiment was received with less fanfare than the reforms in Suqian. If the Suqian reforms could be characterized as a surgical cutting away of dead flesh, Zhuhai by contrast seemed to offer a more comforting approach, with no structural or personnel changes, healthcare guarantees extended, and no agencies infringed upon.
Zhuhai’s reforms involved an payout increases. By boosting budget expenditures, a safety net that guaranteed equal-access healthcare for all was carefully created, providing a free public health service to all citizens and making basic, at-cost medical services available to all.. This is exactly the direction that health service reform in China is currently working toward.
Yet it still remains to be seen to what extent the reforms in Zhuhai can serve as a model for other cities, or the nation. The reforms scarcely touched on problematic issues such as separating medical services and pharmaceutical sales, and dividing oversight and operations, as cited in the central government’s new plan. If no challenge is offered to the present system of managing and providing healthcare, the public will likely get a low-quality service beset by problems.
Though the direction of the national healthcare reforms is clear, mountains have yet to be crossed in terms of operation methods. Examples of such issues include how to clearly define the functions, operating mechanisms and funding guarantees for public hospitals; how guaranteed healthcare coverage should be expanded and ultimately offer equally to all citizens; how to break down the administrative relationships under which health service providers currently operate and limits of ownership to reform hospitals so that privately-run service providers can compete on a level playing field; and how to integrate laws, regulations, policies and information services to improve oversight of healthcare institutions. Even after the reforms are in place, the experimenting that started in Zhuhai and Suqian will continue across China.
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