How to Deal With Mounting Public Hospital Debt? (AI Translation)

【周刊提前读】公立医院欠债越来越多 出路何在？

Wang Haiyang, a hospital administrator with 35 years of experience, faces an unprecedented financial crisis at his public Class III Grade A hospital in southwest China, which has accumulated nearly 400 million yuan in debt over a decade. After losing a lawsuit pertaining to leased medical equipment, the hospital is ordered to pay more than 10 million yuan in additional compensation, straining its already dire financial position [para. 1]. Similar struggles are seen across the country: a city-level public hospital in Heilongjiang has total liabilities nearing 100 million yuan—more than its annual revenue—and relies on meager government allocations that are insufficient to reverse its fortunes. Most of its medical equipment is near obsolescence, and investment in development is no longer possible [para. 2][para. 3]. Another county-level Class III Grade A hospital in western China, represented by department head Song Weidong, faces delays in salary payments, heavy debt, and must constantly choose between paying staff or suppliers, highlighting the operational strains now endemic to many public hospitals [para. 4]. Of note, drastic measures such as salary cuts and staff protests are increasingly common, and in 2024, Jiaying Hospital of Meizhou in Guangdong declared bankruptcy after ten months of salary arrears, signaling possible future collapses elsewhere [para. 5][para. 6].

A confluence of systemic reforms and economic pressures have driven public hospitals into persistent deficits. Government policies like the “zero mark-up” for pharmaceuticals have eroded primary income sources, and the COVID-19 pandemic, coupled with tighter medical insurance and declining patient numbers, has worsened revenue streams. Old construction loans, taken to upgrade facilities and meet evolving healthcare demands, remain largely unpaid, threatening insolvency for many. Over the last two decades, the national asset-liability ratio for public hospitals nearly doubled, from 26.16% in 2004 to 45.18% in 2021, while hospital debt grew more than threefold, from 511.3 billion yuan in 2010 to 1.92 trillion yuan in 2021 [para. 7][para. 8][para. 9][para. 10][para. 11].

Many hospitals became heavily indebted while pursuing upgrades—aspiring to higher-grade classifications to attract more patients and improve standards. Such expansions often relied on government backing, bank loans, and supplier credit. For instance, Wang’s hospital incurred its first debt in 2012 as it attempted to upgrade facilities with minimal local government support and was forced to borrow from suppliers [para. 12][para. 13]. Government efforts to curb such debt-financed expansions have been ineffective; the pressure to grow in the hope of attracting more patients and securing administrative promotions persists, despite repeated directives banning debt-fueled construction projects [para. 18][para. 19][para. 20][para. 21][para. 22][para. 23][para. 24].

Financial stress is compounded by declining revenues and increasing costs. Revenue losses from drug markup elimination have not been offset by promised government compensations or adjustments to medical service fees. New medical insurance payment reforms—shifting to DRG and DIP models—limit hospital claims and tie reimbursements to strict regional budgets, intensifying competition and cutting profit margins [para. 39][para. 40][para. 41]. As a result, many hospitals are left covering shortfalls from their own limited funds and managing tighter cost controls, yet expenditures, particularly on labor and mandated IT upgrades, keep rising [para. 57][para. 58][para. 59][para. 60][para. 61].

Simultaneously, patient outflow to higher-tier or out-of-region hospitals, oversupply of beds, and intensified local competition depress occupancy rates and revenues, pushing asset-liability ratios in some hospitals as high as 64% [para. 67][para. 68][para. 69][para. 70][para. 71]. Government subsidies are insufficient and declining, leaving cost-cutting initiatives—most notably salary and staff reductions—as the primary recourse for struggling hospitals [para. 80][para. 81][para. 82][para. 83][para. 84][para. 85]. Although intended as a stopgap, these measures threaten long-term sustainability and staff morale while increasing the risk of drug shortages due to overdue payments [para. 90][para. 91].

Overall, public hospitals in China are grappling with an era marked by declining revenues, mounting debts, failed reforms, and a shifting healthcare landscape where maintaining operational stability is becoming the foremost—and often unattainable—goal [para. 94][para. 95][para. 96].