In Depth: China’s Public Hospitals Face Debt Crisis Amid Health Care Reforms

In autumn 2024, a public hospital located in Guangdong province, South China, suspended its operations and declared bankruptcy. This event is indicative of a larger financial crisis impacting public hospitals throughout China, as many are battling significant debt and declining revenues. Some hospital staff across the country, including at the Guangdong facility, have reportedly gone without pay for up to 10 months, reflecting the severity of the crisis.[para. 1]

The roots of these struggles can be traced back to a period of aggressive infrastructure expansion among public hospitals over the past decade, combined with recent government reforms intended to reduce healthcare costs for patients. These reforms have placed immense financial strain on hospitals as they attempt to manage increased debt and shrinking income streams. Official data shows that between 2010 and 2021, total debt at Chinese public hospitals more than tripled, with their asset-liability ratio rising from 31% to over 45%. This has led many hospitals to make difficult decisions, such as resorting to salary cuts, layoffs, and, in some cases, facing worker protests due to unpaid wages.[para. 2][para. 3]

Secondary hospitals—those seeking to upgrade to the highest "tertiary" status—are especially vulnerable. To meet the criteria for tertiary classification, many borrowed heavily to expand their facilities and acquire advanced equipment, hoping future revenues would cover these investments. However, these expectations have often fallen short, with some county-level hospitals now carrying debts of at least 200 million yuan (approximately $27.5 million), and others in remote regions seeing debts exceeding 400 million yuan. Some hospitals have even reached a debt-to-asset ratio of 100%. National data for 2020 show that about 40% of secondary hospitals reported financial losses, over 7% had debt at or above 100% of their assets, and nearly half exceeded 50%. For all public hospitals, liabilities soared from 140.1 billion yuan in 2004 to 1.92 trillion yuan by 2021, with the sector-wide debt-to-asset ratio jumping from 26.16% to 45.18%.[para. 5][para. 6][para. 8][para. 9][para. 13]

Hospitals could once count on rising revenue during China’s rapid economic expansion of the 2000s and early 2010s, and government subsidies now account for only 10% of hospital income. The remainder is mostly derived from basic medical insurance reimbursements, which cover over 95% of China’s population. However, recent reforms have cut deeply into this income. In 2017, public hospitals lost the 15% drug price markup privilege, and this was extended to medical consumables in 2019. Compensation promised by the government in the form of price adjustments or subsidies has generally not matched lost profits—for example, at one hospital, compensation dropped to just 1 million yuan versus the former 5-6 million yuan annual profit from drug markups.[para. 16][para. 17][para. 18]

Since 2019, a nationwide switch to diagnosis-related group (DRG) and diagnosis-intervention packet (DIP) payment models has replaced fee-for-service reimbursement with capped, fixed payments per diagnosis category, creating competition for shrinking insurance funds. Many hospitals now see reduced reimbursements and are absorbing more costs; some county-level hospitals, for instance, are being reimbursed for only about 80% of their insured patient costs. This has resulted in rapidly declining hospital revenues, with some reporting annual drops of around 20%.[para. 20][para. 21][para. 22]

Aside from financial reforms and debt, Chinese hospitals face challenges from demographic changes, such as an aging population (causing medical insurance expenditures to outpace revenue) and patient outflow to larger hospitals in urban areas, due in part to real-time cross-regional insurance settlement. This has led to falling patient volumes and lower bed utilization rates at many rural and secondary hospitals. The combined effects of debt, reform-driven income loss, demographic shifts, and increased patient migration point to a complex and enduring crisis for China's public hospitals, demanding urgent attention to both immediate financial hardships and long-term structural reforms.[para. 25][para. 26][para. 27][para. 28][para. 29]