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China progresses with health reform but challenges remain
World Report
China progresses with health reform but challenges remain 2 years ago, China announced a major shake-up of its health system to try to make it both better and fairer for its billion citizens. Ted Alcorn and Beibei Bao review the developments so far.
www.thelancet.com Vol 377 May 7, 2011
apart. Impoverishment due to medical expenses became commonplace and grave disparities emerged between urban and rural populations and across regions. By 2000, patients were paying 60% of their medical costs out-of-pocket on average (figure); in that same year, WHO ranked China 188 of 191 countries in terms of the fairness of financial contributions to health care.
“The rural insurance scheme has grown to 835 million enrollees, the most extensive insurance programme on earth.” The plan for reform unveiled in 2009 attempted to tackle this problem from multiple angles, outlining investments of CNY850 billion (US$124 billion) to expand insurance coverage, improve grassroots health-care institutions, universalise basic public health services, establish an essential drugs list, and reform the financing system for care, particularly in public hospitals. In theory, all of these changes would contribute to reducing inefficiencies of delivery and disparities in access. 70
In the 2 years since the plan’s adoption, one area of undisputed progress has been the broadening of insurance coverage. In 2003, the Ministry of Health reported that 45% of urban residents and 79% of rural residents lacked coverage. But new insurance schemes for rural residents and unemployed or informally employed urban residents have changed all that. Just 8 years later, government figures show that over 90% of the population now has some kind of coverage. The rural insurance scheme has grown to 835 million enrollees, the most extensive insurance programme on earth. Shuo Zhang, a health specialist at the World Bank, is quick to point out that the coverage offered by these insurance schemes is still shallow. In 2010, rural insurance was supported by government contributions of only CNY120 ($18) per enrollee, and although plan specifics vary slightly by province, 40% of inpatient care is reimbursed on average with a cap of CNY30 000 ($4619); any expenses beyond this fall on the patient. Zhang nevertheless applauded the speed with
This online publication has been corrected. The corrected version first appeared at thelancet.com on July 8, 2011
Out-of-pocket spending Government expenditure
60 Total health expenditure (%)
50 40 30 20 10
99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09
19
97 98 19
96
19
95
19
94
19
93
19
92
19
19
91
0
19
Forests of apartment buildings, endless new roads, and whole cities where just years ago there was empty space: the landscape across China is being remade by economic growth and urbanisation at an extraordinary speed and scale. Less visible but just as important are the ongoing changes being enacted in the country’s health system, reforms touching on nearly every aspect of the way health care is financed and delivered for China’s 1·3 billion citizens. The ambitious plan, announced in April, 2009, attempts to increase the accessibility, equity, and quality of health care and to reassert government control over a sector of the economy that for the past 30 years had been largely left to the will of the market. With the implementation of the reforms now approaching deadlines for several 2011 targets, it is becoming apparent which areas have made progress and those in which more intractable challenges remain. The conditions facing policy makers at the outset were, and remain, grave. Until the 1980s, China had maintained a strong public health system providing an enviable level of health services for its level of income, but the economic reforms of the following three decades that unloosed the country’s economy also unravelled its social safety net. “The market orientation of the health sector starting from the mid-to-late 1980s made the health-care providers really profit-oriented”, says Yan Mu, an economic policy specialist at UNICEF. “When the subsidies they received from the government were cut substantially, the public clinics and hospitals received a green light from the government that they could just set their prices to maximise their profits.” As government support for the sector dropped precipitously, rural health insurance schemes also fell
Year
Figure: Out-of-pocket spending and government expenditure as a percentage of total health expenditure
1557
Ted Alcorn
World Report
Yinchuan’s First People’s Hospital was renovated with funding from the reforms
which the government rolled out the programmes. “If you look around the world, no other country can achieve this in 5 or 6 years.” The reforms also call for large investments in grassroots health institutions and health-worker training to ensure that health services are available even in remote areas. In its original proposal, the government promised to build a clinic in every village as well as 2000 county-level hospitals, 3700 community health centres in urban areas, and renovations in many other facilities. Yuanli Liu, a faculty member at the Harvard School of Public Health, Boston, MA, USA, who has provided policy advice to the Chinese Government throughout the reform process, led an interim assessment of the reforms in April, 2011. He says that he found new facilities at every turn. “In the case of old facilities, everywhere I went I saw the township health centres and county health centres are in the process of being renovated, so the hardware is definitely being improved.” But there is a more fundamental challenge facing China’s health system and one that public investment alone cannot resolve: the perverse incentives faced by providers. In the 1990s, as government withdrew from the financing of health care, physicians obtained an increasing portion of their income from fees for services and particularly for drugs, which could be sold at a premium of as much as 1558
15%. This system encouraged doctors to prescribe treatments that were expensive or unnecessary merely to pad their wallets. Of the recent reforms, the main component addressing drugs is the implementation of an essential medicines list, which ensures the availability of a group of basic medicines, offers a high reimbursement rate for them relative to other drugs, and prohibits providers from levying any additional charges on them. Recognising that this change would represent a substantial loss in physicians’ income, the reforms proposed compensating them with direct government payments, effectively uncoupling their income from the quantity or price of drugs they prescribe. The effects of this policy have thus far been positive but below expectations, says Liu. Although access to basic drugs might be improving, particularly in rural areas, salary support for physicians has not increased sufficiently to replace their lost revenues. Consequently, in some regions Liu visited, the policy was being met with fierce resistance from providers or left unadopted altogether; as of January, 2011, the Ministry of Health reported that half of public facilities had still not implemented the policy. “To some extent the essential medicine policy was considered as a panacea to solve the access problem, to solve the cost-control problem, to solve the safety and quality problems, all in one”, says Liu, “but that expectation turned out to be unrealistic to say the least.” The problem of incentives is most recalcitrant in the public hospital system, and it is widely acknowledged that reforms here will be the most difficult to achieve. Public in name only, since up to 90% of their revenues come directly from patients, these hospitals have little incentive to restrict over-prescription, provide basic low-profitability services, or ensure affordability to the poorest patients. There is a consensus that wholesale reform of hospital financing
is needed, but little agreement on which changes to make. Li Ling, a professor at Beijing University and a leading adviser to the Ministry of Health throughout the reform process, says that the crux of the issue is deciding what part the government should play in the health system as a whole. Having overseen the incredible growth produced by three decades of economic liberalisation, policy makers are now struggling to come to grips with hospitals that operate like profit-maximising businesses but which produce outcomes discordant with the public interest. “The economic miracle very much confused our government officials”, opines Li. “They thought the market-mechanism could solve the health problems, [too]. But unfortunately, it can’t.” The debate over hospital reform is ongoing, and, if there is increasing consensus that government should play a more active part, there has been no clear articulation of what that role will be. “The problem is: how can you pull the public hospitals back?” says Li. “They’ve already gone too far away from being so-called public hospitals.” But she refers optimistically to pilot reforms in Anhui province that might prove a good model for national changes. Hospitals there now receive increased funding directly from the government and practitioner’s salaries are performance-based. Reviewing this first phase of reforms, the Chinese Government does not lack for indicators of meaningful progress. But the thorniest problems are yet to be faced, and it will require more than investment from the government to resolve them. “In the past several years, they have done the things they could have done”, says Shuo Zhang. But she continued, “Now it’s come to the most difficult issues. Now it’s not just a direction issue—the direction has pretty much been set. The next step is to decide the right approach; to set up the mechanism to make things happen.”
Ted Alcorn, Beibei Bao www.thelancet.com Vol 377 May 7, 2011
China progresses with health reform but challenges remain 2 years ago, China announced a major shake-up of its health system to try to make it both better and fairer for its billion citizens. Ted Alcorn and Beibei Bao review the developments so far.
www.thelancet.com Vol 377 May 7, 2011
apart. Impoverishment due to medical expenses became commonplace and grave disparities emerged between urban and rural populations and across regions. By 2000, patients were paying 60% of their medical costs out-of-pocket on average (figure); in that same year, WHO ranked China 188 of 191 countries in terms of the fairness of financial contributions to health care.
“The rural insurance scheme has grown to 835 million enrollees, the most extensive insurance programme on earth.” The plan for reform unveiled in 2009 attempted to tackle this problem from multiple angles, outlining investments of CNY850 billion (US$124 billion) to expand insurance coverage, improve grassroots health-care institutions, universalise basic public health services, establish an essential drugs list, and reform the financing system for care, particularly in public hospitals. In theory, all of these changes would contribute to reducing inefficiencies of delivery and disparities in access. 70
In the 2 years since the plan’s adoption, one area of undisputed progress has been the broadening of insurance coverage. In 2003, the Ministry of Health reported that 45% of urban residents and 79% of rural residents lacked coverage. But new insurance schemes for rural residents and unemployed or informally employed urban residents have changed all that. Just 8 years later, government figures show that over 90% of the population now has some kind of coverage. The rural insurance scheme has grown to 835 million enrollees, the most extensive insurance programme on earth. Shuo Zhang, a health specialist at the World Bank, is quick to point out that the coverage offered by these insurance schemes is still shallow. In 2010, rural insurance was supported by government contributions of only CNY120 ($18) per enrollee, and although plan specifics vary slightly by province, 40% of inpatient care is reimbursed on average with a cap of CNY30 000 ($4619); any expenses beyond this fall on the patient. Zhang nevertheless applauded the speed with
This online publication has been corrected. The corrected version first appeared at thelancet.com on July 8, 2011
Out-of-pocket spending Government expenditure
60 Total health expenditure (%)
50 40 30 20 10
99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09
19
97 98 19
96
19
95
19
94
19
93
19
92
19
19
91
0
19
Forests of apartment buildings, endless new roads, and whole cities where just years ago there was empty space: the landscape across China is being remade by economic growth and urbanisation at an extraordinary speed and scale. Less visible but just as important are the ongoing changes being enacted in the country’s health system, reforms touching on nearly every aspect of the way health care is financed and delivered for China’s 1·3 billion citizens. The ambitious plan, announced in April, 2009, attempts to increase the accessibility, equity, and quality of health care and to reassert government control over a sector of the economy that for the past 30 years had been largely left to the will of the market. With the implementation of the reforms now approaching deadlines for several 2011 targets, it is becoming apparent which areas have made progress and those in which more intractable challenges remain. The conditions facing policy makers at the outset were, and remain, grave. Until the 1980s, China had maintained a strong public health system providing an enviable level of health services for its level of income, but the economic reforms of the following three decades that unloosed the country’s economy also unravelled its social safety net. “The market orientation of the health sector starting from the mid-to-late 1980s made the health-care providers really profit-oriented”, says Yan Mu, an economic policy specialist at UNICEF. “When the subsidies they received from the government were cut substantially, the public clinics and hospitals received a green light from the government that they could just set their prices to maximise their profits.” As government support for the sector dropped precipitously, rural health insurance schemes also fell
Year
Figure: Out-of-pocket spending and government expenditure as a percentage of total health expenditure
1557
Ted Alcorn
World Report
Yinchuan’s First People’s Hospital was renovated with funding from the reforms
which the government rolled out the programmes. “If you look around the world, no other country can achieve this in 5 or 6 years.” The reforms also call for large investments in grassroots health institutions and health-worker training to ensure that health services are available even in remote areas. In its original proposal, the government promised to build a clinic in every village as well as 2000 county-level hospitals, 3700 community health centres in urban areas, and renovations in many other facilities. Yuanli Liu, a faculty member at the Harvard School of Public Health, Boston, MA, USA, who has provided policy advice to the Chinese Government throughout the reform process, led an interim assessment of the reforms in April, 2011. He says that he found new facilities at every turn. “In the case of old facilities, everywhere I went I saw the township health centres and county health centres are in the process of being renovated, so the hardware is definitely being improved.” But there is a more fundamental challenge facing China’s health system and one that public investment alone cannot resolve: the perverse incentives faced by providers. In the 1990s, as government withdrew from the financing of health care, physicians obtained an increasing portion of their income from fees for services and particularly for drugs, which could be sold at a premium of as much as 1558
15%. This system encouraged doctors to prescribe treatments that were expensive or unnecessary merely to pad their wallets. Of the recent reforms, the main component addressing drugs is the implementation of an essential medicines list, which ensures the availability of a group of basic medicines, offers a high reimbursement rate for them relative to other drugs, and prohibits providers from levying any additional charges on them. Recognising that this change would represent a substantial loss in physicians’ income, the reforms proposed compensating them with direct government payments, effectively uncoupling their income from the quantity or price of drugs they prescribe. The effects of this policy have thus far been positive but below expectations, says Liu. Although access to basic drugs might be improving, particularly in rural areas, salary support for physicians has not increased sufficiently to replace their lost revenues. Consequently, in some regions Liu visited, the policy was being met with fierce resistance from providers or left unadopted altogether; as of January, 2011, the Ministry of Health reported that half of public facilities had still not implemented the policy. “To some extent the essential medicine policy was considered as a panacea to solve the access problem, to solve the cost-control problem, to solve the safety and quality problems, all in one”, says Liu, “but that expectation turned out to be unrealistic to say the least.” The problem of incentives is most recalcitrant in the public hospital system, and it is widely acknowledged that reforms here will be the most difficult to achieve. Public in name only, since up to 90% of their revenues come directly from patients, these hospitals have little incentive to restrict over-prescription, provide basic low-profitability services, or ensure affordability to the poorest patients. There is a consensus that wholesale reform of hospital financing
is needed, but little agreement on which changes to make. Li Ling, a professor at Beijing University and a leading adviser to the Ministry of Health throughout the reform process, says that the crux of the issue is deciding what part the government should play in the health system as a whole. Having overseen the incredible growth produced by three decades of economic liberalisation, policy makers are now struggling to come to grips with hospitals that operate like profit-maximising businesses but which produce outcomes discordant with the public interest. “The economic miracle very much confused our government officials”, opines Li. “They thought the market-mechanism could solve the health problems, [too]. But unfortunately, it can’t.” The debate over hospital reform is ongoing, and, if there is increasing consensus that government should play a more active part, there has been no clear articulation of what that role will be. “The problem is: how can you pull the public hospitals back?” says Li. “They’ve already gone too far away from being so-called public hospitals.” But she refers optimistically to pilot reforms in Anhui province that might prove a good model for national changes. Hospitals there now receive increased funding directly from the government and practitioner’s salaries are performance-based. Reviewing this first phase of reforms, the Chinese Government does not lack for indicators of meaningful progress. But the thorniest problems are yet to be faced, and it will require more than investment from the government to resolve them. “In the past several years, they have done the things they could have done”, says Shuo Zhang. But she continued, “Now it’s come to the most difficult issues. Now it’s not just a direction issue—the direction has pretty much been set. The next step is to decide the right approach; to set up the mechanism to make things happen.”
Ted Alcorn, Beibei Bao www.thelancet.com Vol 377 May 7, 2011