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Leaping Forward: The Healthy China 2020 Reforms

Posted on Nov 13, 2008 by Sergio Ulloa ()  | Tags: China Health Care, China Health Insurance, China Health Reforms, China Healthcare, Health Care China, Health Insurance China, Healthcare China, Healthy China 2020, International Health Insurance, International Medical Insurance, Medical Insurance Abroad

Earlier this year, the government of the Peoples Republic of China announced their plan to reform their country's health care system. The main focus of the 'Healthy China 2020' reforms is to set up a universal health service across the country, available to even the poverty stricken, rural segment of the population. The scale and layout of the project have spurred some commentators to liken it to the British National Health Service. Other than trying to broaden the coverage and increase the basic levels of care to people, some of the reforms' goals are focused on promoting affordable healthcare, preventative medicine and increasing life expectancy, which is at 73 right now. Atypically, the Chinese government opened a comment section on the National Development and Reform Commission (NDRC) website for public opinions. Over 900 comments were left in two days, with many suggestions and personal analyses covering a broad range of topics; from the problems faced by migratory workers, to the lack of facilities for rural citizens. So as this country of increasing importance in the world looks to revamp its healthcare services, let's look at some of the improvements that have worked so far and what problems they may face in the near future.

One of the first innovations that I want to look at is the advent of joint venture hospitals in the last few years. China officially allowed foreign companies to enter into hospital and clinic joint ventures in 2000, although only permitting 70% ownership of the company by foreigners. Since that time, there have been quite a few companies getting involved on the ground. Singapore-based Parkway Group Healthcare, Hong Kong-based Global HealthCare, U.S. based early entrant, Chindex, and even Taiwanese food company Want Want Group has joined in the fracas.

Chindex now runs the Beijing United Family Hospital and Clinics as a joint venture with the Chinese Academy of Medical Sciences, which operates two hospitals and five outpatient clinics and has plans to open two more outpatient centers this year and two more hospitals in Beijing and Guangzhou slated to open in 2010. United Family Hospitals and other joint ventures like Richland International Hospital in Kunming, Yunnan province, and Shanghai East International Medical Center are focused on getting more market share in quality private healthcare, which often times ends up geared towards foreigners whose insurance is often times paid by their company. However, with China's increasing affluence and growing middle class combined with the country's one child policy, there is an increasing willingness for Chinese people to pay for higher quality care, private maternity care in particular. While foreign passport holders make up a majority of the United Family Hospital in Beijing, up to 40% of the patients across United Family Hospital locations are now middle and upper class Chinese wealthy enough to pay for the services. Tommy Chu, the director of China Health Management Corp. the Las Vegas-based partner in Richland International Hospital, predicts that up to 60%-70% of Chinese hospitals may eventually be privatized, although how this jibes with the envisioned Health China 2020 reforms to provide universal medical service remains to be seen.

On the flip side, Want Want Hospital in Hunan province seems to be doing a remarkable job of providing quality healthcare that, while initially seeming more expensive due to higher costs and reduced subsidizing, has ended up being a cost saver for their patients. The hospital boasts a US $3 million electronic patient management system, which enables patients easy access to their health condition and bills in a user-friendly format. The hospital manages about 1,000 outpatients a day, after more than two years in operation, and the care at the hospital is usually superior and cheaper than going to a public hospital. This is mostly due to the fact that patients usually spend fewer days in hospital and require fewer expensive follow-up visits. Unfortunately, despite the headway that Want Want Hospital has made, it has certainly not been easy for them. The hospital had to register as a profitable medical institution in order to avoid strict local government controls, but this put them in the unenviable position of getting taxed more, paying higher utility fees, and the obligatory discrimination from the public sector. For instance, not only did Want Want Hospital have to pay taxes on subsidies it received to treat patients during the Sichuan earthquake, but it's patients also receive less reimbursement credits despite being licensed under the local basic medical insurance system. In addition, when the hospital opened its doors, the reputable Xiangya Hospital School of Medicine, a local public hospital, initially decreed that should a doctor leave Xiangya for Want Want, any relatives they have working at Xiangya would have to quit their jobs as well. The executive president of Want Want Hospital himself laments the number of hoops the government sets up, and says that fair competition is the best way to push public hospitals to improve their service. So if, as Tommy Chu and the growing number of joint ventures think, that privatization will play a larger role in China's new healthcare system, it may be in both the nation and the companies' interest to make it less of a hassle and a burden to compete with entrenched, less efficient solutions. And even if the PRC moves away from privatization to focus more on government run and funded establishments, they may want to take some notes from the joint venture hospitals on how to administer their hospitals to emulate the ease of use for patients and the efficiency these hospitals seem to enjoy.

But to be sure, the international joint ventures are not the only ones in China's healthcare market developing refreshing new systems for treatment. Indeed, the PRC needs to look no further than their capital for administrative inspiration. Peking University People's Hospital has teamed up with two community health service centers to improve the referral system, allowing for better treatment allocation and shorter wait times at hospitals. Patients go into the community health centers and receive treatment, then, if further or more specialized treatment is required, the centers can go online and book the appropriate medical department at Peking University People's Hospital allowing the patient to walk in the hospital and get treatment at the specified time without waiting in line. This new system of referrals was started this September, 2008, in the hopes that it can free up the larger hospital to focus on treating serious illnesses and conditions, while the community centers deal with the more mundane ailments, and alleviating administrative bother along the way.

To continue on with our next success story before we hit the problems section, we'll take a look at the Wuhu Medical Institution Drug Administration Center. Earlier this year, the Wu Hu municipal government in Anhui province decided to separate the pharmacies from their eight public hospitals in order to cut out corruption. They started the drug administration center to take charge of all drug sales instead of leaving it as an internal department of the hospitals, so in theory, all money from drugs sales goes directly from drug salespeople to the government which sets the budgets and also feeds some of the revenue back to the hospitals as subsidies. This hopefully cuts out the incentive for hospitals to push expensive drugs on patients, in favor of cheap effective ones. The drug administration center is also divided up into three branches to avoid conflicts of interest; decision making, implementation and supervision. Although some opponents still argue the new system doesn't make any significant changes to the inherent conflict of interest in the supply chain, from pharmaceutical manufacturers, to drug dealer, to doctors and pharmacies, before finally reaching patients.

In a different vein, we're going to look at some of the problems China is facing as it moves forward with its healthcare reforms. Two of the bigger internal problems it faces now are the issues of health poverty and government stewardship of healthcare. According to figures from a recent study by an international group of researchers, 35% of urban households, and up to 43% of rural households in China either "have difficulty affording health care, go without, or are impoverished by the costs," which in a country of 1.3 billion people, is an awful lot of people who either get financial ruination, or no healthcare. The availability and quality of healthcare depends not just on whether you live in a city of not, but also whether your province or county is a poor as you are. In other words (or figures) rural infant mortality rates stand at 64 out of 1,000 births not living past the age of 5, more than five times higher than city infant mortality rate of 10 out of every 1,000 births. On top of that, wealthier counties get 48 times more public spending than poor counties, and safe drinking water is available to 96% of the population dwelling in large cities, but only 30% of poorer citizens have access. Way to stick it to those lazy peasants, eh? If they can't make money, they don't deserve it spent on them I guess. The sheer size of the problem has more zeroes on its price tag than I can comfortably hold in my brain. The number and scope of infrastructure investments that need to be made in areas of the country that are not exactly accessible is immense. Roads will need to be built in the more remote countryside areas to let the workers bring materials to places where they will have to build the infrastructure to provide safe drinking water and support a community health center. And lets be honest, there's a lot of remote countryside to cover in China.

And what's worse than being a peasant? Apparently being a girl. Due at least in part to the culture's extreme preference for male children, sex-specific abortions, although now illegal, still happen and have severely impacted the male to female ratio in the country. Some figures say that the current population of men is 20% larger than the female population, and it's possible that up to 10% of Chinese men may not find wives. This culturally ingrained preference for boys, or discrimination towards girls in other words, is reflected in the country's higher death rates for girls; 33.7 out of 1,000 live births, versus 23.9 for every 1,000 live male births. This is an issue that has been referred to as the problem of China's 'missing women'.

The problem of corruption in the medical institutions, or 'government stewardship', was also highlighted as a major problem in the country. Almost all of government funding goes directly to municipal hospitals in cities, leaving only 10% of the budget to support rural and urban health centers. Due to this, health providers are forced to cover their costs by passing the bill onto the patient. This system of business is what has been blamed for at least part of the rampant corruption in China's medical system. Because the doctors get their money from the patients and often have little oversight, it benefits the doctors to sell the most expensive treatment, not necessarily the most efficient. This leads to the people who really can't afford it, being prescribed very expensive drugs they already can't afford and then having to repeatedly make pricey visits to the doctor because the treatment was not effective. This has helped to bankrupt millions of families across China as they sell all their belongings to pay for the treatments. One paper by the researchers said that healthcare was taking up 50% of household income in 2006, compared with 45% in South Korea, 16% in Sweden, 15% in Japan and 11% in France. The researchers say this is because of inadequate health insurance in the country. Despite the speedy growth of foreign and domestic private insurers in China, the overall coverage in the population stays at just 6% of urban Chinese and 8% of rural citizens. After being asked recently whether their Chinese health insurance operations are profitable, AIG, which has the largest market share out of foreign companies at 3%, refused to comment, only saying their priorities were life insurance and retirement products, while a Swiss Re consultant said that health insurance is generally not a profitable business. Oddly enough the same things that are forcing people into the "medical poverty trap" are also what is hindering private health insurance in the country; affordability and over prescription. So if China is serious about reforms, one of the first things that needs to be tackled would be this complete lack of responsibility by doctors and the medical supply chain for the consistent prescribing of incorrect, expensive medication for money, as it not only brings destitution to the patients it comes in contact with, but has far flung consequences hindering the spread of health insurance coverage to those who need it most.

One other looming issue that some people are pointing to is the fact that China's entire economy is about to suffer large problems. While many still hold rosy outlooks for China and see it becoming a bigger economic player in the world, others are beginning to point out that the Chinese economy is a bubble getting ready to burst. From the real estate and financial markets to the export centered industries, some commentators are saying that it's on shaky ground as is and that people should not count on China to becoming the world's new economic center. In regards to the health of the real estate market, Chinese economist He Qinglian, who now lives in the United States, has said the signs of its impending crash were apparent in late 2005. She says that the entire market was fundamentally unsound because, as was especially evident in Shanghai, real estate agents controlled the vast proportion of business and fuelled the industry through speculation, not actual demand. The end result of this was that property prices in large cities like Beijing, Guangzhou, Shenzhen and Shanghai dipped nearly 20%, which caused their satellite cities to fall an average of 15%. While some have been hoping that China will step up to fill the void left by US consumer dollars, many are beginning to think this is, at best, wishful thinking. Some are saying this is mainly due to China's manufacturing centered economy. One analogy that has been drawn is between China now, and England at the beginning of the industrial revolution, seeing as they're both the manufacturing centers of the world. The difference? England was a technological leader of it's time, China is not. While England engineered new technology, China's manufacturing hubs remains low-tech, labor intensive and low value-added assembly lines, where all technologically advanced parts are shipped in and put together before being shipped out to consumers. To put it bluntly, as Will Hutton of the UK's Observer does, "Asia, except Japan, remains in essence a subcontractor to the West. Two-thirds of China's exports...are made by foreign companies [that] essentially reprocess imports of semi-manufactured goods that are then shipped to Europe and the U.S." So, considering the size of the industrial manufacturing industry in China and the amount of people it employs, the decreasing demand from foreigners puts large sections of the Chinese work force in serious danger of losing their jobs. Not exactly firm ground from which to revolutionize your country's healthcare system.

Whether or not the Chinese economy is better or worse than we think, I will find it genuinely interesting to watch the development of the Health China 2020 reforms. Seeing as they have done something unusual in asking Chinese citizens for their opinions and suggestions, it may lay precedent for further freedoms in the country such as land rights, which is actually being considered at the moment, which could fundamentally alter the country's culture. Maybe it's true, as Mr. Hutton says, that "China is beginning the perilous path to becoming freer because the economy demands it." Either way, they have some solid examples to work from, some incredibly intelligent people to try and sort out a solution and the dedication to make drastic changes to their system.

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