China to Address Healthcare Expenses

Posted on Mar 14, 2012 by Sergio Ulloa (G+)

Chinese government officials have reaffirmed their commitment to tackling skyrocketing domestic healthcare expenses following the discussion of several new state initiatives at the annual National People's Congress in Beijing this past week. China's rapid economic ascension has seen them become the world's second largest economy over the past two decades. While this certainly has brought many benefits to country and lifted over hundred million people out of poverty, the adverse health consequences of a now more urbanized, ageing, and increasingly quality-demanding populace have placed the communist state's already over-strained medical infrastructure and healthcare system under considerable pressure. China's healthcare system has been described as an over encumbered pay-as-you-go bureaucracy with medical services often proving too difficult to access, too expensive, and too variable in quality between various parts of the country, particularly in rural regions. The national government has taken some notable steps in addressing these issues, launching a RMB 850 billion (US$125 billion) healthcare reform plan in 2009 and a far-reaching social insurance law last year. While important advances have definitely been made in the interim period, especially with regard to improved access and equality to medical services and insurance coverage across China, medical costs have continued to rise as a share of total household expenditure. Alleviating these cost concerns thus remains a pressing concern for the Chinese government, as it needs citizens to start spending more of their considerable savings, rather than holding on for medical emergencies, to boost domestic consumption. Speaking at Fifth Session of the 11th National People's Congress in Beijing, China's Health Minister Dr Chen Zhu heralded the progress the country's healthcare system has made since 2009. According to government statistics, around 96 percent of the Chinese population are now covered by some basic form of medical insurance, compared to just around 15 percent a decade ago. The country's infant mortality rate meanwhile has fallen to under 12 per thousand from 15 per thousand over the past three years, while the rate of mothers dying in childbirth falling to 26 per 10,000 from 34 during that period as well. Despite this considerable progress, Wen acknowledged that more certainly needs to be done through the Chinese government's next three-year plan as the country's medical services were still far from meeting the general public's expectations. Interestingly, the greatest obstacle to further healthcare reform in China could be the state's public hospital system, which has long been the country's predominant treatment network due to the continued lack of primary care facilities and other options. A report from the Wall Street Journal this past week highlights how Chinese public hospital monopolies and their staff have benefited tremendously from the current health system because they are allowed to make up for the lower government-set prices on hospital beds, nursing care, surgery and other medical services by charging their own higher prices on patients for drugs and diagnostic tests. These public hospitals have come to rely on the non-subsidized services for a big chunk of their revenues. This has helped foster a healthcare environment laden with fraud whereby expensive drugs are often over-prescribed and unnecessary diagnostic tests are frequently pushed on patients for kickbacks. What's more, as insurance coverage has extended throughout the country these practices have perhaps gotten worse, as public hospitals, which are for-profit institutions, use every means available to get money out of the patients themselves or the national insurance fund to cover their increased operational expenses. China's central government have taken note of this development and are apparently determined to drive down healthcare costs despite facing numerous challenges from vested hospital interests that see reform as a threat, both to their for-profit status and to the income of practicing doctors and hospital administrators. The first item on the agenda will be to extend drug-price cuts by increasing the number of medications on China's essential pharmaceutical list from just over 300 to about 800. The drugs on this list have their prices kept artificially low as part of the government's plan to contain out-of-pocket costs for Chinese patients. Not only will the number of essential pharmaceuticals increase but also the type and caliber of drug, with more specialty products, including those for cancer and cardiovascular disease, expected to be added to the list soon. The government also expects to take a more active role in negotiating better prices and possibly oversight, as drug procurement will now occur at the provincial level rather than by individual hospitals. Another key issue going forward will be addressing the funding balance between patients, hospitals and insurance providers. Health Minister Dr Chen Zhu explained that the workload for Chinese doctors has almost doubled at public hospitals over the past three years as more and more people get health insurance and then begin seeking medical care. In the government's next three-year reform strategy, the Health Ministry plan on protecting doctors' salaries and reducing graft by increasing government subsidies in public hospitals and relying more on medical insurance companies to make up the difference. Breaking down China's current health expenditure levels reveals that around 28 percent of the net is paid for by the government, 35 percent is covered by individual patients, and the remainder by employers. By the end of 2015, the Chinese government has set a moderate goal to increase their contribution to about 33 percent of all health spending and to reduce individuals' out-of-pocket expenses to 30 percent or less. In doing this, China's net healthcare spend is expected to rise from 5 percent of GDP at present to around 6 or 7 percent of GDP within the next three years. This added expenditure will no doubt fuel further efforts to extend health insurance coverage as well as tackle the increased prevalence of chronic diseases like lung cancer, stroke, heart disease and diabetes occurring throughout the country. Thus going forward China needs to set up an effective healthcare and insurance system, where both insurers and hospital groups are given the proper incentives to push for lower medical costs for patients while, or course, maintaining prudent underwriting discipline.