Posted on Sep 05, 2012 by Sergio Ulloa
China announced last week that they plan to increase healthcare spending to more than USD 1 trillion by 2020. This is a lot of money, but a closer look at the current state of public health in China and the obstacles to further improvement, will help shed some light on this announcement.
We recently posted an article covering the state of China's health services, the "successfully completed" improvement projects and the calls by Vice-Premier Li Keqiang for China to continue pushing forward with healthcare improvements.
At the time, the major focus of improvement to healthcare in China had been to increase affordability and accessibility of health services so that at least 95% of Chinese would be able to avail themselves of public healthcare services without having to incur significant out of pocket expenses.
A lot of these improvement efforts have had some effect, and many more Chinese (especially in rural areas) now have access to a host of medical treatments which they may not have known existed only a few months ago. This is certainly a good thing, but this massive increase in the eligible patient pool has had some unintended consequences. Patient intakes in city hospitals have surged; at many city hospitals patients queue up overnight to get a ticket to see a doctor and even then it is usually only for 5 minutes worth of consultation, due to the huge backlog. Touts are common, and people often pay massive amounts to buy a space in the front of the line.
One unexpected issue has been that of unrealistic patient expectations. Uneducated patients are arriving at the hospital believing that the high-tech and expensive treatments can cure just about anything, and they do not understand the limitations of current medical technology. This is compounded by the fact that people expect money to buy solutions, and when a family has just spent a large part of their life savings on some treatment, only for the sick person to then die anyway, the family draw the conclusions that it must be that they have been cheated somehow. In addition, patients who have worked or studied abroad have seen what is possible and now have higher expectations than what the overburdened system can deliver, leaving only more dissatisfaction and frustration.
Chinese doctors were already overworked and underpaid before these latest sets of healthcare reforms occurred, and their situation has radically worsened since. The average doctor still only earns the same as most other college grads, despite much longer hours and greater risks. A junior doctor in a city hospital earns around USD 500 per month, rural doctors even less. It is not uncommon for a doctor to see more than 50 patients a day and sometimes up to a hundred. To date, doctors and hospitals have used kickbacks and high profit margins from selling specific medications to supplement their income, a practise which has become commonplace, and which the Central Government has seen as a simple solution to the problem of doctors' pay and hospital's profitability.
Unfortunately, having a doctor in the situation where he has to prescribe medicine simply so that he can pay the bills is awkward at best and not a typical recipe for quality care. It ensures higher costs for the patient and eventually creates the expectation that all treatment requires medicine and that any treatment can be treated with a medication.
These factors are creating an atmosphere filled with pent up rage, frustration and disappointment, with patients and doctors finding themselves in a very uncomfortable situation.
China is planning to continue increasing its healthcare spend significantly, and will be spending around USD 1 trillion a year by 2020. This will largely be taken up by insurance costs and with an aging population, the increasing availability of more expensive treatment and addition of more chronic diseases to the insured list, a trillion dollars will be spent surprisingly easily. It will be a total of about 7% of GDP and still less than half of the US healthcare expenditure - and the US has a quarter of the population. A trillion dollars sounds like a lot, but it is still on the conservative side.
We have already seen that public healthcare rarely improves simply because more money is thrown at it, and it appears that the authorities have seen this too. The developing situation in the pharmaceutical industry is a good example of this. Doctors and hospitals have come to rely on the income from sales of branded medicines, and a large chunk of the increased healthcare expenditure would most probably be absorbed by increased costs of prescription meds.
To counteract this, the Central Government have allowed a few provincial governments to trial a different approach. One such province that has risen to prominence is Anhui, where officials decided on some rather extreme measures, at least from the pharmaceutical industry's point of view.
A legislative and healthcare framework being trialled in Anhui prohibits prescription providers from adding any markup to sales of any medicine on the Essential Drugs List (EDL), and centralises the process of bidding on and purchasing drugs. Hospital controlled pharmacies are out and EDL drugs will instead be distributed only from rural hospitals for a flat fee, while each drug will have exclusive distribution rights assigned to certain companies, decreasing competition and the ability of the pharmaceuticals to pay kickbacks to doctors in order to ensure high sales.
While other states have also developed models to try and bring pharmaceutical costs under control, the Ahnui model has become very popular and 18 out of 23 of China's provinces have implemented measures based on the same model. The big pharmaceutical companies are understandably worried, as many of their most profitable drugs face the possibility of being added to an EDL, therefore stripping any profits from that particular drug. Another worry is that the Anhui model places a very large emphasis on direct price comparisons, and doesn't test for quality very well. This has the potential of driving prices down so low that only below quality products can compete in the bidding process.
What has also tended to happen is that drugs on the EDL simply become unavailable, as doctors don't trust the low cost drugs, hospitals cannot afford to stock items that they cannot make any profit on and pharmaceuticals either pull out of the bidding process or the bid winner ends up being unable to maintain the supply of the drug at the price they bid.
Keep in mind that the goal with all of this is to prevent overpricing and overprescribing, which to some degree it does (at least on a superficial level) however, it doesn't really tackle the root of the problem and merely leaves doctors and hospitals in the position where they will have to find another way to supplement their income. To date, doctors employed at public hospitals have not been allowed to do any private practise, although many do secretly work in private hospitals or from home to generate additional income. Authorities have loosened their grip on this matter, and doctors have recently been permitted to work one day per week in a private capacity. This helps a little, however, the greater problem still remains. The dismal remuneration of doctors really does need to be addressed in order to draw new doctors to the profession. China needs thousands of doctors to be added to the current workforce to even come close to meeting current demand, one estimate suggested that there is a shortage of 200,000 pediatricians alone in the country. There is also a lot of ill will towards doctors in China, and it is not a career with anywhere near the same earning potential or prestige as in western countries. The dysfunction in the healthcare system has brought the public's appreciation of and respect for doctors to an all time low. It has become so bad that an online poll by Chinese People's Daily was removed after a large majority of respondents selected a happy emoticon to characterise their reactions to the recent murder of a doctor by a very unsatisfied, knife wielding patient.
Somehow, China needs to turn this situation around; the country desperately needs more doctors and with the powerfully negative public sentiment, low pay and huge workload, it is hard to envision many young Chinese people harbouring a desire to be a doctor one day, much less acting on that desire.
The private sector does present some potential solutions to this. Doctors in private hospitals are not as highly regarded by the government's medical bureaucracy or the public at the moment, but those doctors who brave the current scorn from their peers in public service to work in private institutions receive much higher pay, better conditions and a much improved doctor-patient relationship. This is a trend that will continue to change, with private institutions gaining credibility with the government and general public through quality of service and level of care.
It should not be hard to outshine the average public hospital. Most public patients see a doctor for only 5 minutes after hours of waiting, and on this point alone the private sector should be able to show stark contrast. Having a doctor that has time to meet the patient, focus on their case, make a proper diagnoses and decide on an appropriate treatment, can go a long way towards increasing patient satisfaction. Add to this the fact that the doctor will not be overworked, exhausted, stressed out or waiting for an "incentive" in a red envelope, and it isn't difficult to see how people will be prepared to pay for a better service if they can afford it, at least they will feel like they're getting value for money.
The challenges of provisioning public healthcare are not to be sneezed at. China's sustained period of unprecedented development has increased the demand for modern medicine among more than a billion people. Ten years ago less than 30% of Chinese people were entitled to some kind of healthcare insurance, today, that number has risen to at least 95%. This in itself is a major feat, but to actually bring the benefits out of the world of statistics and into the lives of almost a quarter of the world's population is a lot more difficult.
China needs approximately 500,000 doctors as soon as they can be trained or hired. To start meeting the demand, not only does the desirability of being part of the medical profession need to be improved, but so too must the capacity to train these new doctors. Finding a way to improve the quality of life of the average doctor is also important, not only by increasing salaries, but also by improving the work-life balance, professional development opportunities and making it easier for doctors to increase their income through excellence - not just work-rate or levels of prescription.
Aside from the challenge of finding the human capital, there is also that of ensuring the availability of affordable drugs and technology, without alienating the large brands and ending up without any quality suppliers available. The big pharmaceutical companies have a reputation for putting profits high on their agenda, and will not be interested in doing business in China purely on humanitarian grounds, they will need a carrot to keep them in the game.
The increasing costs of a progressively older population also needs to be accounted for, and when looked at in the light of the current economic slowdown and the sheer scale of things in China, this becomes quite a large hurdle. China's one child policy has produced a large "elderly overhang" with the imbalance reaching its peak in the next twenty years. With more than 2 generations of single child families, Chinese youth are heading for a future where each adult will have potentially 6 elderly family members to look after (4 grandparents, 2 parents). Even just in terms of taking care of the elderly, by 2020, spending USD 1 trillion at a national level would have to be split between 15% of the population who are over 65, that's only USD 5000 each when split between 200 million people.
China is working to improve its healthcare, questions remain as to how the private sector will fit into the picture, and whether solutions offered by new technology to the urban rural divide will help turn the tide. Above all, the big question is just how China will pay for it all, and what the chances are of actually turning public opinion against the medical system around.