By staff reporters Ren Bo and Liu Jingjing 

(Caijing Magazine) After three years of debate and fine-tuning, an 850 billion yuan medical reform package – anchored by a universal system for primary health care services – is edging toward completion.

The package, approved in principle by the Standing Committee of the State Council on January 21, was scheduled for release after the annual sessions in early March of the National People’s Congress and the government’s top political advisory body, the Chinese People’s Political Consultative Conference (CPPCC).

The plan calls for central and local governments to spend 850 billion yuan by 2011 to address long-time public complaints over the quality and affordability of medical care.

Since 1992, China’s medical reforms have focused on building a market-oriented system to replace a social network through which governments covered 90 percent of medical expenses.

The latest step in the reform process is designed to put public interest at the center of the health care system by redefining hospitals as non-profit organizations, as well as give the government power over medical resource distribution.

But the process is not over. Many details have yet to be released. It appears much of the funding involves previously approved allocations, not new money. And an 11th-hour debate appears to have slowed the process, forcing reform plan writers to contemplate key revisions.

Unanswered Questions

In discussions March 7 with Ministry of Health officials, CPPCC delegates raised a variety of concerns. Ministry officials, who led a reform coordination group representing 11 ministries and other government agencies, did their best to settle fears, particularly those from the medical circle.

The 16 CPPCC delegates who met with health ministry officials endorsed the need, principles and general direction of medical reform. But they said a number of hurdles should be overcome before the measures are implemented.

For the government, the reform’s key targets include raising financial allocations for health insurance and medical services; injecting more money into and improving the efficiency of public hospitals; improving financial support and personnel training at medical institutions at the grassroots level; reducing patient medical costs; encouraging more private investment; and raising the status of private hospitals.

The reform plan is also expected to expand coverage and levels of medical insurance, while disconnecting the current links between hospital medication sales and medical worker incomes.

Many of the delegates’ questions focused on the plan to increase government allocations for health care and what practical benefits could be expected for the public. They also expressed reservations about the responsiveness of hospitals, as well as the efficiency of reform if the government -- not the market -- becomes the dominant force in distributing health care resources.

Other concerns focused on the potential effectiveness of the latest reform in leveling the playing field for private and public hospitals, relieving personnel and cash shortages at local medical institutions, and raising the incomes of medical workers.

Patient Costs

According to the China Health Economics Institute, patients in recent years have covered 50 percent of all medical costs from their own pockets. Although that’s down from 60 percent in the 1990s, it’s still much higher than patient shares in many developed countries. And high costs, along with substandard services, have stirred public complaints.

Hailed by supporters as a financial “shot in the arm,” the latest reform plan is expected to ease those complaints. A government report said that, more than 331 billion yuan of the 850 billion yuan – or about 110 billion yuan a year -- would come from the central government, while local governments would cover the rest.

Caijing learned, however, that little fresh capital would be included in the proposed 850 billion yuan allocation. Instead, much of the money would come from a combination of previously budgeted investments already earmarked by central and local governments for the next three years.

The budget proposal issued by the Ministry of Finance to the National People’s Congress said the central government would spend about 118 billion yuan on medical programs this year – up 43 percent from 2008. But it remains to be seen whether local governments can come up with their matching payments. At least one CPPCC delegates said local governments are already overextended.

The 2009 budget plan sets aside 30.4 billion yuan for building rural medical cooperatives across the country and subsidizing the old-age pensions for urban dwellers. Grassroots medical institutions would share a 24.6 billion yuan subsidy, and more than 16.5 billion yuan would be used for infrastructure and equipment at various levels of public hospitals and clinics, with special attention paid to 29,000 rural and township clinics and community medical service institutions. In addition, about 6.5 billion yuan would be poured into the emergency medical aid system.

The remaining 40 billion yuan would be spent on helping money-losing state-owned enterprises pay social insurance for their employees and retirees, establishing a nationwide basic medication system, controlling major contagious diseases, subsidizing free public medical services, and supporting pilot reforms at public hospitals.

Medical Worker Gripes

The long list of big spending promises may look good on paper, but it has not prevented some medical practitioners from voicing disappointment. They say the budget proposal fails to take into account medical workers’ financial needs, and lacks allocations for proposed compensation improvements.

At the CPPCC-health ministry meeting, Peking University School of Stomatology Dean Yu Guangyan said the spending level for the central government’s 2009 health care budget is nearly unchanged from last year’s actual spending, which included 30 billion yuan in outlays carried over from a 2007 surplus. Yu called on the central government to increase investments in the sector, arguing that local governments have yet to show the ability or the willingness to foot the bill.

Another speaker was Chen Xingsheng, deputy mayor of the city of Ningde in Fujian Province. He cited severe shortages of medicine and doctors in rural township clinics, but noted that local governments would be hard-pressed to increase spending. Already, he said, local and central governments have spent 20 million yuan on infrastructure renovations and doctor subsidies over the past two years.

But Deputy Health Minister Huang Jiefu said medical reform is not only about money. “Without a good medical system and a good management mechanism, more investment only means more waste,” he said.

Drug Dependency

Public discontent surrounding public hospitals has long focused on high medical expenses, limited access to quality medical resources and doctor-patient conflicts. who grumble over the quality of hospital services and medical workers.

Many have said the system’s woes were rooted in a system that forces medical workers to rely on hospital medication sales for some of their income. Critics say the system encourages doctors to prescribe high-priced drugs –sometimes in overdose amounts.

But that view has been disputed by medical workers. Ding Jie, deputy president of Peking University No. 1 Hospital, said hospitals and doctors are not to blame even though “we are targeted in each round of reforms.”

“We’d rather to see reforms that solve our survival issues and motivate us,” Ding said.

The medicine sales practice dates to the 1980s when, due to financial constraints, the government cut expenditures on public services and compensated by giving more free rein to public hospitals. To survive, hospitals were run like hybrid private enterprises, with most operational costs covered by incoming revenues.

Reformers think they found an answer and included it in the latest plan: a zero-profit system for medication sales. The system would be implemented at the initial stage of the reform process in select hospitals, and on a pilot basis. Guangdong Province hospitals would be among the first to test the new policy.

Ending for-profit medication sales would fit a reform priority that calls for changing the compensation system for hospitals in a way that allows them to reorganize as non-profits, presumably to improve public services.

The changes mean hospitals would not be allowed to profit by selling medicine. On the other, the government would significantly increase input in hospitals by covering operational costs. Hospitals would be allowed to charge medicine administration fees and adjust technical services rates to make up for lost income.

Other proposed compensation measures listed by the Ministry of Health at the meeting were tied to infrastructure construction and major equipment purchases, scientific project development, resident physician training, higher medical worker salaries, and retiree subsidies.

However, the Finance Ministry’s 2009 budget plan includes funds only for infrastructure construction and equipment purchases, leaving out all other items including the proposed worker salary hikes.

Minister of Health Chen Zhu admitted, however, that salary levels and the social status of medical workers should be improved to support professional pursuits and protect employee rights.

Profitability Factors

Another dispute surrounding the new reform plan focused on a government plan to link hospital management improvements to income levels.

According to the proposal, medical institutions would turn over all revenues to government finance administrations and later receive appropriations for expenses back from the government through health authorities. Health officials would dole out the funds based on hospital management performance evaluations.

While the proposed system has been hailed by the Ministry of Health as a cure for hospitals that focus too much on profits, it’s also been criticized by many in the medical circle as a return to the planned economy. Critics also say it would increase the financial dependency of hospitals and clinics on government health administrators.

The proposed financing system would discourage service efficiency and could even spur corruption, said Gu Xin, professor of public administration at Peking University and a State Council-appointed specialist for evaluating medical insurance for township residents.

“The market is usually more effective than executive administration, especially in China where administrative professionalism is low,” Gu added.

CPPCC advisers said the proposal might benefit small and relatively poor hospitals. But they recommended that the changes not include large, well-run public hospitals.

Caijing has learned that reform organizers apparently listened to the advisers’ objections. As a result, the final draft is expected to only mention the effectiveness of separating income from profitability through tests in government-sponsored community hospitals and rural township clinics.

Uneven Playing Field

Another reform highlight is a plan to break the glass ceiling that separates private hospitals, especially those run as non-profits.

At the meeting with health ministry officials, some CPPCC delegates called for removing policy restrictions that favor public hospitals and giving equal market access to the private hospitals.

Currently, the playing field is not even for private and public hospitals. Private hospitals play a major role in reducing the overall workload for public hospitals. They also promote affordable and efficient medical services by preventing public-system monopolies, said Sun Jianfang, deputy president of the Peking Union Medical College, under the Chinese Academy of Medical Sciences.

Private hospitals “need more space,” Sun said.

The division between private and public facilities began in 2000, when China started allowing private investment in the medical sector. Now, most private hospitals function in special arena, and none of the country’s top-ranked “3A” hospitals are in the private sector.  While private hospitals account for more than 10 percent of all beds in the country’s hospitals, they handle only 2.7 percent of all out-patients and 2.5 percent of in-patient services.

Private hospitals seldom get the kinds of favorable government policies enjoyed by public hospitals, such as tax breaks, subsidies, medical insurance contracts, professional evaluations and staff training.

Traditionally, public hospitals have offered a wide range of public services, such as emergency care and rural medical assistance. These activities strain financial resources, especially for hospitals specializing in contagious diseases, traditional Chinese medicine, pediatrics, and genecology.

Meanwhile, private hospitals have had trouble when trying to register as non-profit hospitals. Research by He Wei, president of the Shenyang Heshi Eye Hospital and a CPPCC delegate, showed that private hospitals in at least five provinces are allowed to register only as for-profit hospitals. Thus, they are treated like businesses in terms of tax and land issues, and their medical equipment purchases are restricted. They also have to compete with public hospitals for professional medical workers.

“Under these conditions, it’s hard to survive,” said He. Under current conditions “sustained growth is almost impossible” for private hospitals, he said.

In response, Deputy Health Minister Ma Xiaowei said government policies would follow a uniform standard for private and public hospitals. The goal, he said, is for private hospitals to enjoy equal status with public hospitals in terms of service scope, while subjecting both to the same levels of supervision.

“We encourage private investment in establishing non-profit hospitals,” Ma said.

At the same time, some CPPCC delegates suggested all medical institutions should be market-oriented. They argued that none should be categorized by ownership, but as for-profit and non-profit organizations subject to different tax and pricing policies.

Similar proposals were raised during the previous round of medical reform nine years ago, but nothing happened. It remains to be seen whether the outcome will be different in the latest round of reform.

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Full Article in Chinese: http://magazine.caijing.com.cn/2009-03-15/110120981.html