Due to the one-child policy in the last 30 years, a growing share of China’s population will soon be over the age of 60, closely aligning its demographic dynamics with those of many developed countries. The Chinese government has made a priority of developing the healthcare sector as well, especially in regards to investing into the Central and Western parts of the country, where the quality of healthcare is lagging behind the rest of China.
Rising disparity between urban and rural China
China’s healthcare system has undergone a great deal of change since the era of “barefoot doctors” during the 1960’s. Although some of these changes are positive, such as the availability of world-class medical facilities in some parts of the country, the overall Chinese healthcare system is failing to meet the needs of a significant portion of its population. This is evident by the rising disparity between healthcare levels in the urban and rural areas, in terms of the number of hospitals, funding and insurance available. China’s leaders have been tasked with making major reforms to narrow the gap between services available to rural and urban citizens, as well as lowering the cost of care for all Chinese citizens.
Favouring drug treatments and reliance on medtech imports
In the field of medical device, despite a 20% increase in public spending on healthcare in recent years, China currently makes up only 2 to 3% of the global market for medical devices. Internationally, the respective markets for medicines and medical devices are of roughly equal size; however, in China, the market for medical devices is only 14% of its medicines market. This is attributed to the practice in Chinese health care of favouring treatment with drugs over medical devices, and a focus on treatment over prevention. China relies heavily on foreign imports for its medical supplies and devices, especially for high-tech, high-price items, for which the U.S., Germany and Japan serve as major importers.
For example, 80% of CT scanners, 90% of ultrasound equipment and 90% of MRI equipment is manufactured abroad. Imports of mid-to-high end products have decreased in recent years, but this has largely been due to foreign companies moving their production plants to China.
Attempts at cost-containment
Given the limited funding available from health insurance, China has attempted to limit medical device prices by introducing a number of reimbursement schemes that put downward pressure on the prices that hospitals pay for devices (as well as for pharmaceuticals).
The Chinese government requires a formal tendering process for imported products in order to strengthen the transparency of the purchase process, and to reduce the price paid by the end user.
Gradual decentralization and hospital financing changes
One of the major changes in China’s healthcare system that has had a significant impact on its citizens is the gradual shift from strictly government controlled and financed system, to a less centralized system in which hospitals received less central government funding in exchange for greater operating autonomy.
During the 1950’s and 60’s, hospital expenses and revenues were both controlled by the Central government. During the 1970’s and 80’s, workers’ salaries at public hospitals were paid for by the Central government, and hospitals were allowed to use the fees they collected to pay for other costs. During the 1990’s to the present, public hospitals were gradually given greater operating autonomy, and user fees replaced government budgets as the main source of income.
Challenges in the Chinese healthcare system
With the reform of China’s economy, the increasing number of private hospitals in China could improve access to primary and secondary healthcare in many urban and rural areas.
Many hospitals hold large resources for their outpatient departments, and the majority of people are used to visiting hospitals, since no clear boundaries between primary and higher levels of care had been distinguished.
Many public hospitals, including government-owned and state enterprise-owned hospitals, are facing:
- excessive employment
- poor financial performance
- unsatisfied doctors and other medical staff seeking to obtain a higher level of remuneration and better working conditions
- attempts from many local governments to reduce their budgetary burdens by encouraging the privatization of some public hospitals
China has very few private hospitals, with the vast majority of hospitals administered by China’s Ministry of Health (MOH) or by other government entities at the provincial or local level. Hospitals are categorized as:
- Tier I (township and county level)
- Tier II (100 – 500 beds),
- Tier III (over 500 beds)
The classification of hospitals plays a key role in determining the types and amount of equipment a hospital can purchase.
It is an open secret that many doctors already moonlight at other medical institutions, but that hasn’t helped private hospitals much. Many doctors are reluctant to shift to the private sector because their professional rankings can only be enhanced by their performance at public hospitals.
Trends in reimbursement and the private sector
Apart from the human resource issues, private hospitals also face a huge financial handicap because they are not eligible for social medical insurance, unlike the public institutions. Nonetheless, private hospitals, including foreign joint ventures, are allowed to participate in the social insurance scheme. Details however, such as treatment fees, are unclear and are likely to be approved on a case-by-case basis by local health bureaus.
At any rate, social health insurance reimbursements tend to be extremely low, so patients often still need private insurance to afford the services at foreign joint venture hospitals, which are pricier than their public counterparts.
Many private firms are also focusing on building their brands as superior service providers, offering access to cutting-edge medical equipment, and targeting patients who are able to pay extra.
Currently, more and more central governmental budgets are invested in health sector reform in China. Given the nature of the constantly changing healthcare sector, continuous investments are necessary to achieve high-quality and cost-effective care, which is especially important for new private hospitals.
Accordingly, further in-depth research regarding the developmental impacts of private hospitals on the entirety of the healthcare system is required.
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About Dr. Huanpo Ning
Dr. Huanpo Ning is a PhD at Donghua University, Shanghai and is TforG's correspondent in the AsiaPac region. He reports on the local healthcare markets & trends, and investigates the latest healthcare reforms in the region.