Health Minister Chen Zhu delivered an official report, on behalf of the State Council, on the reform of medical care and the public health system on December 26 to the 31st session of the Standing Committee of the National People's Congress (NPC), China's top legislature.  In his report, he outlined the framework and basic ideas of China’s healthcare reform and steps to be taken by the government in the future.

This session of NPC’s Standing Committee will review a number of important bills including the healthcare reform government report, the draft for the social security law and the draft revision of the personal income tax law.

 

 

Chen declared initial success for containment of the rapid growth of medical expenditures in recent years.  He said the average outpatient medical expenditures per capita had zero growth in 2006, and the average inpatient medical expenditures even fell in the same year. The rate of antibiotic prescription also fell to 69.7% in 2006 from 80.5% in 2004.

 

Rural cooperative medical system has been established in 2,448 counties and municipalities nationally, covering 730 million rural residents or 85.9% of total rural residents at present. The urban employee basic medical insurance system now covers 170 million people (with total premium collection of CNY 174.7 billion in 2006) and 79 cities initiated urban resident basic medical insurance system in the second half of 2007. The state medical assistance system distributed CNY 7,120 million in medical support to a more than 20 million people in rural and urban areas. In 2006, 82 insurance companies offered health insurance policies and the total premium of such policies reached CNY 37.6 billion.

 

 

Chen said that the Chinese healthcare reform is aimed at establishing a pharmaceutical and healthcare system with Chinese characteristics. The system will attempt to unite fairness and efficiency, and harness the leadership role of the government in healthcare and the utilization of market mechanisms. Commenting on the reform’s short and long term goals, Chen said the government will “consider and balance all factors, and combine the perfection of healthcare systems with resolving contemporary key issues”.

 

The overall objective, as the Health Minister pointed out, is to establish a basic medical care and health system for all urban and rural residents that provides safe, effective, convenient and low cost public health and basic medical services.

 

Chen promised to achieve the overall objective in two steps. The first step is to set up a preliminary framework of basic healthcare by 2010 in order to reduce the widening gap of medical services among different income groups and regions. The second step is to establish a comprehensive basic medical and health system covering all urban and rural residents, and build a medical service industry with multiple ownership and business orientations that can cater for numerous layers of needs by 2020.  

 

The comprehensive basic medical and health system will have four major components, including the public health service system, the medical service system, the medical security system and the drug supply security system, according to the report.

 

Under the new system, government agencies and medical institutions, government ownership and hospital management, hospitals and hospital pharmacies, and profit-oriented and non-profit-oriented medical institutions will all be separated. In addition, the role of traditional Chinese medicine will be promoted.

 

 

The report highlighted six major problems in China’s healthcare system at present: 1) the welfare nature of healthcare has been weakened, 2) there is an imbalance of healthcare resource allocation, 3) traditional Chinese medicine has been under-utilized, 4) the medical security system has many flaws, 5) profound problems in food safety remain unaddressed, and 6) risks and potential hazards exist in drug safety.

 

Chen said these problems are caused by a diverse range of reasons, including historical problems and structural problems in healthcare, slow development of the medical security and medical provision systems, and slow progress in government regulation and administration to match new environments. 

 

 

Chen’s report outlined the following six focal areas for healthcare reform:

 

1. Government responsibilities and funding will be strengthened. The leadership role of the government in public health and basic medical care services will be established.

 

2. Building of the rural and urban community healthcare system will be strengthened. The development of the three-layer rural healthcare network will be accelerated, and the urban community healthcare network will be developed to offer public health services and basic medical services for common and chronic diseases. Urban healthcare resources will be restructured, and gradually community healthcare facilities will become the frontline medical facility and a two-way referral system will be introduced between community healthcare facilities and hospitals. 

 

3. All medical institutions will be subject to the administration and supervision of local health departments in future. The respective roles and responsibilities of the government (the owner of public medical institutions) and the hospital management team will be clearly defined. In order to promote the quality of medical services, the personnel management system of medical institutions will be reformed to ensure that healthcare professionals are properly motivated and their value are properly reflected and compensated.

 

4. A multi-layered medical security system will be built. By the end of 2008, cooperative medical care system will cover all rural areas with its funding and reimbursement ratio elevated. By the end of 2010, the urban employee basic medical insurance program will cover all employees in cities and townships and the urban resident basic medical insurance program will be introduced nationally in full scale.

 

5. A national essential drug system will be established with the central government drawing up the essential drug list and setting up an essential drug production and supply system, which will secure the supply of essential drugs through designated production (under a tender process) or centralized purchase/direct distribution schemes. The central government will be responsible for guiding and regulating the use of essential drugs. A pharmaceutical reserve system will be established to guarantee the availability of essential drugs.

 

6. The building of the healthcare professional talent pool will be reinforced. Healthy and harmonious relationship between medical professionals and patients will be fostered.

 

 

Chen’s report stated that the public health services will be funded by the government and provided to all residents equally.  The cost of basic medical care, however, will be split among the government, social security and residents at “reasonable” ratios. Special medical care needs, however, will be self-financed by patients or paid through commercial health insurance schemes.

 

Both the central and local governments will "significantly" increase their funding in the healthcare sector. The ratio of government healthcare investment in total fiscal finance and the ratio of government healthcare expenditures in total national healthcare expenditures will be elevated. Increased government funding will mainly be used to improve rural basic medical care and urban community healthcare capabilities.

 

In a separate news, a senior official of the Ministry of Fiscal Finance announced that the central government will double the fiscal subsidy to the rural cooperative medical carey system and the urban resident basic medical insurance program from CNY 40 per capita now to CNY 80 per capita in 2008 (50% financed by the central government and the other 50% by local governments).

 

 

Due to a lack of government funding, public medical institutions have been dependent on profits drug sales. The existing healthcare financing model has therefore "imposed heavy burdens on patients and led to a waste of medical resources," the government healthcare reform report said.

 

Chen said the policy for hospital margins on drug sales will be reformed and "we will gradually reduce the dependence of hospitals on drug sales," but he noted that any resulting shortfall would need to be met by government subsidies and a reasonable rise in medical service fees.

 

While all public health facilities will be subject to full fiscal budgetary control, the report suggested multiple financing management models, including the scheme that separates revenues and expenditures of hospitals and the scheme under which lump sun prepayments are made by basic medical insurance agencies to healthcare providers, will be experimented in public medical institutions.

 

How the government healthcare funding should be channeled has been the pinnacle of arguments by various government agencies and their supporters. Chen said in the report that the future government healthcare funding will be directed to subsidizing both healthcare providers and patients. This seemed to be only a temporary compromise among disagreeing parties as the report failed to elaborate on this issue. While many local experts believe that the future government healthcare funding will be tilted towards subsidizing patients thus granting basic medical insurance agencies the power to freely select and contract healthcare providers, some other experts doubt if, in practice, the patients will be able to receive the full benefits of government funding under such a policy and system.

 

 

It seemed unusual that the healthcare reform report was suddenly presented to the NPC for review, before the public had a chance to comment on it. Legal experts point out the once the NPC passes this government report on healthcare reform, there will be little room for additional changes and the process of amending and enacting laws and regulations in accordance with the spirit the government report will begin. Local analysts are concerned that, without sufficient public participation in the development process, the government’s healthcare reform plan is likely to face many unnecessary challenges and even costly mistakes when implemented.

This government healthcare reform report delivered by the Health Minister Chen Zhu also seems to be unusually vague and elastic, giving mostly broad directions and many open ends rather than a well-defined roadmap.  This report is likely to be the result of a compromise among disagreeing government agencies and officials, so that the public pressure on them for moving things forward will be temporarily released. However, such a temporary compromise will surely leave shadows on the future implementation of the healthcare reform plan. 

It is also unusual that the State Council chose its Health Minister to deliver, on its behalf, the government report on healthcare reform to the NPC. This may indicate the strengthening of the MOH position in the healthcare reform planning and implementation process.