Senior officials of the Ministry of Health (MOH) have been acting defensively in recent weeks following indications from various government agencies that an initial draft for the future directions of China’s healthcare reform is finally close to completion.

What might have raised the eyebrows of senior health officials is how the initial draft will depict the future hospital financing model. It is widely reported by the local press that, under the draft healthcare reform plan, hospitals are likely to be treated as service providers under contract by basic medical insurance programs in the future Chinese healthcare system.

However, the Ministry of Health, which is responsible for administering all public hospitals and regulating the medical industry, views such a scheme negatively. MOH is clearly concerned with the financial sustainability of public hospitals under this proposed scheme, and argues that inadequate funding may force hospitals to seek revenues through other means, thus leading to another wave of potential healthcare system abuse and corruption.

Instead, the Ministry of Health is advocating for another hospital financing model which calls for separation of public hospital revenues and expenditures. This MOH model requires hospitals to hand over all of its revenues to the government and in return receive government funding for all of their expenditures.

Chen Zhu, the new Minister of Health who is reported to be a supporter of market-oriented healthcare reform before he was appointed to this position, now stands firmly behind the MOH model, which is alleged to be a retreat to the days of the centrally-planned economy by many local reform-minded experts.

“I believe the policy of separating hospital revenues and expenditures will boost motivation and efficiencies of healthcare professionals,” Chen Zhu said in a recent interview with China Management News, a local newspaper. Health officials also believe this model to be an effective means for removal of the financial incentives of non-profit hospitals and healthcare professionals in over-prescribing medical services and drugs, and it will help medical professionals to “focus on their work”.

MOH spokeperson Mao Qun’An recently also stressed, at the same time of announcing the near completion of the draft for the future healthcare reform, that the Ministry will gradually push forward the policy of “separating revenues and expenditures” in public hospitals and that this financing model is already under trial in Beijing’s community hospitals.

This hospital financing model is supported by Prof. Ge Yanfeng, a heavy weight senior healthcare researcher and official with the Development Research Center of the State Council who authored the well-known 2005 report which was the first ever to openly suggest China’s previous healthcare reform to be “largely unsuccessful”. Ge is a firm believer of government leadership and funding in the medical industry, and a strong critic of the drive for privatization in the medical industry and the proposed market-driven hospital financing model under which medical institutions become contracted service providers.

But other heavy weight healthcare researchers, such as Prof. Liu Guo’en with Peking University and Prof. Gu Xin of Beijing Normal University, fiercely oppose the views and propositions of the MOH on hospital financing.

They call the model to be a retreat from reform and a reversal to the centrally-planned system under which the government manages state-owned enterprises and institutions by taking over their entire income and paying for all their expenditures.

They are concerned about the bureaucratization of the healthcare process, and have cautioned about the possibility of corruption among officials with powers to allocate funding. They have also questioned about the ability of the MOH to evaluate effectively the performance and needs of hospitals for the purpose of fund allocation.

Furthermore, they have warned that such a model is already proven to de-motivate and demoralize physicians and other healthcare professionals under the centrally-planned system in the old days.

The debate for hospital financing models is more than just what is seems on the surface - it is touching on a deeper issue which is about the nature of medical institutions, according to Tian Xiaorong, Secretary General of China Medical Investment Summit’s Organizing Committee. “The government policy has always treated medical institutions as social welfare units since 1950, thus allowing basic medical insurance agencies to contract medical institutions for services seems to indicate they are enterprises,” he said.

“It is time to clarify the enterprise nature of medical institutions so that the government can exercise leadership and regulation in accordance with the rules of the market,” commented Prof. Liu Guo’en. “Existing health economic policies of the government are no longer fit for the present situation,” he added.

Tian suggested that the senior leadership of the State Council is likely to make important statements in mid-October (Editor’s note: possibly referring to the CPC’s 17^th Congress) on the subject of healthcare which will have far reaching impacts on the future directions of the Chinese healthcare reform.