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Greedy hospitals and doctors undermine health care
December 20, 2010, Monday
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SINCE the mid-1980s - with the collapse of the previous era's commune-based health system - the main impetus behind hospital reform in China has been to reduce the financial burden that hospital care places on government budgets.
In 1992, the Ministry of Health granted substantial financial autonomy to hospitals, allowing them to charge for their services and to sell drugs at a profit. They are now permitted to keep the surpluses that they generate, and they are responsible for their debts and operating losses.
Prices for basic medical care are regulated. In general, medical services produce net losses, and drug revenues produce net gains. Hospitals have been given freedom to develop higher quality services for which they can charge prices above the levels reimbursed by social insurance.
Reforms such as these have encouraged growth in the number of hospitals and the volume of their activity. Though still low by international standards, there were 19,712 hospitals nationwide by 2008, an average of 2.2 hospital beds per 1,000 population and 1.2 township health center beds per 1,000 rural population. About 20 percent of hospitals are private and for-profit (handling about 5 percent of total outpatient and inpatient services, though only about 1.5 percent of emergency cases).
The reforms have had some unintended consequences - for example, the tendency for public hospitals to increase their private revenue by offering more-expensive and more profitable services. Hospitals have expanded infrastructure and high-technology equipment in a chaotic way.
There has been imbalance in the growth and distribution of hospital facilities. Especially in rural areas, county-level hospitals dominate at the expense of primary care and outpatient facilities.
Patient dissatisfaction
Patient dissatisfaction with hospital services has risen. The incentives introduced by self-financing have detracted from the essential social responsibilities of public hospitals - to ensure affordable access to quality medical services for the poor; to provide preventive health services and rehabilitation; to respond to public health emergencies; and to carry out medical education and research.
The mix of limited government subsidies, dominance of the fee-for-services model, and increasing exposure to market competition has sent signals to hospital managers that are inconsistent with the government's social objectives for public hospitals.
Government budget subsidies have been decreasing as a share of total hospital revenues since the mid-1980s. By the end of the 2000s, government subsidies accounted for only about 10 percent of average public hospital revenues. Fees for medical services and drug sales account for the remaining 90 percent.
Despite piloting of provider payment reforms, for example, social health insurance reimbursement that is overwhelmingly based on fees-for-service, out-of-pocket payments by patients and drug sales remain the largest sources of hospital revenue.
Given the financing sources upon which they continue to rely, hospitals are faced with strong incentives to increase the quantity and cost of their services and to increase the volume of prescribing and drug sales. By 2008, drug revenue accounted for about 40 percent of gross income of hospitals, higher than the 15 to 25 percent common in most OECD countries.
The problems described above are not unique to China. Public hospital reform has been advocated in every region to address shared symptoms of inefficiency, waste, user dissatisfaction, brain drain to the private sector, emigration of professionals, failure to reach the poor, mismanagement, and often corruption.
No standard solution
But public hospital reform in China has a much different starting point than that of upper-income countries such as the UK or Australia.
Although cost containment and efficiency were also important reform objectives in the UK and Australia, these countries financed hospital care predominantly from public sources. This gave government health authorities powerful financial leverage over hospitals.
By contrast, many public hospitals in China function like private hospitals, and many public-hospital doctors function like private independent practitioners, because both hospitals and doctors obtain significant revenue from charging fees-for-services and earning profits from drug sales on a cost-plus basis.
In a country of the scale and complexity of China, there is not a standard set of recommendations that are appropriate at all levels of the hospital system.
(The article is adapted from a latest World Bank report entitled "Fixing the Public Hospital System in China." Shanghai Daily condensed the article.)
In 1992, the Ministry of Health granted substantial financial autonomy to hospitals, allowing them to charge for their services and to sell drugs at a profit. They are now permitted to keep the surpluses that they generate, and they are responsible for their debts and operating losses.
Prices for basic medical care are regulated. In general, medical services produce net losses, and drug revenues produce net gains. Hospitals have been given freedom to develop higher quality services for which they can charge prices above the levels reimbursed by social insurance.
Reforms such as these have encouraged growth in the number of hospitals and the volume of their activity. Though still low by international standards, there were 19,712 hospitals nationwide by 2008, an average of 2.2 hospital beds per 1,000 population and 1.2 township health center beds per 1,000 rural population. About 20 percent of hospitals are private and for-profit (handling about 5 percent of total outpatient and inpatient services, though only about 1.5 percent of emergency cases).
The reforms have had some unintended consequences - for example, the tendency for public hospitals to increase their private revenue by offering more-expensive and more profitable services. Hospitals have expanded infrastructure and high-technology equipment in a chaotic way.
There has been imbalance in the growth and distribution of hospital facilities. Especially in rural areas, county-level hospitals dominate at the expense of primary care and outpatient facilities.
Patient dissatisfaction
Patient dissatisfaction with hospital services has risen. The incentives introduced by self-financing have detracted from the essential social responsibilities of public hospitals - to ensure affordable access to quality medical services for the poor; to provide preventive health services and rehabilitation; to respond to public health emergencies; and to carry out medical education and research.
The mix of limited government subsidies, dominance of the fee-for-services model, and increasing exposure to market competition has sent signals to hospital managers that are inconsistent with the government's social objectives for public hospitals.
Government budget subsidies have been decreasing as a share of total hospital revenues since the mid-1980s. By the end of the 2000s, government subsidies accounted for only about 10 percent of average public hospital revenues. Fees for medical services and drug sales account for the remaining 90 percent.
Despite piloting of provider payment reforms, for example, social health insurance reimbursement that is overwhelmingly based on fees-for-service, out-of-pocket payments by patients and drug sales remain the largest sources of hospital revenue.
Given the financing sources upon which they continue to rely, hospitals are faced with strong incentives to increase the quantity and cost of their services and to increase the volume of prescribing and drug sales. By 2008, drug revenue accounted for about 40 percent of gross income of hospitals, higher than the 15 to 25 percent common in most OECD countries.
The problems described above are not unique to China. Public hospital reform has been advocated in every region to address shared symptoms of inefficiency, waste, user dissatisfaction, brain drain to the private sector, emigration of professionals, failure to reach the poor, mismanagement, and often corruption.
No standard solution
But public hospital reform in China has a much different starting point than that of upper-income countries such as the UK or Australia.
Although cost containment and efficiency were also important reform objectives in the UK and Australia, these countries financed hospital care predominantly from public sources. This gave government health authorities powerful financial leverage over hospitals.
By contrast, many public hospitals in China function like private hospitals, and many public-hospital doctors function like private independent practitioners, because both hospitals and doctors obtain significant revenue from charging fees-for-services and earning profits from drug sales on a cost-plus basis.
In a country of the scale and complexity of China, there is not a standard set of recommendations that are appropriate at all levels of the hospital system.
(The article is adapted from a latest World Bank report entitled "Fixing the Public Hospital System in China." Shanghai Daily condensed the article.)
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