China’s Health Care Reform: A Long March with Many Miles to Go

Amy Wendholt, director in APCO’s Beijing office, leads APCO’s health care practice in Asia.

While China’s sweeping reforms to upgrade the nation’s health care system are well-publicized and acknowledged by China watchers and the media alike, the overall context and achievements of the reforms to date often get less attention and praise. To share these lessons with a wider audience, I’d like to contextualize here the recent calls for continued reform efforts by China’s leadership by providing a brief background into those efforts and examining the objectives for the next phase of reform.

Brief Overview of China’s Health System Reforms

The crumbling of the Maoist health care system during the 1970s and 1980s confronted the Chinese government with a mammoth task. More than 1.2 billion people across a vast and often fragmented landscape needed access to basic medical services at affordable prices. Early reforms focused on developing a market-oriented health system.

However, reduced oversight and funding from the government resulted in the over-commercialization of hospital practices. The aggressive prescription of drugs aimed at increasing profits led to soaring fees, making medical services less affordable to ordinary citizens. Consequently, the percentage of patients’ out-of-pocket expenses in overall health care expenditures significantly increased, from 1980’s 21.2 percent to 59 percent in 2000. A 2005 report by the State Council’s Development Research Center harshly criticized the previous reform efforts, calling the efforts “basically unsuccessful.” This review launched a new phase of reform focused on increasing the public provision of health care by improving primary care, extending insurance coverage and providing basic resources to rural citizens.

Outcomes from Reform Efforts

Since 2005, several reform initiatives have launched, including the establishment of a universal insurance system; however, in 2009 a new and aggressive plan for health care reform sought to increase the equity, affordability and accessibility of China’s basic health care. The 2009 reforms included three years of reform and more than RMB 850 billion (USD 125 billion) in funding. In 2011, at the end of the latest reform period, China’s Minster of Health Chen Zhu highlighted several accomplishments:

• Near Universal Coverage: covering 95 percent of the population with current insurance schemes and increased reimbursement rates
• Establishment of an Essential Drug System (EDS): creating an Essential Drug List and an EDS procurement system
• Improved Grassroots Health Care Facilities: renovating 35,000 facilities and training tens of thousands of health providers
• Expanded Access to Basic Services: increasing per-capita spending from RMB 15 to RMB 25; and
• Progress in Public Hospital Reform: launching pilot programs and facilitating cooperation

Reforms Will Continue

As China’s top leadership commits itself to shifting the country’s growth toward a more sustainable and human-centered model, one that is capable of “higher quality development over a longer period of time” in the words of Premier Wen Jiabao, health care has taken center stage in reforms. The recent meeting of the National People’s Congress (NPC) clearly demonstrates that healthcare reforms remain a top government agenda.

Click on the image above to view a report on the 2012 National People's Congress

For people unfamiliar with the Chinese political system – and especially for those most accustomed to western, democratic systems – the NPC is an unusual entity. It is China’s highest state organ and is ostensibly China’s most powerful political body. Its 3,000 delegates meet once a year to pass legislation, approve the national budget and ratify key government appointments. But despite some reforms in recent years, the meeting is largely viewed as a “rubber stamp” for decisions made in advance of the meeting by organs of the Communist Party. The event is therefore less significant in terms of the legislation it passes and more for how it sets the tone of government work. To this end, the keynote speeches serve as an excellent indicator of government priorities moving forward. For more information

Health care was a topic widely emphasize at this year’s NPC meeting. Indeed during his “Work Report” — the closet thing China has to a State of the Union address — Premier Wen Jiabao specifically highlighted the success of China’s health care reforms to date. He praised their impact in creating a vast expansion of basic medical insurance and services and hinted at the direction further reforms will take, encouraging a shift from service expansion to cost reductions. Measures to support this shift included further hospital reforms, particularly those policies aimed at addressing expanding costs and preventing over-prescription; increasing the reach and power of insurance systems; and regulating drug prices, which should be interpreted as price reductions.

Policy Execution

Premier Wen’s oral commitment to further reform naturally begs the question, “How will China execute these proposed changes?” Chinese policy is carried out through the development and implementation of Five-Year Plans. The national 12^th Five-Year Plan for Economic and Social Development was promulgated in 2011 and will remain in force through 2015. Over the last year, government ministries have prepared and begun releasing industry-specific plans refining the objectives and goals outlined within the national plan. In the health care sector, the government has already released the plan for the drug distribution sector and the medical equipment sector. Additional plans for health care reform and the pharmaceutical sector are expected soon.  

These plans essentially put meat on the bones of the health care priorities laid out in the overall national plan. They are often startling in their specificity. The medical device plan, for example, sets the goal of having 200 core patents, 50 to 80 new basic devices and a market worth RMB 200 billion by 2015. The drug distribution plan aims to integrate the fragmented drug distribution through aggressive M&A. According to the plan, the top 100 distributors will account for 80 percent of the drug wholesales, an increase from 70 percent in 2009. The plan also states that China will create one to three “champion” distributors with sales of more than USD 15 billion. Policy-makers believed that by integrating the industry, the cost of drugs will be reduced as a result of less distribution layers and improved productivity.

The forthcoming plans will likely have similarly detailed provisions that, in aggregate, will further the government’s overall focus on cost reductions, hospital reforms and extended insurance coverage. 

At the end of the day, the premier’s speech and the various five-year plans reflect a continued commitment to health care reform in China. Of course, not all of the stated goals can feasibly be accomplished by 2015. Nonetheless, Chinese citizens will likely see increased access to affordable care over the next five years and beyond – a positive step in a world that just commemorated the 64^th anniversary of World Health Day on April 7.