For the Health of the Nation

For the Health of the Nation
by Tom Orlik and Chris Spohr

Posted March 30, 2009

The People’s Republic of China (PRC) hopes that an 850 billion renminbi investment in public health care will broaden the scope and increase the quality of medical coverage, but investment must be accompanied by effective reform if the government is to achieve its objectives.

In 30 years of economic reform, the PRC’s health system has advanced steadily. But increases in spending and improvements in health-care outcomes have not kept pace with the unrivaled speed of economic growth. For much of the population, health care is an unaffordable luxury, and the phrase kan bing nan, kan bing gui (seeing the doctor is difficult and expensive) has wide currency, especially in rural areas and among the migrant population. The promise of universal coverage made by the current administration heralded a new focus on improving public health care. But it is the economic slowdown that has focused attention on the urgent need for increased and better-allocated government spending.

In January, following extended deliberations, came the government’s long-awaited announcement of the 850 billion renminbi investment. With a wider scope and higher standard of coverage, the government aims to achieve improved health care and quality-of-life outcomes. But the impact of the reforms may be more far-reaching. Strengthened and more equitable health care may also play a key role in encouraging households to shift from precautionary saving to consumption, helping the PRC move away from over-reliance on exports as a driver of growth and rebalance toward domestic demand.

The 850 billion renminbi will be split between two government plans, the recently released “2009-2011 Plan for Deepening Health-Care Reform” and another called the “Opinion Concerning Deepening Reform of the Pharmaceutical and Medical System"—both continue a trend in recent years toward greater priority and funding for public health care. The plans aim to achieve five key objectives in just three years. First, basic rural and urban medical coverage to reach 90% of the population by 2011, an increase in contributions to urban medical insurance and rural cooperative medical schemes, and a clear increase in the government's share of health bills. Second, strict regulation of the pharmaceuticals supply chain, a catalogue of approved medicines, and the costs of basic medicines covered by insurance. Third, improving the basic medical system with investments in city and village hospitals, and public health centers in impoverished areas. Fourth, the progressive development of a unified national medical system. Finally, reform of the management and regulation of the health system, including piloting reforms of public hospital compensation systems in 2009, with wider replication of successful experiments after 2011.

These objectives represent a laudable vision for PRC health. But the operational details still need to refined, and viable mechanisms rolled out to ensure that good intentions translate into better health-care outcomes and (in the medium term) free up more household resources for consumption. Three interlinked priorities are particularly important. The first is new spending. Initial plans for the four trillion renminbi rescue package included a mere 1% for health, education, and culture combined, a figure that appears to include some investments already planned. The question is how much of the promised 850 billion renminbi will actually be new spending, and how much will come from central and provincial governments rather than presenting unfunded mandates for already strained local budgets in poorer rural areas.

Such questions directly link to a second key challenge the reforms must address: distorted incentives faced by health-care providers, and excessive out-of-pocket costs faced by patients With just 18% of the total health-care costs currently picked up by government budgets, many hospitals stay in the black by resorting to excessive use of costly diagnostics and drugs Effectively separating the role of doctor and pharmacist will be essential, and the reform's promise of effective policing of the pharmaceutical supply chain must be part of the solution. At the same time, domestic and international experience suggest that the broader system regulation must be combined with well allocated state funding to prevent providers from bypassing cost checks and gaming the system.

Finally, turning higher levels of spending into better health-care outcomes will require a decisive shift in the focus of spending and attention to health system management and service quality. In terms of spending, a bias towards urban health care and expensive infrastructure and equipment needs to shift toward higher levels of spending on rural care and improved service quality. The government’s traditional strength resides in capital expenditure. A shift toward human resource development, and a rebalancing from coastal to interior, urban to rural, and treatment to prevention will not be easy. In terms of management, a key objective of the plan is improved regulation and oversight of service levels, but global experience underscores the fact that such targets are easier to declare than to implement.

The announcement of health-care reforms represents a major step forward. But the road ahead is not without pitfalls. If the government missteps, new spending may only further ratchet-up costs without impacting patient outcomes. The prize if they stay on course, however, is a healthier population driving faster, more sustainable, and better balanced economic growth—a prize well worth fighting for.

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