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The Chinese healthcare system over the decades



Sun Wei,

Gao Yinshui distributes medicine to her patients in Lixin Village of Meiling Town in Wanli District of Nanchang City, east China's Jiangxi Province, 8 August 2019. Almost every day for the past four decades, 69-year-old village doctor Gao Yinshui walks for miles on mountain roads to see her patients in nine different villages. Encouraged by Gao, her grandson also studies medicine and is likely to carry on Gao's cause. picture alliance / Xinhua News Agency | Zhou Mi

It is generally agreed that the success of public health measures in China, such as the fight against the coronavirus, can mainly be attributed to the speedy and efficient mobilization and utilization of public resources under the leadership of the central government with the support of the wider public. Providing medical treatment free of charge to every patient in public hospitals is one of the most crucial and effective solutions to blocking contagion, reducing social fears, and building up public confidence. In fact, China is currently in the process of setting up a “health for all” medical infrastructure after experiencing fluctuations in health and medical policy over different historical periods. Since the founding of the People’s Republic of China (PRC) in 1949, the health care system has undergone various reforms in different periods:

Sun Wei works as a project manager in the Rosa-Luxemburg-Stiftung’s Beijing Office, where she is responsible for developing, facilitating, and evaluating collaborations and political projects around China.

  • The initial stage of establishing a health care system (1949–1978)
  • Restructuring of the health care system under marketization (1978–1998)
  • Establishing basic insurance schemes (1999–2009)
  • Laying the foundations of health care for all (2009 to the present day)

Medical reforms usually involve different stakeholders: citizens as beneficiaries or customers, governments who are either the central or local managers of medical funds for public use or act as a market watchdog, as well as medicine producers, clinics, and hospitals who act as medical suppliers or market players to a certain degree. To understand the evolution of medical reforms throughout the construction of “socialism with Chinese characteristics”, we will focus on analysing the socialist features of these health care systems framed via three main questions:

  • Is basic health care a service commodity, or social welfare?
  • What is the role of public funds in financing basic health care?
  • How can the affordability and good quality of basic health care be guaranteed?

Is Health Care a Service Commodity or Social Welfare?

A 2009 announcement from the Central Committee of the Communist Party of China (CCCPC) and State Council confirmed that basic health care should be treated as a “common good” with the core function of serving public health. This confirmation emerged in the wake of various “ups and downs” in the Chinese health care system since 1949.

Soon after the foundation of the PRC, in 1950, the Ministry of Public Security started to implement the urban and rural “household registration” administration, which led to two different health care systems in urban and rural areas. In the urban setting, health care was an entitlement for all workers in a single danwei (the term for a workplace or “work unit”, at that time government-funded), including governmental agencies, government-affiliated organizations, and state-owned enterprises. A danwei covered all medical expenses for its employees. At the same time, no health care package was available for those people without work, including children and the elderly. In other words, they had to pay for medical care out of their own pockets. Villagers, on the other hand, began to build up medical cooperatives in collaboration with rural health care practitioners and local “pooling accounts” in the early 1950s, which later on played a more and more important role in rural areas. In 1958, the Ministry of Health publicly praised this bottom-up initiative, regarding such medical cooperatives as providers of public welfare that followed communist principles and ought to be popularized. Statistics show that nearly 93 percent of rural areas had set up their own medical cooperatives by 1976.

In line with the opening-up policy and introduction of market mechanisms in 1978, health care systems in both urban and rural areas experienced dramatic changes. State-owned enterprises reduced their responsibility for medical welfare for their workers in order to reduce so-called “production costs” and become more competitive vis-à-vis privately-owned enterprises, which had no responsibility to offer medical welfare to their employees during the 1980s and 1990s.

Welfare spending reductions in state-owned enterprises and a gradual increase of workers in privately owned enterprises led to the nationwide establishment of basic public insurance schemes in 1999. Given the success of introducing a market economy system to China, decision-makers tended to believe that the market could function well in building up the public health care system. The concept of insurance, rooted in the logic of the “free market”, replaced the previous system in which health care was simply part of social welfare provisioning in cities. In fact, the basic medical insurance schemes only served the needs of those formally employed by governmental agencies and commercial enterprises. No health care package was available for informal workers or the unemployed population, including children and the elderly.

After 1978, rural China saw the introduction of privatization in the form of the “household responsibility system” which returned land ownership—and the associated financial responsibility—to individual citizens. As a result, medical cooperatives collapsed due to the vanishing of social pooling accounts, which used to be the major financial resource of rural medical cooperatives but had not been adequately replaced. Increasing poverty, accelerated by illness in many villages, drew public attention. Meanwhile, migrant workers commuting from villages to cities were left to fend for themselves, as they lacked urban citizenship due to their own household registration still being in villages and were thus refused access to basic medical insurance, yet neither could they fall back on rural medical cooperatives.

The situation in hospitals, particularly publicly owned hospitals, became more and more intolerable for the public. The root cause was the marketization of hospitals, ideologically underpinned by the commoditization of health care. The government’s expenditure on health care coverage from public funds, as a proportion of total overall spending, decreased from over 30 percent in the early 1980s to about 15 percent in 2000. Hospitals, health care suppliers, and market competitors sought to reap profits from the prescription of medicine and medical equipment, with a preference for large-scale and costly prescriptions. The relationship between patients and doctors suffered drastically, as doctors were jokingly regarded as financial leeches, rather than “guardian angels” rescuing the wounded and dying.

The SARS outbreak in 2003, together with rising social tensions in hospitals, accelerated nation-wide reflection on the medical reforms implemented since the opening-up of the health care system. Whether health care constituted a public right and a natural part of the welfare state sparked intensive public debates, challenging the tendency towards the marketization of hospitals, while the historic trap of high welfare in the West was still a cause for concern for the policymakers of the Communist Party (CPC). Balancing both concerns, in 2009 the State Council announced that the goal of a new round of medical reform was to build up universal social security to provide “basic health care” to every citizen by 2020. The announcement confirmed the “common good” status of basic health care from there on in.

Figure 1: Chinese health care systems over time

What Is the Role of Public Funds in Financing the Health Care System?

As illustrated above, basic health care—confirmed as a “common good”—continued to function on the basis of a basic medical insurance system managed by local councils for the social security fund, under the direct leadership of local governments. Employers and employees, governments, and unemployed citizens (including informal workers, children, and the elderly in both urban and rural areas) all make contributions to the pooling account, from which both employed and unemployed workers are entitled to the reimbursement of medical expenses according to their contributions. As shown in the second table, formal employees and unemployed citizens are entitled to different packages, both in terms of contributions from as well reimbursement by the pooling account. Generally speaking, packages for employees are better than those for the unemployed.

Figure 2: Health care contributions and reimbursements in Beijing up to 2019

The new round of medical reform, oriented around the collaborative function of market and public funds administered by the CPC since 2009, increased the level of public finance from governments. By the end of 2018, the medical expenditure had risen to 6.6 percent of GDP, while the share of medical expenditure borne by the individual worker was as high as 28.8 percent, though it had decreased from 52.2 percent in 2005, and 35.5 percent in 2010 (the “Healthy China 2030” strategy published in 2016 set 25 percent as its target to be realized by 2030). Moreover, the net amount of health care contributions from workers has climbed dramatically, from 452 billion yuan in 2005 to 705 billion yuan in 2010 and 1.666 trillion yuan in 2018. Apart from the still-insufficient allocation of public funds towards health care, rising demand from individuals for better health also contributed to the increase.

How Can Affordability and Quality of Basic Health Care Be Guaranteed?

The major contradiction facing China, as President Xi stated at the 19th CPC congress, is the Chinese people’s growing need for a better life, set against “unbalanced and inadequate development”. Although 400 million people, nearly 30 percent of the Chinese population, have risen into the middle-income group, the overall population, particularly the remaining 70 percent, still remains the principal target of basic health care. The difficulty and high cost of accessing medical services became one of the most pressing problems, urgently in need of public solutions. Increased debate over previous medical reforms has spurred rising doubts about the negative impacts of medical marketization in China. Thus, in December 2008 the State Council organized a leading group for deepening the reform of the health care system composed of vice-ministers from nearly 20 ministries, which initiated a new round of medical reform in the following year. The leading group confirmed the policy of promoting the affordability and good quality of basic medical care, mainly though public funds with some supplementary market influence, as the guiding principle of the new round of medical reform. In local provinces and cities, several simultaneous coordinated measures began in the form of trial schemes covering clinics and hospitals, medicine production and purchase, and medical insurance plans.

Coordinated measures are being undertaken to reduce the cost of medical payments covered by individuals. At the time when hospitals competed on the free market in order to boost profits, mark-ups on medicine and medical equipment were the major profits sources, with patients shouldering the burden. The popularization of over-prescription intensified the worsening relationship between doctors and patients, and also harmed public trust towards hospitals, particularly public hospitals. Therefore, in 2018 Beijing municipality forbade the mark-up of medicines, along with medical equipment in mid-2019. Meanwhile, at the beginning of 2019, Beijing and the other ten cities selected by the State Council started to implement medicine acquisition through public procurement. No longer involved in medicine purchases nor any associated mark-up, hospitals lost interest in overloading patients with over-prescription. Moreover, the newly enforced national list of medicines covered by the universal medical insurance included most of the medicines for basic daily use and added 128 medicines for serious illness, including 17 imported anti-cancer drugs.

By involving various stakeholders, there is also a coordinated effort to reduce waste and improve efficient utilization of public funds for medical use. Pilot schemes are being tested to set up referral systems from community clinics and primary hospitals to the secondary and then to the tertiary hospitals, as well as to implement information-sharing among different hospital levels of to limit overuse of medical resources. The installation of improved facilities and better-trained doctors in community clinics and primary hospitals are intended as a means of attracting more patients to choose medical treatment in their local neighbourhood. The social pooling accounts connected to universal basic medical insurance have continuously tilted towards medical payments at the primary level. As mentioned earlier, the lower the level of hospital in which treatment takes place, the higher the percentage of reimbursement that patients can claim. The data showed that by the end of 2016, the overall number of medical treatments at community clinics in terms of individual visits reached 4.37 billion, covering 55.5 percent of the total.

New approaches are being applied to motivate medical institutions and their personnel to provide good quality medical treatment. Under the guidance endorsed by the State Council leading group, provincial and local governments have worked out a multidimensional evaluation system for hospitals and medical personnel. So-called “discipline inspection administrations” also invite independent organizations and undertake interviews with randomly selected patients in order to carry out their work in evaluating hospitals. An unexpectedly rapid increase in medical income could arouse suspicion and lead to additional investigations from authorities. Hospitals also introduced multidimensional evaluations of their own medical personnel. The number of patients is not the most important focus anymore, instead other criteria such as the quality of treatment, level of medical treatment, academic research capacity, leadership responsibility, and patient feedback all have some influence. One fundamental salary scheme has been applied to all the medical institutions—including primary clinics and tertiary hospitals—throughout a city or a provincial area, with the expectation of attracting more doctors to work at community clinics or primary hospitals. Fees for registration and for medical treatments saw a moderate increase.

The National Health Commission publicized a QR code for citizens to have direct access to leave comments on over 6,000 public hospitals, including all the tertiary hospitals and other secondary hospitals nationwide. Since the pilot phase in 2017, quite a number of hospitals have seen climbing patient-satisfaction rates. However, problems remain. The root causes still come from the conflict between public interest and commercial interests oriented around the logic of free market competition. Although basic health care regained its “common good” status, hospitals are still sharing the responsibility of both providing services in the public interest and turning a profit. On the one hand, a public hospital’s revenue comes from social pooling accounts, allocations, or special assistance from governments, as well as payments from individuals; on the other hand, public hospitals usually need to pay operational fees such as electricity, water, waste treatment and so on as if they were commercial enterprises. Doctors face the same trade-offs as well. On the one hand, doctors need to achieve treatment quotas as if they were commercial salesmen; on the other, doctors should restrict themselves from having “too” many treatments and prescriptions, in order to guarantee the right and appropriate treatment to patients. Another side effect is that more and more relatively cheap medicines have disappeared due to market competition.

As the free market is still regarded as an effective tool to allocate resources, various levels of government insist on issuing policies to encourage boosting private hospitals, which are expected to provide supplementary medical services alongside public hospitals. In general, the supplementary functions of private hospitals can be broken down into two aspects: first, if a private hospital can provide the same basic health care as public hospitals, it can be entitled to the same subsidy from the social pooling account; secondly, a private hospital can choose to charge more by providing better medical services than public hospitals. Statistics show that about 30 percent of urban citizens choose to go to private hospitals, while quite frequently scandals arose within these profit-driven private hospitals due to staffing problems, unreliable service, and high prices, among other issues.

Balancing Public and Private Interests by 2030

The new round of reform has made some positive progress. By 2019, the number of people joining the universal insurance schemes had reached over 1.3 billion, or 95 percent of the total population. The population in poverty as a result of illness has declined by over eight million, which was 34 percent of the total population in poverty in 2017. Taking Beijing as an example, the municipality announced that in 2017 overall medical expenditure was reduced by about 6.2 billion yuan. The reform saw an over ten percent decrease in patients going to hospitals of the highest level, and also an over ten percent increase in patients going to community clinics, in which access to good-quality medical care has improved accordingly. A survey conducted by the administration in 2017 demonstrated that 99 percent of interviewees at 100 community clinics were satisfied with the medical service provided there. Meanwhile, other problems still await solutions. How to balance the public interest—supposedly represented by the government—and the profit-driven interests of the market, seems an everlasting question facing China.

Right after the 2016 National Conference for Health, the second of its kind following an event in 1996, the CPC central committee and State Council publicized the “Healthy China 2030” action plan. The plan, being of strategic importance as President Xi affirmed at the subsequent 19th Party congress, sets out ambitious goals based on major health indicators (e.g. life expectancy, infant and maternal mortality rates) in order to catch up with the standards of high-income countries by 2030. As a country of nearly 1.4 billion, the common provision of the basic health care requires a tremendous amount of financial support from public funds. China initiated the new round of medical reform in 2009, the year China surpassed Japan to become the second-largest economic power. However, with low per-capita GDP and limited medical resources, China is making great efforts to learn how to utilize the power of the administration as well as market forces to meet the rising demand of ordinary Chinese people for good health.

In sum, the current medical reform can be characterized by the following: (1) providing “basic” medical services to meet “basic” medical needs from the public, mainly through public hospitals with private hospitals as supplementary suppliers; (2) collecting contributions from individuals, enterprises, and governments to build up basic insurance schemes; (3) governments taking major responsibility for the management of public medical funds; (4) the market being expected to facilitate competition among medicine producers and hospitals, to improve the efficiency of production and medical resources as well as the quality of service.

Currently, China has achieved initial success in fighting against the coronavirus pandemic. Ordinary people were overwhelmed by panic and insecurity at the very beginning. Only when the central government announced that all the patients would be offered medical treatment free of charge and started to mobilize all necessary resources to help Wuhan did people feel more and more relieved. Over 40,000 volunteer doctors and nurses from public hospitals (including military facilities) rushed to Wuhan. Workers of various sectors collectively constructed two public hospitals miraculously within ten days. Throughout the anti-coronavirus struggle, doctors focused only on patients without worrying about the workload quota, and patients were cooperative and grateful for what doctors did without being afraid of medical expenses.

The socialist model of full coverage of medical treatment through public funds greatly contributed to the success of the anti-coronavirus campaign, as many Chinese scholars have argued. What are the implications of this success for the ongoing medical reform or reforms in China more generally? Undoubtedly, the conflicts and contradictions—together with attempts at reform and innovation within the system—are worth sharing with other countries, and will hopefully provide new learning opportunities.