The Social Face of Economic Growth: Title and subTitle BreakChina's Health System in Transition

Even as Congress prepares to debate President Obama's health reform agenda, the People's Republic of China has passed its own long-awaited health reform plan,¹ setting aside $124 billion for this purpose over the next 3 years.² This ambitious reform, issued by the State Council and the Central Committee of the Chinese Communist Party at the beginning of April 2009, would overhaul the health system, providing citizens with improved service quality, greater accessibility, lower cost burdens, and the guarantee of universal health coverage.

China's much-noted economic trajectory over the past decades has lifted 400 million individuals out of poverty and contributed to what a former World Bank president called “the greatest increase in wealth for the largest number of people in the shortest time in the history of mankind.”³ China is now the world's third largest economic power, and its spending decisions could help determine the course of the global economy. However, China's economic ascendency has brought major challenges. Increasing demand has strained dated drug supply and delivery systems while highlighting increasing financial and health gaps between affluent urban dwellers and their poorer rural counterparts. Meanwhile, rapid development has generated greater threats to the public's health. The density and intermingling of human and animal populations have led to the spread of infectious diseases such as severe acute respiratory syndrome, AIDS, and influenza A(H5N1). Rapid urbanization has led to changing diets, sedentary lifestyles, and new environmental health hazards. Diabetes will have doubled in China and cardiovascular death will have nearly tripled in the first part of this century.⁴ China is home to one-third of the world's smokers and obesity rates are increasing more rapidly than in any other country in the world.⁵

Prior to 1978, China's health care system relied on practitioners known as “barefoot doctors,” hired by the government to serve in public clinics.⁶ Due to lack of training and resources, the barefoot doctors could provide only limited treatment, but their services were effectively free. China focused its corps of barefoot doctors on simple cost-effective public health interventions, including sanitation and immunizations. From 1952 to 1982, this strategy achieved enormous success, reducing infant mortality from 250 to 40 deaths per 1000 births, doubling life expectancy, and drastically reducing the prevalence of infectious diseases such as malaria and sexually transmitted diseases.⁶

However, in tandem with China's transition to a market economy beginning in 1978, the nation's health care also transformed. In the 1980s and 1990s, the central government's share of national health care spending decreased by half to 15%.⁷ The government converted its central subsidy to local governments into a block grant, imposing a hard budget constraint that effectively transferred responsibility for health services to local governments. The wealthier provinces could devote local resources to replace shortfalls, but elsewhere the government allowed facilities to generate revenue by charging for medical services under a fee structure set by the Price Commission^{8 - 9} —charges for routine services were set low, but clinics could charge more for advanced care and pharmaceuticals.¹⁰

Under hard budget constraints and local fee-generated revenues, China has evolved from a system of public salaries, public budgets, and state clinics to a predominantly fee-for-service system that is “public” in name only.

This pricing structure led to supplier-induced demand and overprescribing of pharmaceuticals, with 1 study finding that 25% of prescriptions were contraindicated and 16% of computed tomography scans were unnecessary.^{8 - 9} Meanwhile, poor patients often went without care. Patients' out-of-pocket costs nearly tripled from 20% in 1978 to a high of 60% in 2001, declining somewhat to 49% as government finally began to respond in 2006.¹¹ Nearly 40% of sick individuals who did not seek medical attention cited cost as the reason, as did 70% of those who refused hospitalization after a physician's referral.¹²

The gap between rural and urban areas is of increasing concern. In 2000, rural residents constituted two-thirds of the nation's population, but rural health expenditures accounted for only 22.5% of the national total. The difference in life expectancy between an individual living in Shanghai and an individual living in Guizhou was 13.5 years, as great as the gap between “developed nations and the most underdeveloped countries in the world.”⁹

These failures have fed a powerful wave of public opinion against the health system and those perceived to be profiting from it. By 2008, health care had become the leading public concern in China.¹³ In a system lacking in public outlets for expression, there was one powerful indicator of citizen outrage: in a Chinese Medical Doctor Association survey of 100 hospitals, each hospital over the past 3 years had an average of 66 patient disputes, 5.42 incidents of patients vandalizing or defacing hospital property, and 5 incidents of physicians being injured by patients.¹⁴

The health care plan passed by the State Council in 2009 contemplates 4 interrelated reforms: health coverage, health delivery, public health, and drug supply. Regarding coverage, the plan would provide a basic guarantee of universal health security. Notably, the plan would provide urban and rural residents with portability and parity of medical insurance, addressing the reality of a mobile population. The plan also allows those with means to seek coverage beyond the basic guaranteed level by purchasing additional insurance in the private market.

The plan would keep the delivery system primarily public in ownership, strengthening the quality and accessibility of community-level front-line health care. It also envisions pilot studies to test improved management methods for public hospitals. The plan contemplates not just improved medical delivery, but also stronger public health infrastructure, which, in China, includes disease control centers, maternal and child health centers, and blood suppliers. The plan sets a 20-yuan renminbi target per person per year for public health spending and clarifies the public health system’s remit to include some routine check-ups, the control of major diseases—infectious as well as chronic, outbreaks, surveillance, occupational health, school health, mental health, health education, and environmental health.² In addition, the plan calls for quality improvement and accountability for the drug supply.¹

Given the breadth of these reforms, the government plans a gradualist approach. Its top 5 priorities include the achievement of coverage through existing health insurance programs for 90% of the population, with the promise that the total value of the government contribution will reach at least 120 Chinese yuan renminbi per person per year. Although this defined contribution benchmark is 6 times higher than it was in 2003, it still amounts to less than $20 and must be adjusted to increase alongside aggregate health needs to sustain meaningful security. The government has also prioritized designation of a formulary of essential drugs, upgrading of primary health delivery, greater parity between rural and urban public health services, as well as initiation of the aforementioned hospital pilot studies.

As is the case with President Obama's budgeted health reserve fund, crucial details of China's plan have been deliberately deferred to allow time to marshal consensus or to experiment with different options. Many of the most difficult questions remain: How will health care worker and hospital payments change and what disincentives would result? How will quality be improved in rural areas when talented professionals in all sectors have been migrating to the cities? How will pricing, standards, and policies be developed with technical accuracy and responsiveness to changing science and community needs over time? The reform plan is complex, requiring a strong administrative and legal apparatus, and China's ongoing weaknesses in this area will be quickly exposed when disputes arise over coverage determinations, benefit denials, the quality and appropriateness of services, and central vs local management. However, there is reason to be cautiously optimistic. China's leaders have embraced a universal system, with all the political and financial obligations to the citizenry that such a bold decision entails. Assuming China's policy makers can mobilize the resources of its knowledgeable communities of experts and stakeholders to help inform the difficult choices required in any health system, this commitment to universal health care can create positive internal pressures to get the detailed plan right over time.

Perhaps therein lies an important lesson as the United States engages in upcoming health care debates. The United States has long evaded a commitment to universal health care by fierce ideological disagreement over the specifics. Health reform in any country is an ongoing process, driven by an evolving vision of the compact between citizens and their government. In China, health care already tops the list of the public's concerns and this year, government has, after decades of retreat, finally renewed its commitment to respond, signing on for the long term with all the successive rounds of reform and debate that it will entail. China's health system has outgrown the former government-run model, as well as the perversely fee-driven model of health care that has plagued the country in recent years. Now China is seeking a bold new model for high-quality cost-effective health care, and it must decide how far and in what manner to extend that entitlement, decisions that deserve thoughtful consultation across all sectors of society. China's health reform will affect everyone in the country, and its development will shape the citizens' relationship with the government for generations to come.