Healthcare Cost Puts Significant Strain on China's Government Budget

China's public healthcare system is centralized and large third-level public hospitals in particular are suffering from overutilization.

January 2018 , by

Taking into account the effects of China's health situation and the likelihood of an increased government's share in healthcare expenditure, healthcare cost as a percentage of total government expenditure is likely to get much greater. Considering the future GDP growth rates, government budget growth rates, as well as the current financing structure of China's healthcare system, our report, "China's Healthcare Reforms: Who Will Survive?" forecasts that by 2045, 20% of China's government budget will be spent on healthcare, a figure that would be among the highest across the globe. However, only as much as 56% of China's current healthcare financing structure is funded by public sources, much lower than most countries such as EU (77%) and Japan (84%).

Reforming Public Hospitals to Reduce Cost

Since 2015, the government of China has launched healthcare reforms, aiming to enhance the quality, coverage and sustainability of the Chinese healthcare system. China's public healthcare system is centralized and large third-level public hospitals in particular are suffering from overutilization. The government also aimed to develop a more cost-efficient decentralized healthcare system by encouraging the proliferation of general practitioners and private healthcare facilities as well as developing a more hierarchical system for public hospitals. 

Adding to that, the government implemented a comprehensive public hospital that focused on separating drug sales from hospital revenues, as well as adjusting the prices of medical services. This reform was targeted to reduce the heavy reliance of public hospitals on drug sales while containing the escalating medical expenditure. The 15% mark-up from drug sales (except for herbal traditional Chinese medicines) was removed in all public hospitals, reducing the reliance of public hospitals on profits from drug sales based on national guidelines.

Along with the broader reform, the government of China also implemented financing reform which emphasized the importance of well-coordinated reform in pharmaceutical manufacturing distributions, hospital organizations, as well as social healthcare insurances. 

The establishment of National Healthcare Security Administration (NHSA) in 2018 was one of the results of this reform. Not only assuming administrative responsibility for all social insurance schemes, the NHSA also incorporated previously separated purchasing power, such as price setting, provider payments, and procurement. As the government recognized the urgency to shift from over-reliance of medical services in hospitals, the reform was also linked with a systemic effort in developing a referral system with multiple tiers of services, counting both hospitals and primary care facilities.

Encouraging Private Healthcare Services

In 2017, The General Office of the State Council also issued the Opinions on Encouraging Development of Diverse Private Healthcare Services in order to encourage private investors to participate in Chinese medical service sector. The policy was also aimed to develop healthcare sector in the  country. As stated there, eligible private healthcare institutions will be treated equally to public institutions and boast the same benefits in several areas, including patient referral, performance assessment, charges and payments, as well as incentives.

Furthermore, the government also encourages foreign investors with advanced medical technology, best-in-industry operation models and notable management experience to set up medical institutions through joint ventures. The collaboration will grant foreign investors pre-establishment national treatment, as well as negative list market-entry treatment. Institutions than can provide specialized services, covering rehabilitation, nursing, pathological diagnosis, medical imaging, physical examination, disinfection supply, hospice care, as well as blood purification will particularly get more preferential policies.

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