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No, China’s Not Privatizing Health Care

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China Power

No, China’s Not Privatizing Health Care

China’s latest health care reforms aren’t as revolutionary as they first seemed.

Almost hidden within the lengthy decision of China’s recent Third Plenum, there was a brief plan for shoring up China’s healthcare system. Some of the provisions, especially a line about the government encouraging the growth of private medical institutions, raised hopes that China was seeking a revolutionary overhaul of the system. However, recent comments by ministers from China’s National Health and Family Planning Commission (NHFPC) have put a damper on these expectations.

In an interview with People’s Daily, NHFPC Vice Minister Sun Zhigang clarified some of the bureaucratic-speak found in the Third Plenum’s report. While the report mentions encouraging the growth of private healthcare, Sun makes it clear that the priority will be on non-profit healthcare organizations, and these will largely be encouraged only at the “grassroots” level. In other words, the Chinese government will seek to encourage non-profit organizations to extend basic healthcare and sanitation to small towns and villages in the Chinese countryside, rather than opening China’s busy urban hospital sector to competition from private healthcare providers. Sun makes it clear that China envisions for-profit healthcare only as a “supplement” to non-profit care provided by both public and private sources.

So if the Chinese government isn’t planning to open the healthcare system up to private investment, how is it planning on addressing the shortage of both adequate funding and available care?

According to Sun, the government plans to increase public funding of hospitals while also slightly raising the service fees. At the same time, however, the government hopes to do away with the unpopular practice of hospitals selling medicine for profit. The practice of supplementing hospital income with medicine sales has led to overpriced drugs, collusion with pharmaceutical companies (including British firm GSK, which was recently busted in a high-profile corruption investigation), and the overuse of drugs. Doctors in China make about 50 percent of their revenue from selling medicines to patients. If the Chinese government outlaws the current 15 percent or higher surcharge on prescription drugs, hospitals could see a net loss in their operating income even with increased public funding. A trial in Beijing in 2012 also sought to cut down on hospital’s reliance on prescription drugs sales for income, but the program has yet to be tested on a national level.

In theory, opening the healthcare sector to private investment is supposed to help alleviate the income cuts caused by reducing the markups on prescription drugs. However, the government has been promising to open its healthcare system to private and even foreign investment since 2011, and little progress has actually been made. Currently, only about 8 percent of Chinese patients are treated in private hospitals.

Still, the government hopes to raise this to 20 percent by 2015 — an ambitious goal, especially given the seeming reluctance of China’s government to allow for-profit hospitals to enter the sector. China Daily outlined the challenges facing private healthcare facilities in a recent article. While the government has at least paid lip service to addressing some of these issues, most notably moving to allow public health insurance to be used to pay for treatment at private hospitals, other systemic issues are overlooked. For example, it will be difficult for private hospitals to attract doctors if their pension systems remain much less attractive than the pensions available to government employees.

Of course, even these systemic issues presuppose that the government is willing to allow more private, for-profit hospitals. Sun’s comments that private hospitals are expected to be mostly non-profit and working in under-served, rural areas will certainly dampen enthusiasm for investing in these ventures. It’s hard to see how China will be able to nearly double the percentage of patients treated at private healthcare facilities without removing some of these obstacles.

In an interview with People’s Daily, NHFPC’s bureau chief in charge of healthcare reform Fu Wei urged patience. The Chinese healthcare system, he said, faces comprehensive challenges on issues of development, reform, and management.  Comprehensive problems, though, call for comprehensive reforms. China will be hard put to tamp down on corruption and price-gouging in the pharmaceutical industry until it reforms the way healthcare is funded, either by greatly increasing government funding or by privatizing at least part of the industry. For now, it doesn’t seem that this is a step Beijing is willing to take.