Pacific Money

Sustainably Affordable Health Care in China

Can China balance patient affordability with sustainable service provision?

Sustainably Affordable Health Care in China
Credit: Beijing hospital via Yuangeng Zhang /

The question of increasing competition and jobs in the healthcare sector is hardly a priority under China’s current reforms, and reasonably so, even though this would aid the transition to a highly skilled service-based economy. The main question now is whether health care costs can be kept low for the consumer, but high enough to keep service provision sustainable for health care providers. Current reforms have laid bare this dilemma.

Urban public hospital reform is at the top of the list. This is currently being piloted in 100 cities and will soon expand to 200 cities. This aims to reform the business model and particularly the cost/revenue system. The main focus is to ban drug price increases, reduce the cost of medical examinations and increase the price of medical services such as surgery. This presents a challenge to hospitals in raising sufficient revenue to cover costs, especially as the government subsidy to hospitals continues to weigh in at only 8 percent of revenue. Some hospital employees appear to be skeptical.

At the same time, however, patients benefit from the reform. A study by Jinqiu Yang, Yongmiao Hong and Shuangge Ma (2016) finds that revenue and cost reform that began in 2009 in two Xiamen tertiary hospitals lowered patient costs for both insured and uninsured patients. Other researchers have confirmed the cost reductions centered on decreases in the cost of drugs.

Additional reforms are also underway. China’s National Health and Family Planning Commission is working to lower prices of several patented drugs that treat serious diseases, in a pilot program that would reduce the price-negotiation burden on local governments. Meanwhile, a tiered medical care project is to be piloted in 70 percent of China’s prefectures. This will reduce service demand pressures on tertiary hospitals, which are at present at overcapacity with no plans for expansion, and redirect patients to lower-tiered health care facilities.

The question of who will shoulder health care costs looms large. Health care costs have been rising and can be expected to increase as the number of individuals with noncommunicable diseases (like diabetes) grows and the population ages. Demand for health care services has also risen in step with the urbanization process. The dilemma faced by local and central governments is to keep patient costs down while keeping the system afloat. Local governments in particular are suffering from revenue shortages and have overextended themselves in terms of debt; therefore, much of the revenue flowing into hospitals must come from patient payments.

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Wealthier patients may be able to afford private health care, although this continues to account for only a small percentage of patient visits, at about 10 percent. Much of the onus of health care provision remains on the public healthcare system, in which doctors are already underpaid. Whether health care can become sustainably affordable, or whether that is just an oxymoron, is a question that will have to be answered by this round of reforms. If these reforms pass the test, perhaps in the medium to long run, another round of policy changes may focus on making the health care sector an attractive industry for high skilled workers.