Last week I had the pleasure of speaking at length with Tsung-Mei Cheng, one of the world’s leading academics covering the evolution of health care systems around the world, with special focus on Taiwan and China. Tsung-Mei is the co-founder of the annual Princeton Conference on Health Policy, and she is Health Policy Research Analyst at the Woodrow Wilson School of Public and International Affairs, Princeton University. Tsung-Mei has participated in several forums that I recommend for those interested in an approachable summary of the many challenges to China’s healthcare reforms, including her contribution to the PBS series “Sick Around the World” and Fareed Zakaria’s CNN project, the Global Public Square.
I ran across Tsung-Mei’s research while working on my own analysis of how China is attempting to reform its public hospitals and incentivize private investment in the hospital sector and recommend to anyone seeking to learn more to reference Tsung-Mei’s work, including her contribution for the International Monetary Fund publication in a chapter titled “.” Our conversation on Friday focused on three themes: what is driving China’s massive attempts to reform its healthcare system, what are the challenges to hospital reform in China, and what lessons do China’s regional neighbors – South Korea and Taiwan in particular – have to offer to China?
Ben: What are primary drivers of China’s healthcare reforms?
Tsung-Mei: There is a reason for every reform, especially one of this magnitude. The main drivers of these particular reforms, which officially began in 2009, were two things. One is difficult access in many places where there is just no availability of care and, of course, related to that is the high expense of care, the affordability (or unaffordability) of care. When you put the two things together it is a very, very sad situation indeed. Back in 2003 the number of rural residents in China who had insurance was just 21%; for urban residents it was 55%. What happened to those people who had no health insurance? Very often, in so many cases, people just ended up not getting needed care because they could not afford it. Health care costs in China were unreasonable because of over-treatment and lack of standards. There were widespread complaints across China. In 2006 the Chinese National Academy of Social Sciences conducted a large nation-wide survey and found that “high medical expenses” was the number one social concern of the Chinese. Access and affordability were the twin problems that affected the daily lives of hundreds of millions of Chinese. The situation was so bad that very often when people discovered they had something serious, their only option was to go home, wait and die. In those days when you presented yourself in hospitals you were required to put up money up front or the hospital would not even take you in.
Ben: Is it appropriate to say that many of these gaps became worse when China privatized much of its state owned enterprises without paying adequate attention to where the dislocated workers would now get and receive healthcare?
Tsung-Mei: Here one has to be careful about the use of the word “privatization.” “Privatization” usually means change of ownership from public to private hands. In China’s case I would not use the word “privatization,” I would use “marketization” if there is such a word! The hospitals remained government owned but their practice was based on market mechanisms. Instead of maintaining their public good nature, hospitals went around chasing profits. Minister Chen himself used this word in the interview. Not a change in ownership but a change in behavior. There are also differences before and after reform and opening. In the pre-1978 years, it was largely a grass root barefoot-doctor based medical and health care system. They did a lot of things that were primary care and public health in nature. I remember reading an article back in the 1970s by a Harvard professor– Robert Blendon – that showed per capita spending in China on healthcare during the 70s were something like $11, but the health gains were tremendous because the money was spent on very effective things that improved population health. But since China’s opening, the public hospitals totally changed their orientation. That is when you saw deterioration in quality that took the form of over-treatment, considerable misuse and underuse. When you don’t know how to practice good medicine, you are likely to do the wrong things to patients.
Ben: What do you see as the biggest gaps in the existing system?
Tsung-Mei: Let me say up front that the health reform the government put in place beginning in 2009 has made a major difference in where healthcare in China is currently. First, today over 95% of China’s population of 1.34 billion has health insurance coverage – that is a major achievement. Second, the government engaged in major capacity building in both facilities and workforce training. Workforce includes both clinical and managerial workers. Third, the government has established the EDL (Essential Drug List) which helped reduce the drug expenditure part of the total healthcare expenditure and also made the use of drugs much more reasonable. The fourth area is that the government has vastly expanded public health services for everyone. The fifth one is the most difficult and that is public hospital reform, which will be a major focus of the 12th Five Year Plan period 2011-2015. I will say that you cannot change everything overnight — meaning over the short 3-3.5 year period (2009-2011-12). You can begin to make a difference, and the Chinese government has, but the government has to continue the reform without let up. The good thing is that the government is doing precisely that. It plans to invest even more money in the 12th Five Year Plan period than the period 2009-2011.
Now, with respect to gaps in health insurance coverage: in terms of sheer numbers, there are a much higher number of rural residents now covered by the new rural health insurance scheme (by now it may be 98% or more). Remember that 49% of China’s population is still rural. In contrast, 89% of urban dwellers are now covered. China has 3 different health insurance schemes: Urban Employees Health Insurance, Urban Residents Health Insurance, and New Rural Cooperative Medical Scheme. The benefits offered by these three schemes are different, and therein lie inequalities. For example, cost sharing by patients is lower for urban employees than is for rural residents. This means many urban employees pay 5-10% or so of their hospital bills out of pocket while rural residents pay 30% out of pocket for their hospital bills. Also, the Urban Employees Health Insurance covers more comprehensive benefits than does the Rural Cooperative Medical Scheme, which has only now been gradually expanding covered benefits. Here I will add that the rate of benefit expansion in the NCMS has been quite rapid. Furthermore, there are financing inequalities in the different schemes. Finally, healthcare facilities are still unequally distributed relative to population: eastern China is much more richly resourced than the interior. The government has been working hard to eliminate these disparities. And China needs many, many more qualified healthcare workers, along with more hospitals and clinics, especially in poor rural areas. China today spends 5.1% of its GDP on health care, and that does not appear to be enough.
Ben: Where does the government most need private investment and expertise?
Tsung-Mei: I am sure you know the government has formally changed its policies on private sector participation in health care. It actively encourages the private financing of social capital in the delivery of health care. The government recognizes that it is a very big and powerful Lone Ranger, but it cannot do everything. It wants private investors including foreign capital and expertise to build hospitals, to participate in the development of the life sciences, pharmaceuticals and medical devices, and even with health insurance. Minister Chen made such remarks in September at the summer Davos in Tianjin and so the government is very actively seeking to enlist the participation of the private sector. But overall the government wants to remain the leader in this reform. The government calls it government-led health reform: the main delivery system shall remain the public hospitals that are government owned and run.
Ben: Is the government doing enough to get out of the way and offer incentives?
Tsung-Mei: That is a hard question to answer – I hear the same things you hear. You know HCA is building a hospital near Shanghai. They had hoped to open last year, but now it is going to be next year. You also hear from drug MNCs, they say the same thing, that it is very difficult to work with the Chinese government. I think to be fair one has to keep in mind that this is all new to the Chinese government too. The government has to figure out how to interact with the private sector. The one thing the government knows is it needs to keep the public good nature of healthcare alive, so the government has to figure out how to reward the private operators without harming the public good nature of the healthcare system. It is a mutual learning process. I believe that, sure, there are obstacles and I must say the outsiders have been patient – but I believe they will figure this out. Social change takes a long time in general. For a government that for over 60 years has run the country as it saw fit it takes time to change.
Ben: Talk to me about what drove China’s neighbors (Taiwan) into major reforms of their healthcare systems, where the impetus is similar and where it is not.
Tsung-Mei: Let’s focus on the health systems of Taiwan and SK. Factors that led to their major health reforms in the 1980s and 1990s – decision to implement universal health insurance to provide access to care and financial protection from the cost of illness — were quite similar with those that drove China’s latest health reform: rapid economic growth, growing public demand for more and better health care, and strong political will and leadership. Both SK and Taiwan have single-payer systems. The health insurance part is run by the government. Financing comes from the government, the employer and insurers – three parties. But, in both systems, delivery of healthcare services is done largely by a private system. In Taiwan and South Korea, most beds and doctors are in the private sector. This is where you have a combination of government run insurance with private delivery of services. In Taiwan’s case in particular, their system is highly efficient. The Taiwan health system is cheap, 6.5% of GDP with 99.9% population coverage, and benefits are comprehensive, no waiting lines, no upper limit on saving a life. I know China is very interested in Taiwan’s health system, as does Minister Chen. The media reports that Chinese citizens envy Taiwan’s health care system which provides families cradle-to-grave financial protection and good access to health care. Taiwan is helping China do DRGs; the government wants to learn about Taiwan’s payment system as China is now engaged in payment reform as well. Based on China’s track record of what has been achieved since 2009, I would not be surprised that eventually China can offer its citizens that kind of protection as well. Having said that, one has to bear in mind that good overall economic performance is crucial for success in this area. Slow economic growth severely constraints what can be achieved in the health care sector.
Ben: One of the issues that has presented itself recently has been how resistant Chinese hospitals have been to certain parts of the MoH’s attempted reforms, specifically those that limit how they generate revenue from drug prescriptions. Can you comment on where this resistance is coming from?
May: Public hospitals’ resistance to the EDL reform in China is easily understood, because hospitals had made most of their money from selling drugs in recent decades. In those years government forced hospitals to either sink or swim on their own without much government support, at the same time government allowed hospitals to mark up drugs heavily to cover their costs and even earn good profit that way. Selling drugs to feed medicine became a way for public hospitals to survive and thrive. The result was over-prescription of drugs which was economically wasteful and harmful to patient’s health. In those days costs of drugs and lab tests in a hospital bill could amount to as much as 75-80% of the total bill for treatment. Now China has the Essential Drug List and will no longer allow hospitals to mark up drugs on the EDL. You can imagine how this impacts a hospital’s bottom line. The government has been trying all kinds of ways to compensate for this loss of revenue for public hospitals — lost revenues from drug sales and prescription of high technology examinations — to render public hospitals financially viable. For example, salaries of doctors and fees for procedures are being raised. Premier Wen Jiaboa had made it very clear repeatedly that for reform of public hospitals to succeed, pay for hospital personnel should be increased appropriately. That is a very wise policy – any health reform that harms the economic interests of the provider will fail. Finally, one additional problem in Chinese health reform is that some 14 ministries are involved in health care in China – for example, the MOH and the funding ministry, the MoF – and there often is a disconnect within this far-flung policy making “conglomerate.”
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