Transformations in the healthcare system in China

High cost, difficult access

The official policy narrative for the health reforms is ongoing popular complaints about the cost, accessibility and quality of the health system – ‘high cost, difficult access’ (Fang et al., 2009; Song, 2008) being the community outcry. Indeed, while the market-based economic reforms that began in the 1980s accelerated overall economic growth in China, inflicting such reforms on the health system had drastic consequences. The successful shift from collectivized agricultural communes to household-based production and the consequent dismantling of the Cooperative Medical System (Blumenthal and Hsiao, 2005) effectively destroyed a collective rural primary healthcare system that had provided low-cost, basic healthcare and achieved rapid health gains since the 1950s.

The combination of fiscal decentralization and corporatization of health services introduced a range of perverse incentives into the healthcare system: healthcare institutions had to earn their own revenue while government subsidy declined as public investments were shifted to economic enterprises (Lin et al., 2010). A typical scenario would be that local government would reduce its budget outlay for a health centre, so the health centre would have to devise a range of ways to increase revenue in order to pay the salaries and bonuses of health workers (Gu et al., 1993). The most common ways of raising revenue have been to prescribe drugs which allow a 15% profit margin, including multiple antibiotics and human growth hormones; to send patients off for diagnostic tests; and to give them intravenous injections rather than oral tablets. Patients would also be readily admitted to hospital and kept in hospital longer than necessary in order to charge them fees (Lin and Zhao, 2008). Health workers are given additional incentives by their institutions to make up for low salaries through performance incentives, such as bonuses that are related to raising revenue (Bloom, 2011).

Under these circumstances, a phenomenon best characterized as ‘public identity, private behaviour’ has emerged, where institutions and workers are notionally in the public sector, but their practices reflect the imperative of the profit motive (Zhao, 2005). This can be seen in such practices, as noted above, as unnecessary diagnostic procedures, inappropriate use of intravenous injections and over-prescription, particularly of multiple antibiotics.

With the increase in out-of-pocket payments for health services, particularly preventive services such as maternal and child healthcare and immunization, a decline in public funding of public health activities (such as disease surveillance and control, and health education) and user-pays for inspectorial activities (in areas such as environmental health and food safety), the health gains achieved in earlier decades stalled if not reversed during the 1990s (Lee et al., 2003). Old health problems which had been controlled or were in decline re-emerged, such as tuberculosis, schistosomiasis, sexually transmitted infections and vaccine-preventable childhood illnesses, while user-supported basic functions such as surveillance and environmental health and food safety inspections were either not being done, or were subject to potentially corrupt influences.

Pilot reforms

These problems were not unknown to the Ministry of Health, but there is little political clout for a social spending sector to win the argument for investing in health and healthcare. The Ministry of Health is a relatively low-ranked ministry as health is not seen as a contributor to the overriding national development objective of economic growth. By the mid-1990s, the impacts were noticeable and were being reported internationally (Bloom and Gu, 1997; Hesketh and Wei, 1997; Hiller and Shen, 1996). The State Council held its first health conference since the early 1950s. While progressive health policy principles were clearly articulated in the 1996 State Council decisions (People’s Republic of China, 1998), their implementation fell short of the rhetoric. Between 1997 and 2009, the Ministry of Health introduced a series of piecemeal reforms, through pilots, including:

Furthermore, provincial and local governments were requested to increase their financial support for the health sector at a rate commensurate with increases in government revenue.

While some of these pilots were successful, and programmes were disseminated to multiple locations, there was little impact on the health system as a whole. Rural cooperative medical services could be restarted, but they were difficult to sustain (Feng et al., 1995) as farmers declined to make contributions after the first couple of years, particularly in poor areas. The urban health insurance pilots (World Bank, 1997) found that it was possible to control hospital costs through case-mix payments, but hospitals objected to their loss of revenue. Regional health planning guidelines were issued by the National Development and Reform Commission, normative standards were developed and plans were written by cities, but little occurred in the way of implementation (Bian et al., 2005). Government subsidies for the health sector increased in the well-off coastal areas, such as Shanghai, and the disparities between the coastal areas and the hinterland grew further. ‘High cost, difficult access’ remained the popular outcry.

Barriers in the reform process

There were numerous forces constraining these attempts at health reforms between 1997 and 2009. The weak position of the Ministry of Health was exacerbated by its lack of role clarity. With a responsibility to advocate for more resources for the health sector, it was seen by other ministries as the chief hospital president for the country which, as such, gave priority to the interests of institutions rather than to the health of the community. Indeed, there was a contradiction in the Ministry’s role of obtaining resources to assure the health needs of the population versus arguing for more funding for hospitals in order to pay salaries and bonuses for health workers.

Over time the key ministries came into dispute about the approach to be adopted. The Ministry of Finance favoured demand-side financing (for instance, health insurance), because they believed that consumers needed to be able to exercise choice, and because they did not believe the health sector had the interest of the community at heart. The National Development and Reform Commission focused on planning for capital allocations. The Ministry of Labour and Social Security was interested in a single social protection system under their management, while the Ministry of Civil Affairs wanted to manage the Medical Assistance scheme as a cash benefit. It was left to the Ministry of Health to argue for supply-side controls through budget subsidy to providers on the basis of health economic principles that a market system was inappropriate if equity and access were central health policy goals.

The larger structural forces at work were seemingly not taken into account in these discussions. In particular, decentralized public administration and lack of intergovernmental financial transfers since the economic reforms of the 1980s meant central government had little clout over provincial and municipal governments and hospitals (including urban specialist doctors), and pharmaceutical companies at all levels exerted political and economic power. At the same time, there was a lack of organized civil society voice since large non-government organizations and professional associations are largely government appointments, and the nascent grassroots sector is relatively unorganized (Liang, 2003; Spires, 2011). In other words, the health reforms were treated as a series of technical fixes, as if they could be separated from social and political contexts for policy-making and implementation.

Political attention on the health sector was hastened in 2003 with the Severe Acute Respiratory Syndrome (SARS) crisis (Liu, 2003). When major population centres and economies, like Beijing, Guangzhou, Tianjin and others, were affected by this unknown disease, the government found itself unable to obtain accurate and timely information and incapable of assuring the population that the government was in control of the situation. China’s inability to manage SARS promptly pointed to several structural weaknesses in the system, including:

The fragility of the health system was the result of earlier economic reforms to hospitals and public health institutions, notably: fee-for-service medicine; a focus on institutional revenue generation; financial access barriers for primary care and preventive services; underfunding of cost-recovery for public health, including laboratories; no operating funds for outreach; and no incentives for reporting of diseases. This weakened capacity had been recognized in the 1990s but it was not addressed.

The policy process

In addition to the 1996 State Council decision and subsequent pilots and reforms referred to earlier, there were a number of other notable events and policy pronouncements. In 2002, the newly installed government of Hu Jintao and Wen Jiabao reframed government policy to be concerned with the Five Balances (urban vs rural, coastal vs hinterland, social vs economic, built vs national environment and external vs internal markets), thus putting social harmony and social development on the policy agenda. This lent weight to two major health reforms – the decision in 2003 to introduce the New Cooperative Medical Service through intergovernmental financial transfers, and the funding of treatment services for HIV/AIDS patients. Both actions signalled government priority for the health of vulnerable populations.

Following the SARS epidemic, the Health Minister (Zhang Wenkang) was removed and, for the first time ever, this position was occupied by someone without a health professional background (Gao Qiang) – in fact, coming from the Ministry of Finance. Besides major new investments in Centres for Disease Control and the disease surveillance system, health reform discussions began to draw more heavily from a number of international donor-assisted projects. Notably, the World Bank Basic Health Services Project piloted financing and service delivery reforms in poverty areas (World Bank, 2011a), while the United Kingdom Department for International Development’s Urban Health and Poverty Project trialled new approaches to financing and delivery of urban community health services (Lin and Yates, 2009). Additionally, the UK Department for International Development supported a multi-sectoral Health Policy Support Project which provided funding for research related to health reforms and joint training for personnel from all relevant ministries in the World Bank Institute’s Flagship Course on Health Reform and Sustainable Financing (World Bank, 2011b). These projects created safe policy spaces for dialogue between policy actors in different ministries as well as between Chinese government officials and international stakeholders.

In 1997, a new Health Minister was appointed for the second term of the Hu–Wen government, and he (Chen Zhu) became the second ever minister who was not a member of Chinese Communist Party; the first, also from a democrat party, had been appointed a few months earlier as Minister for Science and Technology. In addition, a high-level seminar was held on health reform under the auspices of the Health Policy Support Project, with seven invitational papers, including from the World Health Organization, the World Bank and the global consultancy firm McKinsey’s as well as from academics in Chinese universities. A number of senior health policy researchers from outside China were invited to attend and provide commentaries. This opening of the policy process for external input was unprecedented.

In 2008, a public consultation paper was released with subsequent debates broadcast in the media involving a range of Chinese commentators. Strong disagreements were aired in talk shows and television interviews. Lively discussions took place amongst the ‘netizens’ (citizens who actively voice their views via the internet). For the first time ever there was public consultation and debate, which included international input. These events signified a major shift in the Chinese policy process. In 2010, the monitoring and evaluation indicators for the reforms were formulated through discussion and debate on three commissioned papers from Chinese universities and the World Health Organization. In 2011, the Chinese government commissioned a mid-term review of the reforms, involving internal evaluation as well as an independent external commission. The policy process has remained serious and open.

These specific events did not of course happen in isolation. They are the outcome of complex processes of negotiation between researchers, advocates and policy actors. There have been formal processes for coordination, but anecdotal evidence points to the importance of research, training opportunities, projects, pilots and other means by which safe policy spaces have been created. Evaluation of the steering committee for the Health Policy Support Project, which enabled the commissioning of rapid appraisal reports, became a safe environment where policy officers from different ministries came to know each other, their work and their concerns (Lin and Yates, 2009). Similarly, the opportunity for different ministries to undertake joint training in the Chinese version of the World Bank’s Flagship Course on Health Sector Reform and Sustainable Financing (World Bank, 2011b) made it possible for policy officers to develop a shared language and framework. In the context of the World Bank Basic Health Services Project (World Bank, 2011a) the piloting of a medical assistance fund provided a reason for policy entrepreneurs in the health sector to engage with those in the Ministry of Civil Affairs, to mobilize provincial counterparts to do the same, and to persist over the duration of the project while officials changed in the Ministry of Civil Affairs.

In considering the process of reform, it would seem that policy entrepreneurs have been important in seizing the political window of opportunity afforded by a change of government and public health crises (Kingdon, 1984). Implementation is still in its early days but it can be expected to require somewhat different leadership skills. There will be a need for close monitoring of impact – for example, whether the policy rhetoric is experienced as reality by the community. This requires not only good information systems but also good communication channels with diverse segments of civil society interests. There will also be the need for negotiation skills to help adjust the course of reforms before negative unanticipated consequences occur. For example, skilful mobilization of popular pressure may be necessary from time to time to expose gaming behaviour arising from inappropriate incentives or to promote improved policy measures. Stakeholders external to China, such as the multilateral and bilateral agencies who have played a supportive role to date, should maintain an interest if not involvement.

Policy content

The success of the reforms is contained not only in the five pillars of the health system, but also in acknowledging the importance of new institutional frameworks, including: regional health plans, budget management, pricing, provider regulation, health information systems, health laws, health research and workforce development. The need for a systemic solution is clearly recognized by the policy-makers. Such an approach is also ambitious, if not a challenge, to implement anywhere, let alone in a country the size of China.

While the reforms announced in 2009 were comprehensive, they represented a grab bag of ideas and compromise between ministries. The commitment to comprehensive health security is notable internationally, but the responsibilities for different components have remained split across ministries – the Ministry of Health with the New Cooperative Medical Service, the Ministry of Labour and Social Security with urban health insurance and the Ministry of Civil Affairs with medical assistance. Regional health planning has remained as a generic framework despite the difficulties experienced in earlier years in the directive approach from the National Development and Reform Commission to impose top-down planning in a market-based and administratively decentralized system.

The deferral of hospital reforms to be based on the outcome of pilots is a recognition of the political challenges in such reform, although this is the area where the community wants to see changes. At the same time, the policy rationale for moving forward immediately with public funding of public health and development of primary healthcare is sensible. Without an effective system for prevention and for first contact care in place patients will always seek care at the tertiary hospital, so these reforms are prerequisites for more comprehensive hospital reforms.

The pharmaceuticals policy is courageous. The reforms recognize the need for personnel reforms and legislative frameworks, although this has created further challenges since the ability for ministries to achieve policy coherence has not been visible in the past. The big question is whether the unaltered public administration framework of fiscal decentralization will be a barrier to the implementation of these reforms.

Despite these challenges, field visits undertaken by the author in 2009 and 2010 to evaluate various internationally supported projects already point to a range of changes including:

Achieving wholesale transformation through alignment with social and economic policy

The evolution of health policy in China also points to the importance of aligning health policy with broader social and economic policies. During the Mao era, the first health conference in 1953 enunciated the importance of putting prevention first, and integrating health work with mass work. The resultant health policy emphasis was the development of primary healthcare based on collective enterprises and social mobilization. During the Deng era, after the opening of China in the 1980s, the broader economic policies of corporatization and decentralization were imposed on the health system, which naturally adopted the ethos of the Deng era slogans of ‘to get rich is glorious’, and ‘it doesn’t matter if the cat is black or white as long as it catches mice’. When Jiang Zemin promoted the concept of ‘xiaokang’ society (essentially meaning comfortable and harmonious), there were piecemeal programmatic reforms, but no fundamental institutional change. With the new Hu–Wen government in 2002, the notion of ‘people-centred development’ and the ‘Five Balances’ meant there needed to be systemic transformation, addressing both supply- and demand-side issues of the healthcare system.

Since 2009, there has been relatively rapid progress towards the targets set by the central government. In the Chinese political tradition, the reforms cannot be allowed to fail, at least in the short term, and some scepticism towards the reliability and validity of the reporting is warranted. Nonetheless, the mid-term review has set in train an assessment by internal and external interests of at least the beneficial impacts related to the content of the reforms, if not the process for policy implementation (Lin et al., 2010).

In the longer term, as China moves to becoming a more open society with a rising middle class and their expectations, there will be a need for the policy process itself to change, consistent with the transition in the economy and society, just as there will be further need for transformation of the institutions of healthcare. There is likely to be increased need and demand for participatory policy space for diverse interests in the community and for redesign of governance arrangements for provider institutions, including the separation between government and service provision. In line with that is the question of how multiple regulatory institutions will develop and whether they will have the capability and be empowered to be effective. And with stronger ‘rule of law’ comes the challenge of how to align both social and economic regulation and formal regulation by the state and informal regulation through social institutions.

In the meantime, there is much scope for further research on the transformation of healthcare in China. To understand the policy process, the most significant gap in information is the perspectives and actions of the policy actors themselves. There is a need for reflective analysis from actors inside and outside government. Case studies at provincial and at programme or sub-sector levels would be invaluable; access to internal working documents would provide useful insights; and accounts from external participants would complement the internal subjectivities. Greater understanding of the policy process would contribute to a more nuanced understanding of Chinese politics and society as well as offer insights for how China might design a deliberate policy process in its next stage of development.