China’s Healthcare System – Growing and Complex

With China’s GNP growing at 13% annually over the last few years, many Chinese consumers now have significantly more money to spend on healthcare. Understanding the basics of the Chinese healthcare system is essential for Western companies seeking to take advantage of this huge market.

China’s healthcare system, which resembles the country’s administrative structure, is still dominated by central government. The Ministry of Public Health (MOPH) heads the system, directing the research, making policy and supervising the implementation of government policies. In addition the MOPH operates 11 medical colleges, including three teaching hospitals.

The State Pharmaceutical Administration (SPA) oversees production, marketing and distribution of pharmaceuticals and medical equipment. The People’s Liberation Army (PLA) operates 300 hospitals and three teaching colleges. Local Public Health Bureaux administered by provincial, county and municipal governments operate thousands of hospitals throughout the country.

China’s healthcare system has become increasingly decentralised in recent years. As the government takes a less active role in hospital administration, more Chinese hospitals are making independent purchasing decisions on medical equipment and pharmaceuticals.

… insurance companies

Currently only 20-25% of China’s population (mostly residents of the urban east coast) have health insurance; and of these, not all have full coverage. Some 75-80% of the population – over 800 million people – mostly living in rural areas, have no health insurance, and pay for their treatment on a fee-for-service basis. These people only receive the healthcare they can afford.

There are three major insurance providers in China today.

  • The Government Insurance System (GIS) insures civil servant. There are no deductibles or co-payments under the GIS plan, but dependents are not covered.
  • The Labour Insurance System (LIS) insures workers of state-owned enterprises. Little or no co-payment is demanded under the LIS plan, and half of the medicals costs of dependents are covered. Together, GIS and LIS insure approximately 10-15% of the population.
  • Collective and Township and Village Enterprise (TVE) insures schemes cover approximately 10% of the population. These insurance systems often have co-payments or limits reimbursement, and include varying degrees of dependent coverage. Overall, TVE and collective insurance programs provide a lower level coverage than GIS or LIS.

In addition, the PLA and certain government ministries provide coverage for their employees. Some local programmes (such as Shanghai’s proposed healthcare reform) and local health bureaux also offer a certain level if insurance.

As Government subsidies and insurance payments decrease as a proportion of total healthcare costs, patients’ own costs increase. From 1980-1988 per capita annual healthcare spending growth averaged around 11% in real terms. Of this public subsidies fell from about 30% of total spending in 1980 to approximately 19% in 1988. During the same period, insurance payments dropped 53% of the total to 41%, while patient expenses rose from 14% to roughly 36%. As the cost to the patient continues to rise, healthcare consumption levels will increasingly be dependent on a patient’s financial resources.

Hospitals must earn profits in order to acquire better technology and pay bonuses to their staff. Since hospitals need to maintain a profit margin, state pricing controls, which often set prices well over or under the actual cost, encourage overprescribing of those services with fees set above actual cost and underprescribing of those with fees set below cost. In order to subsidise care of poorer patients, doctors prescribe costly, often unnecessary services for wealthier or insured patients. In some instance, hospitals workers themselves buy shares in high-technology equipement and reap a portion of the profits earned from using the equipment.

… medical training

Currently, training of doctors in China is divided into three levels: high, middle and basic. All students earn the title “doctor”, with differences in length and focus of training and the functions performed after graduation.

The top 40% of secondary students selected for medical school become “high-level” doctors. Within this level there are three divisions. The 50 or 60 best students attend Peking Union Medical College, an eight-year course. The other top students attend one of the four next-best medical colleges for a six-year course. The remaining students at this level attend a five- or six-year course at one of the other 120 medical colleges, and must attend the school closest to their homes. These high-level colleges offer lecture-style education in Western medicine and also include some aspects of traditional Chinese medicine. After graduation, half of these doctors will practise in urban areas.

The remaining 60% of students selected for medical school become middle-level doctors. They attend a three-year course at one of 550 medical colleges, where they focus on practical clinical work. After graduation most work in rural areas. The basic-level doctors are a legacy of the Cultural Revolution, when medical colleges closed and “barefoot doctors” with minimal training brought healthcare to the countryside.

Today, if they are able to pass a basic exam, these workers are termed “rural doctors”. If unable to pass the exam, they are demoted to “village aide”. All are now literate and are encouraged to participate in regular refresher courses, which offer the chance of promotion to the middle level. Most of these doctors work in rural area, practicing basic preventive medicine and offering public health services.

There are substantial differences in training and pay between the three levels, which favour doctors practicing in urban areas, although the majority of the population remains rural. All doctors, especially high-level specialists, are demanding higher pay. Stories circulate of surgeons scrubbing down for an operation, then holding their hands above their heads and refusing to enter the operating room until the patient’s family stuffs money in their pockets to pay the surgical fee. Physicians have also been known to overprescribe antibiotics because they earn a profit on their sale. Traditional Chinese medicine is still used in many rural areas, and doctors in all areas are generally less aware of technological advances than are their Western counterparts. Some Western medical manufacturers which market products in China sponsor doctor education programmes about new technologies.

Other trend affecting China’s healthcare system include the following:

  • The percentage of the Chinese population aged 40-69 is expected to rise 240% between 1990 and 2030. This growth will shift demand from preventive medicine to treatments of chronic ailments.
  • Demand for treatment of chronic ailments related to cigarette smoking will escalate sharply. In 1952 the Chinese smoked 11 packs per head per year. Estimates predict that by 2025 smoking-related deaths will reach 2 million per year in China.
  • Western pharmaceuticals and diagnostics are increasingly believed to be more effective than domestic version or traditional Chinese medicine.

Healthcare in China is evolving quickly. Foreign manufacturers hoping to capitalize on the new system must understand how China’s healthcare system operates and recognize where the opportunities lie. The Chinese are increasingly demonstrating a preference for Western-style medicine, and as incomes rise under a predominantly fee-for-service system, they are able to choose the more costly imported or joint venture-manufactured products instead of the less expensive domestically-produced versions. With a significant technological advantage in the diagnosis and treatment of chronic illness compared with Chinese concerns, Western medical device and equipment manufacturers should give serious consideration to the abundance of opportunities open to them in China.