Health reform in China: Developments and future prospects

Abstract

In 2009, China initiated a new round of health reform to establish a well‐functioning health system. The 2009 health reform did make some significant achievements in improving affordability and accessibility. In particular, social health insurance has been expanded significantly and various social health insurance plans have covered over 95% of total population in China by 2011. The Chinese government also has significantly increased fiscal input for health financing. However, affordability remains a serious concern as the social health insurers, as purchasers, were not very effective in containing the growth of health expenditure. Accessibility to primary care and public health is another concern. In this context, health governance reforms are necessary to address affordability and accessibility issues. Health governance set rules for key actors of the health system (including service providers, health insurers and government departments) by taking into account the strategies and incentives of these actors in their interactions. In recent years, a series of reforms in health governance have been initiated. Some progresses have been achieved. For the next stage of health reform, issues including how to further reform the governance structure of medical institutions and how to improve resource allocation in the health system are critical.

The Chinese health reform did make some significant achievements since 2009. However, affordability and accessibility to primary care and public health remain to be serious concerns. Health governance reforms are necessary to address affordability and accessibility issues in the next stage of health reform.

Abbreviations

GDP

gross domestic product

ICU

intensive care unit

NHSA

National Healthcare Security Administration

1. BACKGROUND

In recent years, China's rapidly ageing population and increasing income level have put the spotlight on China's health system. This paper belongs to the literature on the health reform and health system in China. Hsiao [1] and Ramesh et al. [2] discussed the evolution of the Chinese health system in the past three decades. World Bank and World Health Organization [3] and Yip et al. [4] evaluated the 2009 health reform and provided the outlook for the future health system in China. Ramesh et al. [2] highlighted the critical role of health governance in the reform. Hsiao [5], Huang [6] and Qian [7] underlined the importance of the political economy perspective to analyse the Chinese health reform. By reviewing the most recent developments and issues raised in the health reform, this paper highlights the critical role of governance in the Chinese health system.

2. INTRODUCTION

The health reform in 2009 has made significant changes in the Chinese health system in the areas of health, financing, service provision and public health.1 However, affordability and accessibility remain to be serious concerns after the reform. Health governance reforms, which set rules for key actors of the health system (such as service providers, insurers and government departments) by taking into account the strategies and incentives of these actors in their interactions are necessary for the Chinese health system in the future.

Before the 2009 reform, affordability and accessibility were major issues in the Chinese health system. First, out‐of‐pocket expenditure had been high and healthcare services were not affordable for many households. By the year 2000, out‐of‐pocket payment accounted for 60% of total health expenditure. Further, by 2001, only about 23% of urban workers had enrolled themselves in social health insurance schemes, a much lower percentage than for pension programmes (45%) [7]. In the rural areas before the 1980s, health insurance schemes were supported by contributions from within a commune. However, after the 1980s, almost all rural health insurance schemes had been scrapped when the commune system was replaced by the household responsibility system. Also, government fiscal inputs to the health system were very low before the mid‐2000s, making up about 15% of total health expenditure in 2000, much lower than the approximately 40% share in the mid‐1980s [9].

Further, doctors in public hospitals had strong incentives to seek profit. With decreasing fiscal inputs from the government, health service providers, most of which are publicly owned, had difficulty funding health services. Public hospitals therefore were allowed to raise funds by selling some drugs at a 15% mark‐up [9]. Health expenditure was driven even higher under the profit‐seeking incentive of service providers [10, 11, 12].

Second, accessibility is also a serious concern. Primary care providers were unable to maintain facilities and faced difficulties attracting patients compared to hospitals [13]. Visits to township health centres decreased from 1.43 billion in 1981 to 0.82 billion in 2000 as residents preferred public hospitals to primary care clinics [14].

A comprehensive guideline for health reform covering all major aspects of the health system was released in April 2009 by the State Council. Initiatives include increasing government health inputs, expanding health insurance, and reforming public hospitals and the pharmaceutical sector. The health reform, according to the guideline, aimed to build a health system that would be accessible and affordable to all Chinese citizens by 2020. The government would play a lead role in this system while the market mechanism through competition or procuring would also be useful. Local pilot programmes were encouraged for all major policy arenas and would be pivotal [15].

The guideline also stipulated the gradual implementation of reform. The following tasks were slated for the first phase between 2009 and 2011. First, achieve universal coverage of social health insurance; second, establish an essential medicine system that defined a set of essential medicines that was the most effective and sold without price markup in primary care clinics; third, set up networks of primary care clinics by upgrading the infrastructures; fourth, increase government inputs for public health services.

Tasks such as public hospital reform and payment method (between insurers and hospitals) reform had been scheduled for the following phase since 2012. In 2012, the State Council announced that public hospitals in 311 pilot counties would undergo reforms. Since 2015, public hospital reform has been expanded to all counties nationwide. From May 2012, public hospitals have started to remove the 15% price mark‐up for the sale of drugs. By the end of 2017, all public hospitals removed the price markup [16].

Payment method reform is a reform for reimbursing hospitals. Some pilot reforms have been initiated. In Shanxi and Gansu provinces, since 2016, the fee‐for‐service payment method has been replaced by a payment method called Diagnosis‐Related Groups in which hospitals are reimbursed according to a fee schedule based on the type of disease.

3. ACHIEVEMENTS AND CHALLENGES AFTER THE 2009 REFORM

The 2009 health reform did make some significant achievements. The reform saw a dramatic increase in government input. The annual growth rate of government health expenditure between 2008 and 2020 reached 16.3% on average. Fiscal subsidy for public health increased from RMB15 per capita in 2009 to RMB84 per capita in 2022. Government share of total health expenditure almost doubled to 30.4% in 2020 compared to 17.9% in 2005 [14].

There is also an expansion of social health insurance in both urban and rural areas. Social insurance in health financing expanded greatly in the mid‐2000s with the introduction of the New Cooperative Medical Scheme and the Urban Resident Insurance schemes for rural and urban residents respectively. By 2011, 95% of the urban and rural population was covered by social health insurance plans. Reimbursements from social health insurance funds increased from 11% of total health expenditure in 2005 to around 29% in 2020. With the increasing share of government and social insurance expenditure, out‐of‐pocket expenditure as a share of total health expenditure decreased from about 60% in 2000 to about 27.7% in 2020 (Figure 1).

Figure 1.

 The composition of total health expenditure in China: 2005–2020.  Source: China Health Statistical Yearbook, various year books.

The achievements however cannot dwarf the challenges. First, affordability remains a serious concern. Out‐of‐pocket expenditures still accounted for about 28% of health expenditure in 2020. The annual growth rate of out‐of‐pocket expenditure continued to be in double digits (about 10.8%) between 2008 and 2020. In the early 2010s, expenditures related to health care accounted for the plight of over 44% of poor households who had fallen into poverty in rural China [17].

In particular, drug revenue remains a major revenue source for service providers. Drug revenue still accounted for 32.7% of service‐related revenue in public hospitals in 2018, compared to 46.6% in 2010 [14]. For urban community health centres, drug revenue accounted for 64.8% of service‐related revenue of public hospitals in 2018, compared to 67.6% in 2010 [14].

As the reimbursement from social health insurance fund accounted for about 30% of total health expenditure, the role of social health insurer is important to control the rise of health expenditure. However, social health insurers, as the purchaser of services, were not very effective in containing the rapid growth of health expenditure [13]. The administrative structure of the social insurance system was fragmented and decentralized. Urban and rural health insurance were administrated by two ministries respectively (i.e. the Ministry of Human Resources and Social Security and the Ministry of Health) [18]. The central ministries also delegated authority for managing health insurance to the prefecture‐level government and sometimes even to the county‐level governments [7].

The payment method reform has been not very effective and health expenditure in public hospitals has surged [4, 19]. The fee‐for‐service method, which induced the profit‐seeking behaviour of service providers, has not been totally eliminated [20].

Second, accessibility to primary care and public health remains to be a concern. For example, there are still huge regional variations in accessing primary health care. In 2020, there were 3.1 general practitioners per 10,000 residents in Beijing compared to only 2.0 in Guizhou [14]. Accessibility to public health is constrained by the low level of infrastructure. Health infrastructure such as the intensive care unit (ICU) has been underinvested. ICU beds per 100,000 population in China was about 3.6, much lower than Singapore's 11.4 or Germany's 25 [16]. For instance, the public health system in Wuhan came under great stress when the COVID‐19 spread within weeks of the outbreak [21].

4. WHY HEALTH GOVERNANCE IS IMPORTANT

The role of health governance is key for the above‐mentioned issues in affordability and accessibility. Health governance refers to “the rules that distribute roles and responsibilities among societal actors and that shape interactions among them” [22]. Health governance reforms set rules for key actors of the health system and address the interactions and linkages of these actors [2].

In the context of the Chinese health system, the strategies and incentives in the interactions among government departments, service providers and health insurers are critical in major policy issues discussed above [15]. First, the governance of primary care remains problematic as the incentives of service providers are not compatible with the governance structure. The efforts to promote the development of primary care clinics by the formation of conglomerates might not lead to the desired results as the incentives of primary care providers and hospitals are not being taken into account fully.

Primary care providers may have less incentive to control cost and improve quality since they are no longer independent practitioners.2 Hospital managers are reported to have abused their authority in encouraging doctors to refer patients from primary care clinics to the hospital for the higher service fees charged.

Second, county‐level hospitals and local government's capacity and incentive in investing on public health infrastructure upgrading (e.g., ICU beds) would need to be addressed.3 Similarly, as the local government has been entrusted with the task of financing public health and many county‐level governments face fiscal constraints, many county‐level hospitals are short of resources to finance the upgrading. The Performance Evaluation System for health bureaucrats is skewed toward observable outcomes, leading local officials to invest more in the construction and expansion of large hospitals at the expense of preventive investments such as public health infrastructure.

Third, public hospital governance is another major concern as the accountability of doctors is still not aligned with the policy objectives in affordability. Doctors still have strong incentives to generate revenue by charging patients. After removing the price mark‐up for drug sales, new sources of funding are required [25]. However, after the 2009 reform, there is no clearly defined method to finance public hospitals.

5. INITIATIVES TO REFORM THE HEALTH GOVERNANCE SINCE 2018

Health governance reforms need to address the rules of accountability and capacity for the major actors by taking into account their strategies and incentives. Since 2018, several health governance reforms have been introduced. First, in the area of health financing, a new government agency, the National Healthcare Security Administration (NHSA), was set up in March 2018 to integrate the management of all health insurance programmes [7]. The agency now handles the procurement and payment for healthcare services and drugs under all social health insurance schemes to facilitate a move towards a single‐payer system [26]. After the establishment of the NHSA, the government released new initiatives to control the expenditure on drugs. The consolidation of procurement under NHSA allows the agency to negotiate with pharmaceutical companies to include some expensive drugs in the reimbursement list but at large discounts.

The role of social insurers, as purchasers, has been strengthened. From November 2018, social insurers in 11 major cities could procure 25 drugs collectively for public hospitals [27]. Unlike in previous government procurement reforms, a quota in terms of quantity for public hospitals has been set for each drug. The collective negotiation between insurers and pharmaceutical companies inevitably leads to lower drug prices. In 2019, collective procurement was applied nationwide [28].

More support was also given to the development of private health insurance to further reduce the financial burden of patients. People in over 70 cities can now join a flat‐rate supplementary health insurance plan, Insurance Benefitting the People, Huimin Bao, run by private insurers. Many of these cities released the policy which allows enrollees to pay the premium of Huimin Bao from their individual social health insurance account [7].

Second, health governance reforms in the integration between hospitals and primary care clinics and sharing of resources among them have been implemented. The government has promoted the formation of conglomerates comprising different levels and types of primary care facilities. “Health conglomerates” (yiliao lianheti) of public hospitals and clinics have been established in some local pilots to improve the referral system. Patients require a referral from a primary care clinic before they can visit higher‐level hospitals. For example, in Shanghai, all government‐owned primary care clinics since 2020 have been required to join a health conglomerate headed by a major hospital [29].

To improve accessibility, the central government released a major document to encourage hospitals to provide internet‐based healthcare services in 2018 [30]. Hospitals are encouraged to share data such as medical records to support the referral system. The government also promoted the applications of telemedicine in primary care clinics. In December 2020, the National Health Commission together with NHSA released a guideline to allow health insurance to reimburse telemedicine services to some extent [31].

Third, regarding public health, in May 2020, the National Development and Reform Commission along with other ministries released a guideline on upgrading infrastructure to deal with public health emergencies. A county‐level public hospital should now allocate 2%–5% of beds as ICUs. For urban cities with a population of less than one million, total ICU beds should be between 60 and 100. For cities with a population between one million and five million, ICU beds should be between 100 and 600. For cities with a population of more than five million, the number of ICU beds required is at least 600 [32].

In May 2021, a vice‐ministerial level government agency, the National Administration for Disease Control and Prevention, was established. The restructuring of the bureaucracy is expected to address the problem of underinvestment in infectious disease prevention.

6. PROGRESS OF RECENT INITIATIVES IN HEALTH GOVERNANCE

The recent initiatives in health governance have been effective to some extent. Drug prices for instance have come down after the collective procurement reform and negotiation between NHSA and pharmaceutical companies. According to a news conference hosted by the State Council, 234 types of drugs were procured by NHSA between 2018 and early 2022, making up about 30% of total drugs used by public hospitals. The prices of these drugs procured under the reform have been slashed by 53% on average [33].

Since the reform, private health insurance has now been more widely accepted after having been in its doldrums for a long time. The percentage of private insurance premiums in overall health expenditure was only 3.7% in 2003 and fell to 3.5% in 2013 [13]. In recent years, private insurance has played a larger role in health financing in China. The share of private insurance premiums in overall health expenditure increased to over 11.6% in 2021 (Figure 2).

Figure 2.

 Increasing role of private insurance in the health system: 2001–2021. Source: China Banking and Insurance Regulatory Commission, cbirc.gov.cn.

In the area of primary care, the networks are expanding. The number of urban community health centres increased from 5903 in 2010 to more than 9200 in 2020, while government subsidies for these clinics increased from RMB10.9 billion to RMB81.3 billion, an average annual growth rate of over 22% [14].

Telemedicine has taken a leap in recent years. The ease of telemedicine has prompted some local governments to collaborate with major digital platforms in providing health services via the internet. Since 2018, Alibaba has collaborated with Zhejiang provincial government to create a unified digital health record platform [34] and in 2019, the two parties created a hospital digital platform for conducting remote medical treatment [35].

7. CONCLUSION

With a rapidly ageing population and increasing income level, China's health system has become increasingly important. Total health expenditure in China reached RMB7.56 trillion, or about 6.6% of gross domestic product (GDP) in 2021 compared to about 4.5% in 2008 (Figure 3). With an increasing income level, people are more willing to spend on health care. For example, in 2013, healthcare expenditure accounted for 6.9% of total household consumption in China while the rate increased to 8.8% in 2019 [36].

Figure 3.

 China's total health expenditure and its share in GDP: 1990–2021. Source: China Health Statistical Yearbook and Statistic Communiqué of Health 2021.

After the 2009 health reform, universal coverage of health insurance has been achieved to some degree in China. The government also significantly increased fiscal input to the health system. However, affordability is still a concern. The social insurers were not very effective in containing the growth of health expenditure. Also, the lack of integration between hospitals and primary care clinics leads to accessibility issues. In this context, reforms in health governance, which set rules for key actors of the health system and address the interactions of these actors, are necessary to improve affordability and accessibility. In recent years, reforms in health governance have been initiated and also achieved some progresses.

For the next stage of health reform, how to further reform the governance structure of medical institutions and to improve the efficiency of resource allocation between medical institutions, between health care and public health as well as across regions are critical.

AUTHOR CONTRIBUTIONS

Jiwei Qian: conceptualization (lead); data curation (lead); formal analysis (lead); investigation (lead); methodology (lead); project administration (lead); resources (lead); software (lead); supervision (lead); validation (lead); writing – original draft (lead); writing – review & editing (lead).

CONFLICT OF INTEREST

The author declares no conflict of interest.

ETHICS STATEMENT

None.

INFORMED CONSENT

None.

Qian J. Health reform in China: Developments and future prospects. Health Care Sci. 2022;1:166–172. 10.1002/hcs2.19

DATA AVAILABILITY STATEMENT

All data used in the paper are cited from official statistics.