China’s Public Healthcare System And Its Future

William Hsiao is the K.T. Li Research Professor of Economics in Department of Health Policy and Management and Department of Global Health and Population, at Harvard T.H. Chan School of Public Health. He received his Ph.D. in Economics from Harvard University. He is also a fully qualified actuary with extensive experience in private and social insurance. Dr. Hsiao is a leading global expert in universal health insurance, which he has studied for more than forty years. His health economic and policy research program spans across developed and less developed nations. He has been actively engaged in designing health system reforms and universal health insurance programs for many countries, including the USA, Taiwan, China, Colombia, Poland, Vietnam, Hong Kong, Sweden, Cyprus, Uganda and most recently for Malaysia and South Africa. In his work for developing nations, Hsiao’s research focuses on sustainable financing mechanisms to provide health care for the poor rural population. Hsiao was elected to be a member of the Institute of Medicine, US National Academy of Science. He was also elected to be a Board member of the National Academy of Social Insurance and Society of Actuaries.


Claudia Chandra CMC '20 interviewed William Hsaio on Oct. 19, 2018. 

The New York Times recently claimed that China’s healthcare system is currently in crisis. Do facts support such a negative assessment? If so, what explains the poor performance in China’s healthcare system?

I do NOT agree with the statement that the current Chinese Healthcare System is in ‘crisis.’ Like most other countries, including the United States, England, India, Indonesia, and Brazil, China’s healthcare system has some significant problems. However, it is an exaggeration to say that China’s healthcare system is in crisis.

The New York Times article elaborated a major problem facing China: the long waiting lines to see specialists in medical centers and tertiary hospitals. The article did not explain the causation of this problem. Chinese patients face long lines and waiting times because China has a shortage of highly capable specialists. China also has a severe shortage of family physicians because it did not give much attention to training capable family physicians until recently. More importantly, long waiting lines are caused by patients who are seeking top specialists to treat minor illnesses. In other words, Chinese patients do not have adequate knowledge as to when they need care from specialists in tertiary hospitals. A study which surveyed specialists in a top Chinese medical center – the Medical Center of the Peking Union Medical School – found that 75% of the patients who came to them did not need their expertise. Patients with modest illnesses seek top specialist care unnecessarily when specialists at lower level facilities could have treated them sufficiently. So, China’s problem is patients ignorance on what level of medical care they need when they have some symptoms.  

Despite 95% of Chinese citizens having some sort of medical insurance, many individuals seeking healthcare do not receive the financial assistance they need. What is the reason behind this?

There are three major reasons. First, while over 95% of Chinese people are insured, China’s universal health insurance programs only cover a significant portion of medical expenses, not all expenditures. Thus, patients still have to pay, on average, about forty percent of the charges. Second, the Chinese universal insurance programs cover only specified essential drugs, certain sophisticated tests, and some expensive medical supplies. If physicians prescribe drugs, tests, and supplies that are not on the list, patients have to pay out-of-pocket themselves. Meanwhile, physicians are driven by profit motive to prescribe items that are not on the list because they can receive kick-backs from the suppliers of these not-on-list items. Lastly, Chinese health insurance policies were designed incorrectly. They cover more hospitalization, and less outpatient services. As a result physicians over-hospitalize patients, conduct excessive tests and therapies, and patients may not object. China has the highest hospitalization rate per 1,000 people in the world.

Why and how did most Chinese physicians employed by public hospitals become driven by profit motives? This is due to an erroneous Chinese policy adopted in the 1980s, when the Chinese government implemented its economic reform and experienced a significant drop in government revenue. Without adequate revenue, the government decided to reduce its financial support for China’s public hospitals and clinics. However, the government also wanted these facilities to survive and continue to serve the people. There were virtually no private hospitals and clinics at that time. Thus, China adopted a policy to allow their public hospitals and clinics to make a profit through prescribing drugs and performing new sophisticated medical tests. Public facilities could use this profit to maintain their hospitals and give their physicians and nurses high bonuses. Hence, hospitals and physicians became incentivized to over-prescribe drugs and tests to earn profits. 

 Some patients in China have to line up very early in hospitals to secure appointments with the doctors/ specialists they want to see. Is this because of a shortage of doctors or a flaw in the healthcare delivery system? What can be done to address this problem in a feasible way?

The lining up, as per the New York Times article, is accurate only at medical centers and tertiary hospitals. There are no long lines at community hospitals and health centers and the later part of the article acknowledged that.  

There are several reasons why many people flood to the tertiary clinics when they don't need to seek tertiary medical care. Earlier, I have explained one major reason is due to the patients’ ignorance. The Chinese government has failed to educate the public that when you have a minor illness, you can get adequate care at lower level facilities. The second reason is that China has not promoted the training of family physicians until recently. As the NYT article pointed out, China is now trying to pressure all its citizens to select a primary care practitioner. However, China does not have enough competent family physicians. People do not have the confidence in the competency of typical practitioners who provide primary care today.

There are numerous reports of violence against healthcare workers by families of patients who had negative experiences, or even died, while undergoing treatment. What lies behind this phenomenon? And is this a serious problem?

This is a terribly serious problem. The causes are different than the long waiting lines in tertiary hospital clinics. My studies found that a major reason for this violence is because most Chinese physicians have weakened professional medical ethics and, as a result, patients have lost their trust and respect for physicians. When Chinese policies shifted in the mid-1980s, the government encouraged public hospitals and doctors to make profits through drugs and tests. Eventually patients realized they have been given too many drugs and tests. People also gradually learnt that Chinese hospitals and doctors are taking kickbacks from pharmaceutical and medical supply companies. Furthermore, many higher-ranking surgeons and specialists take under-the-table payments. This leads patients to believe that unless they give some under-the-table payment, the physician will not do the best they can for the patient. In other words, the medical profession in China has lost a great deal of its professional ethics. Patients have gradually realized this and believe they are being exploited. Hence, when a patient dies in hospital, his or her family may feel the physician did not do his/her best even though they took the under-the-table payment and kickbacks. The family feels that the physician broke a social compact and so they beat up the doctors.  

Some observers claim that the Chinese healthcare system is copying some of the least efficient and equitable parts of the American system, such as restricted competition, lack of access to the poor, and rapid cost escalation. Is this true?

China does not copy the United States. China has universal health insurance coverage which the US does not. The problems of the U.S. healthcare system are mostly caused by having a market driven health insurance and health care delivery system. America relies on the market place: private insurance and private providers to deliver healthcare.  Although America has established some measures to regulate its medical market and promote healthy competition, trying to correct their market failures, it has achieved only limited success.

China shares some of America’s problems but the causes are different, such as escalated medical expenditures. However, this is not because China is following the American path. China actually restricted private practices of medicine and only liberalized its medical market in the last five years. Today, in terms of hospitals, only 20% of hospital beds belong to the private for-profit sector. The other 80% are still public hospitals. Chinese physicians were allowed practice privately only a few years ago. And not many of them choose to do it. China actually limited the private practice of medicine because they understood the market failure in medical care, from the asymmetry of information between physicians and patients, which allowed physicians to exploit patients.

Additionally, the Chinese government understands that a major cause for rapid health expenditure escalation is due to its multiple-payer system. China is remedying this by moving toward a single-payer system. The USA has not. Both nations are trying to deal with another cause of cost escalation and quality of health care problems by building integrated healthcare systems with an emphasis on primary care. In the USA, many near-poor do not have health insurance, which makes healthcare unaffordable and inhibits their access to healthcare. In China, the poor have health insurance but the state does not have adequate supply of reasonably competent practitioners/physicians near where the poor live. It’s a human resource problem and China is trying to address this problem by training family physicians and assigning physicians to work in these under-served areas, but with limited success. 

There is one similarity between American and Chinese medical practices: the worship high technology medicine. High technology medicine drives up healthcare costs. Tens of thousands of Chinese specialists come to the USA for training; they learn to practice high-technology medicine. Moreover, when top American specialists visit Chinese hospitals, they often ask: “don’t you know this or that latest technique?” or “don’t you have this latest high-tech equipment or use this latest drug?” These questions make Chinese physicians feel they are second class unless they keep up with the latest expensive technology regardless of their cost and benefit.  

What is being done by the Chinese government to improve the country’s healthcare system? Which measures are working and which ones are not?

Chinese government understands that they need to remove the profit motive from its public hospitals and the physicians they employ. Just a year ago, the government removed the drug profit and that reform created huge political opposition from China’s public hospitals and doctors. China has an arcane governance structure for public hospitals. So, it reformed its governance structure last March by reforming China’s Social Health Insurance agency. These reforms will take time to work out. However, I can confidently say that Chinese political leaders, all the way up to the president, understand China’s health care problems and their causes. Nevertheless, like the U.S., China has created strong vested interest groups through its policies and structures of their healthcare system. Hence, to reform the healthcare system required a tremendous amount of political determination and willingness to pay a political price. Chinese top leaders seem to be willing to do that. However, it is slower than some of us like to see. Nevertheless China has reached a consensus on the equity principle of healthcare. 

Most of its top government leaders know the country’s major health problems and their causes. One of the major problems is the profit-driven public hospitals and physicians; the second is that China did not build up its primary care; third, China let public hospitals make profits from medical devices and drugs; and lastly, the governance structure of China’s public hospitals is outdated. The Chinese government is trying to address all these issues. In that sense, China is ahead of the United States. The U.S. does not have a consensus on the equity principle of healthcare or an agreement on what its problems and their causes are.

In regards to specific measures China has taken in the last few years to improve their healthcare system, Chinese leaders are trying to reform their profit-driven public hospitals. However, this was met with a tremendous amount of resistance from hospitals, physicians and pharmaceutical industry. Then a new strategy was adopted. China restricted the expansion of public hospitals and used a market strategy to create competition for public hospitals by encouraging the expansion of private for-profit hospitals. In addition, China let doctors set up private practices. These promotions of private practices are flourishing. However, private sector medicine is not adequately regulated. So private practitioners can charge very high fees and this is one reason why Chinese health expenditure is rising very rapidly. Today, more people are seeking private sector providers for healthcare.

Another positive development is in the long waiting lines stated in the New York Times. These lines exist, but they have been significantly reduced. China now uses cellphones for patients to make appointments online to reduce waiting lines in many hospitals. They have also used artificial intelligence to introduce primary care online. Now, Chinese people can contact a private practicing primary care doctor and get an initial diagnosis before they decide to seek specialists’ care in tertiary hospitals. The waiting times to register and see specialists have been reduced in many cities. Nevertheless, there are still not enough top specialists and people still want to see these physicians when they just have slight medical problems. And to address these problems requires public education, an issue which China has yet to deal with.

Given China’s size and diversity, is there a healthcare system in the world that China can realistically try to emulate?

China has been emulating and learning from all countries. That's one thing China has done well.  They really try to learn where other countries have succeeded and where they have failed. For example, China developed a universal social health insurance system from the lessons learnt from the successes in Western nations. It now covers over 95% of China’s people. China is also developing a new primary care system from lessons learnt from the West. Right now, it is developing the so-called Integrated Delivery System, where patients should go through a point of entry for healthcare: primary care. The primary care is linked up to secondary and tertiary services. That was inspired and learnt from the United States and other countries.

China is a very diverse and a large country that has been growing very rapidly, moving from a low level of socioeconomic development to a developed nation.  Chinese people’s expectations for medical care are also rising very fast. For example, its medical care system had to collapse 100 years of medical progress made in USA in just 30 years. So, China has to find its own pathway.

Claudia Chandra CMC '20Student Journalist

Image “HCCH staff proceed with bedside consultation” by Jack Hsiao via Wikimedia Commons.

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