Insurance Reform

Access to health insurance should increase healthcare utilization and decrease risk of catastrophic health expenditures. Widespread health insurance coverage is an important step in decreasing the financial and health burdens related to acute as well as NCD diseases. However, prior to the recent reforms Chinese health insurance rates were extremely low; in 2000, less than 10 percent of the rural population and less than half of the urban population had access to health insurance.³⁴ This lack of coverage led to high levels of out-of-pocket spending, lack of access to quality care, and widespread dissatisfaction with the Chinese healthcare system.³⁵ Over the past decade, the Chinese government has implemented a series of health insurance reforms intended to achieve universal coverage by 2020.

In an effort to increase health insurance coverage in rural areas, the Chinese government created the New (Rural) Cooperative Medical Scheme (NCMS) in 2003. By 2010, NCMS reached 2,716 counties and more than 800 million people.³⁶ NCMS is a voluntary, household-based health insurance system. Risk-pooling is performed at a county level and each county has significant leeway in designing benefit packages and reimbursement rates. NCMS is heavily subsidized; individual premiums are kept extremely low to maintain high participation rates and minimize adverse selection. Government investment in NCMS has increased dramatically since implementation; per beneficiary contributions from the central and local government increased from 40 RMB in 2008 to 200 RMB in 2011, with greater subsidies going to poorer and western counties.³⁷ Most NCMS plans currently cover both inpatient and outpatient care, but real reimbursement rates remain low and exhibit wide variation by county. NCMS packages also provide progressively lower reimbursement rates as patients enter higher level hospitals, incentivizing patients to seek care at primary health centers and township hospitals.³⁸

Prior to the Chinese healthcare reforms, many urban residents not working in the formal sector had no access to government health insurance. This population included children, the retired, the unemployed, and workers in the informal sector. To reach this population, the Chinese government created Urban Resident Basic Medical Insurance (URBMI). URBMI was begun as a pilot project in 2007 and implemented nationwide in 2009.³⁹ URBMI is structured similarly to NCMS; funds are pooled at the municipal level, and reimbursement rates and covered procedures vary by city.⁴⁰ Initially, most municipalities did not cover outpatient procedures. Similar to NCMS, government investment in URBMI has increased since the program began. In 2011, URBMI was financed at an average of 170 RMB per enrollee, with estimates of average reimbursement rates ranging from 47 percent–60 percent.⁴¹

Chinese health insurance reforms have achieved enormous success in expanding insurance coverage, reaching more than 95 percent of the Chinese population by 2011 (see Figure 2.2). However, it is less clear if these programs have exerted a commensurate impact on patient health spending and utilization. Early appraisals of NCMS have generally found that the reforms have increased healthcare utilization, but have had a limited effect on healthcare spending.⁴² Preliminary analyses have also reported mixed impacts on the prevalence of NCDs and health outcomes. Researchers reported that NCMS lead to a significant decrease in several chronic diseases, and that NCMS status positively influenced NCD risk factors (e.g., lower likelihood of abnormal glucose and cholesterol levels).⁴³ However, an earlier study found no effect of NCMS on self-reported health status or sickness/injury over the prior four months.⁴⁴

Analyses of the effects of URBMI on health utilization, out-of-pocket spending, and health status are more limited. Lin et al. (2009) found that URBMI had a positive effect on relieving enrollees’ financial burdens,⁴⁵ while Liu and Zhao (2012) found that URBMI had an uncertain effect on patients’ out-of-pocket spending while increasing healthcare access.⁴⁶ Although these preliminary studies appear to indicate that URBMI has had an overall positive effect on patients’ ability to access and pay for care, more comprehensive studies are necessary. Further, no studies have yet specifically focused on URBMI’s effects on health outcomes or financial effects on chronic disease patients.

Extending insurance coverage to the vast majority of the Chinese population may serve to improve the health system’s capacity to handle patients with NCDs in the following manner. Access to insurance should incentivize patients to seek outpatient care to help keep their diseases under control, thereby improving their health, reducing their risk of catastrophic health events, and decreasing the risk of catastrophic health spending for patients with chronic disease.

The empirical evidence shows that Chinese insurance reforms may not be meeting these goals. Although healthcare utilization is increasing, the reform’s effect on out-of-pocket spending is less clear, especially among NCMS enrollees. Most researchers speculate that the reason for the insurance expansion’s small effect on out-of-pocket spending is NCMS’ and URBMI’s low reimbursement rates and limited coverage areas. However, much of the recent literature has focused on the effects of NCMS and URBMI in 2007 and 2008. Since that time, government subsidies have increased, reimbursement rates have gone up, and coverage has broadened. Thus, the true effects of the current iterations of NCMS and URBMI may be significantly different than those of 2007/2008. Therefore, although the insurance expansion appears to have only a limited effect on the finances of NCD patients and their families, more evidence on the current versions of NCMS and URBMI is necessary before any strong conclusions can be drawn.

Pharmaceutical Drug Reform

Access to cheap and effective pharmaceuticals can lower both the risk factors for NCDs and the risk of catastrophic health events among NCD patients. An effective pharmaceutical distribution system should encourage rational prescribing of pharmaceuticals while making these pharmaceuticals affordable to all patients. China’s pre-reform pharmaceutical system accomplished neither of these goals. In the years after the open-market reforms, the government withdrew the majority of its support from public hospitals and clinics while continuing to mandate below-market prices for many basic medical services. To make up for the loss in revenue, providers were allowed to charge up to 15 percent markups on pharmaceuticals and high-tech procedures. Salaried physicians’ income was also tightly tied to their financial performance; bonuses linked to physician revenues made up more than 50 percent of physicians’ salaries in some settings (see Chapters 2 and 7).⁴⁷ This system created a direct financial incentive for providers to oversupply expensive drugs and procedures and undersupply essential medical services. For much of the 1990s, pharmaceutical spending made up more than half of total medical expenditures. Even by 2008, pharmaceuticals made up 54 percent of total inpatient spending and 44 percent of total outpatient spending.⁴⁸ Not only were pharmaceutical costs high, but the prescriptions themselves were often irrational; numerous studies documented extremely high prescription rates of antibiotics, injectables, and steroids.⁴⁹ However, even as antibiotics and other drugs were over-prescribed, the low diagnosis and control rates of Chinese patients with NCDs indicate that antihypertensives and anti-diabetic drugs were under-prescribed. One study found that only 28.2 percent of patients with hypertension took antihypertensive medications; another reported that only 20.3 percent of patients with diabetes were taking any kind of treatment, pharmaceutical or non-pharmaceutical.⁵⁰

In order to rationalize this system and control overall health costs, the Chinese government began a pharmaceutical drug reform in 2009 (see Chapter 2). Beginning in 2009, the government created an Essential Drugs List (EDL). The EDL originally included 307 drugs: 205 western pharmaceuticals and 102 traditional Chinese medicines (TCMs).⁵¹ This list has now been expanded to 520 drugs. All drugs on the list are generic; inclusion is based on expected frequency of use, evidence base, safety, and affordability.⁵² EDL drugs are procured at the provincial level using a bidding process intended to be open and transparent. Provincial governments have the right to supplement the national EDL with additional drugs for their provincial EDLs.

Concurrent with the creation of the EDL, the government also began implementing the “zero mark-up policy.” This policy mandated that: (1) all community health centers (CHCs), township health centers (THCs), and village clinics stock all drugs on the EDL; (2) drugs on the EDL be prescribed before non-EDL drugs; and (3) these drugs be sold with no markups. The government has also strongly recommended that all health insurers reimburse EDL drugs. Beginning in 2012, this policy was expanded to cover county hospitals. Additionally, to increase rational prescribing a healthcare reform committee has promulgated clinical guidelines for 18 common conditions.

The Chinese government has had reasonable success in rolling out the EDL and zero mark-up policies. By early 2012, 99.8 percent of THCs and 58.1 percent of village clinics had adopted the zero mark-up policy and nearly all counties and municipalities had made EDL drugs reimbursable.⁵³ Preliminary studies have also suggested the policy has been successful in increasing EDL drug use and decreasing prescription cost per visit at THCs.⁵⁴ However, early analyses also found some negative unintended consequences of pharmaceutical reform. For instance, Tian et al. (2012) found that most drugs included on the national EDL had a rational basis for inclusion, but provincial supplements to the EDL averaged 207 drugs, many of which were not evidence-based.⁵⁵ Provincial drug procurement systems have been criticized for lack of transparency.⁵⁶ Qualitative studies have also found numerous patient and physician complaints over drug access. In one survey, 30.4 percent of patients reported difficulty accessing drugs for hypertension and diabetes at their THC.⁵⁷ The same survey found that prices for 70 percent of the drugs on the EDL increased after the reform, though they remained below the government-set bid ceilings. Many physicians also reported their income decreased while their workload increased after the zero mark-up policy came into effect. Early reports have also shown an ambiguous effect on rational prescribing, with an observed slight fall in antibiotic prescriptions but an increased use of injectables.⁵⁸

The existing preliminary evidence indicates that pharmaceutical reform has been marginally successful in decreasing patients’ prescription spending at THCs and CHCs, but may also have decreased patients’ access to some necessary pharmaceuticals and decreased physician income. Additionally, since many of these results are based on non-random surveys and “pre-post” (before and after) comparisons, they must be approached with caution. More rigorous studies are needed to ascertain the true effect of the EDL, especially in patients suffering from chronic disease.

Public Health Reform

Creating a sustainable public health system is a crucial component in China’s fight against both infectious disease and NCDs. Public health workers can reduce the frequency of NCDs and improve the health of chronically ill patients through identifying those at risk, developing programs of chronic disease management, and educating the population on healthy lifestyle habits. Prior to the open-market reforms in 1978, China’s grassroots public health system was one of the most successful in the world.⁵⁹ However, the open-market reforms of 1978 reduced available government tax revenues, leading to a dramatic fall in financial support for village doctors, and the number of public health workers fell dramatically. The number of health workers in rural areas fell from 3.5 million in the late 1970s to around 500,000 by the late 1990s.⁶⁰ The number of village doctors alone fell from 1.8 million in 1977 to 1.2 million in 1984.⁶¹ Many remaining village doctors chose to open private clinics, relinquishing any public health responsibilities.

The Chinese government has recently instituted a new policy to rebuild its public health system, with a special focus on NCD and chronic disease patients (see Chapter 3). In 2009, the government began paying primary care providers a small subsidy to provide public health services to all residents in their catchment area. The subsidy was originally set at 15 yuan/person, increased to 25 in 2011, 30 in 2013, and is targeted for continued increases in the future.⁶² In exchange for the subsidy, providers are expected to deliver extensive packages of public health services ranging from establishing health archives and chronic disease management to infectious disease control and immunization.⁶³ This public health reform has the potential to greatly help patients with NCDs and residents at risk for NCD conditions.

However, like the other components of healthcare reform, the implementation of the public health reform has yielded mixed results. Early critics suggested that the government subsidy was insufficient to compensate village doctors and physicians for their greater workload.⁶⁴ Doctors and clinic managers interviewed in Hubei and Jiangxi provinces echoed such concerns. Village doctors felt that while subsidies incentivized them to focus more on public health, a larger subsidy would encourage an even greater focus.⁶⁵ Managers in local THCs and CDCs felt that supervision of village doctors was difficult; they had no way of holding village doctors accountable if they did not perform their public health responsibilities. A more quantitative review of the public health reform using government statistics found that the program was largely successful in increasing immunizations and child and maternal health, but had only limited effectiveness in increasing chronic disease management and care for the mentally ill.⁶⁶

These findings suggest that although the public health reform has succeeded in reorienting village doctor and primary care physicians’ focus toward public health issues, it has not yet created a cadre of health workers with the capacity to improve chronic disease prevention and management. Chronic disease prevention and management are complex activities; village doctors likely fear that taking on the responsibility for these would take too much time away from other, more remunerative activities. It is also possible that best practices in chronic disease prevention and management are unfamiliar to many village doctors and rural physicians, especially given their low levels of medical training. Thus, the government may benefit from creating additional, targeted public health subsidies for chronic-disease-related public health activities, as well as from increasing training of health workers on best practices within these areas.

Primary Care Reform

A well-functioning primary care system is essential to managing the health and financial risks of patients with NCDs. Primary care physicians are frontline health workers; they are responsible for diagnosing and managing chronic disease, judging whether patients should seek more advanced care at higher-level hospitals, and working with at-risk patients on disease prevention. A strong primary care system should increase the health of patients with NCDs, decrease the prevalence of chronic disease, and prevent unnecessary and wasteful health spending.

Prior to the current healthcare reform, primary care in China faced three related challenges. First, in the years following the open-market reforms, many government-operated primary care centers closed, decreasing residents’ access to primary care. Second, many primary care physicians were much less educated than their colleagues in secondary and tertiary hospitals. Only 31.8 percent of doctors in community health centers have a bachelor’s degree or above; the rate is even lower in township health centers.⁶⁷ One estimate found only .7 percent of doctors in village clinics have a bachelor’s degree or above, while 78.3 percent have less than a technical school education.⁶⁸ Less educated doctors and health workers may not have the skills necessary to perform the complex tasks required for chronic disease management and treatment. Third, perhaps due to the problems posed by the first two challenges, many Chinese patients choose to seek primary care at secondary or tertiary hospitals.⁶⁹

To address these problems, the Chinese government implemented a three-part reform in 2009. First, the government made large investments in primary care infrastructure and human resources. Specifically, the government pledged to build or renovate 13,000 community healthcare facilities to train more than 500,000 healthcare professionals at rural health centers and institute programs incentivizing primary care physicians to practice in rural areas.⁷⁰ Second, the reform aimed to change the financing model of primary care centers away from reliance on prescription and medical procedure revenues. The most popular way of enacting this reform is the “separating revenue from expenditures” (SRE) policy.⁷¹ Under SRE, the primary care center passes on all revenues, including pharmaceutical prescribing and medical services revenues, to the healthcare financing bureau. In return, the center receives a global budget and the opportunity for performance-based bonuses, encouraging more patient-centric care. Third, the reform aims to provide primary care centers with an unofficial gatekeeping role; primary care centers will be patients’ first contact with the medical system, after which the primary care physician should direct the patient to the most appropriate place to seek care.⁷²

These three reforms have had mixed success. The government’s greatest accomplishments have been in increasing the number of care sites that patients can access. Between 2008 and 2011, the number of CHCs increased from 24,260 to 32,860 and the number of village clinics grew from 613,143 to 662,894, although the number of township health centers fell slightly (see Figure 4.3).⁷³ Whether or not patients utilized these sites rather than hospitals is a critical issue. One study found that the rate of outpatient visits per year and access to a health facility increased significantly between 2003 and 2011; however, the rate of increase was fairly small.

Figure 4.3 Total number of community and township health centers, 2002–2011

Increased utilization of rural primary care sites is constrained by the availability of manpower to staff them. The government has enjoyed much less success enticing physicians to come to the countryside to practice than in building practice sites. Attracting qualified participants into any government program may be difficult, particularly since physicians in the countryside work longer hours for less pay than their urban counterparts.⁷⁴ The separation of primary care revenue from pharmaceutical revenue is still in its early stages. However, just as in the EDL drug reform, properly implementing SRE will require local governments to find a funding source sufficient to replace revenues from pharmaceuticals. In the absence of a sufficient funding source, physicians may engage in other revenue-enhancing behavior such as soliciting bribes or refusing to see time-intensive patients such as those with NCDs. There is little information available about the quality of the investments into medical education. Finally, the success of optimizing patient flow between different levels of care will largely depend on the success of the first two parts of the primary care reform. Patients will only be willing to visit primary care centers if the centers are accessible and they are staffed with physicians that patients can trust.

Primary care reform is essential to bolster China’s health system’s capacity to handle its increasing NCD population. Early analysis shows that the government has had success in building physical infrastructure, but has struggled to improve physician quality and financially incentivize physicians to focus on quality of care. The government must be willing to continue to make long-term investments to train new primary care physicians and find alternate sources of revenue for primary care centers for the reforms to truly be a success.

Public Hospital Reforms

As a country’s NCD population grows, the capacity of secondary and tertiary hospitals also becomes increasingly important. Treating NCDs requires complex medical interventions and pharmaceutical treatments with high levels of physical infrastructure and human resources. These procedures and treatments are also expensive; if proper incentives are not in place for providers, they are liable to be overused, with serious financial and health consequences for payers and patients.

Until recently, China’s public hospital system had most of the shortcomings and few of the benefits of a centrally planned system. Hospitals in China operated in the midst of a great bureaucracy. Researchers have estimated that Chinese hospitals are accountable to more than eight different government agencies, each of which has conflicting interests and preferences.⁷⁵ In many localities, the same department regulates the local health market and operates the local hospital, providing incentives to constrict healthcare supply and competition. Promotion of physicians is typically non-performance related and almost entirely based on seniority. Public hospitals receive less than 10 percent of hospital revenues from government subsidies, but are required to adhere to government prices. These prices are set at below-market rates for many basic services, leading hospitals to induce demand in areas where they can earn a profit, mainly pharmaceuticals and high-tech medical procedures.⁷⁶

The Chinese government has attempted to address many of these problems in a wide-ranging public hospital reform. This reform has four major components. First, the government has begun pilot projects separating hospital regulation and hospital management. The specifics of this separation vary by place, with some local governments moving control of hospital operations out of the health department entirely and others creating independent hospital management agencies within the health department.⁷⁷ Second, the government has attempted to give hospitals more autonomy in hiring, promotion, and capital acquisition decisions, including the institution of performance-based promotions and the loosening of physician practice restrictions. Third, in order to better align patient and provider incentives, the government has encouraged hospitals to move away from a fee-for-service (FFS) model and toward a case-based or capitation system. A number of studies have documented extensive waste in the Chinese system. One estimated that 30 percent–50 percent of hospital admissions are unnecessary;⁷⁸ another study found that unnecessary care constitutes 20 percent–30 percent of Chinese health spending.⁷⁹ Through realigning provider incentives, the government hopes to eliminate much of this waste while improving the overall quality of care for patients. Finally, the government hopes to stimulate increased private sector investment in the healthcare sector.⁸⁰ More private sector investment should create more health supply, leading to greater competition. Although the literature on the effects of greater hospital competition is mixed, it is the hope that forcing public sector hospitals to compete for patients will lead to increased quality of care and/or decrease costs. Increasing supply is also likely to lead to induced demand by providers, resulting in increased utilization, increased costs, and perhaps more unnecessary care.

There are few systematic evaluations of the overall effects of public hospital separation reforms. One study found that enacting separation reform had a positive impact on healthcare supply in two of three pilot cities, but did not investigate changes in managerial practice or quality of care.⁸¹ Recent Ministry of Health reports have also provided some indications that the reform may be having success. Currently more than 3,467 medical facilities utilize clinical pathway management guidelines to standardize care and more than 94 percent of hospitals have instituted pre-registration procedures, which should decrease waiting times.⁸²

Other studies have examined the effects of the changes in physician and provider payment schemes. By 2011, more than 1/3 of tertiary hospitals had adopted case-based payments, and many local governments had begun experimenting with different types of physician payment schemes, including a province-wide pilot project in Guangxi.⁸³ A recent review of the Chinese-language literature on physician payment reforms found that switching from fee-for-service to a diagnostic related group (DRG) or case-based reimbursement method was associated with decreased costs without decreasing quality of care.⁸⁴ However, the authors caution that many of these evaluations are not empirically rigorous. A recent World Bank report cites several case studies where adoption of physician payment reform has led to a drop in expenditures and irrational prescriptions, but these results have again not been rigorously tested.⁸⁵

If true, these results indicate that moving toward case-based payments might be an important tool in increasing the affordability of healthcare for the growing NCD population. These results also accord with the experiences in many developed countries, although rigorous empirical research in these countries is also limited.⁸⁶ However, researchers have expressed concern that many of China’s case-based payment schemes only include a small selection of diseases, incentivizing providers to classify inexpensive patients as having case-based diseases and more expensive patients as having diseases requiring fee-for-service treatment. Further, if a provider has wholly adopted a case-based or DRG payment system, the hospital may turn away the more complex cases, whose treatment is associated with financial losses. Early positive reports are tempered by the lack of rigorous evaluation techniques and the lack of focus on patient satisfaction and quality of care. More research is necessary to test the validity of these concerns. Finally, there has been little research on whether reform policies have led to increased competition and whether increased competition affects the accessibility and affordability of healthcare.

With regard to hospital capacity, between 2009 and 2011 the total number of hospitals increased from 20,291, to 21,979, while the number of beds in medical institutions per 1,000 population also increased from 3.31 to 3.51 (see Figure 4.4).⁸⁷ Such increases cannot necessarily be attributed to reform policies, however. Like many Chinese reforms, the public hospital reforms were implemented at a local level in a manner adapted to local conditions and often implemented simultaneously with other reforms. While this may increase the reforms’ theoretical effectiveness, it also makes it extremely difficult to measure their effects. Thus, although early reports suggest that public hospital reforms have been largely positive, especially in the shift away from fee-for-service payment, more systematic research is necessary to understand the reforms’ true effects.

Figure 4.4 Beds per 1,000 population in urban and rural China

Moreover, the success of these reforms is at present limited to increases in physical capacity, utilization of guidelines and pre-registration procedures, and changes in provider payment and reimbursement methods. It is not known whether such reforms have impacted the cost, quality, and accessibility of care by patients with NCDs.

Gradual Improvement of Basic Insurance Schemes

Overall, reimbursement levels have risen and annual caps raised in many areas over the past few years. For example, the URBMI schemes in Kunming and Shaoxing have reduced co-payments for outpatient services. Kunming has reduced the co-pay from 80 percent to 50 percent and increased the annual cap by 50 percent to 400 RMB; Shaoxing has reduced the co-pay from 65 percent to 50 percent and increased the annual cap to 500 RMB.³ In addition, Kunming has increased the annual inpatient cap to 60,000 RMB, while Shaoxing has lowered the deductible for inpatient service from 400 to 200 RMB. Reimbursement now covers at least 50 percent of self-paid bills for procedural costs, drugs, and medical devices.

Critical Disease Insurance

Another high-impact initiative has been the implementation of Critical Disease Insurance (CDI). The intent is to provide the groups most vulnerable to large healthcare expenses – such as individuals insured under NCMS and URBMI – with additional protection against catastrophic illnesses. The government set up a funding and operational model for this “top-up insurance” that provides secondary reimbursement for all or part of patients’ out-of-pocket spending over the standard basic medical insurance reimbursement ceiling. It asked private insurance companies to bid for providing the desired coverage, essentially using public funds to buy private group insurance at scale for certain populations. Several large, local private health insurance companies followed suit and have since become important parts of the CDI system including China Pacific Insurance Group (CPIC) and China Life.

The CDI system was issued in 2012 for the NCMS-covered population and started with a list of 20 critical diseases to be reimbursed at higher rates.⁴ It has evolved toward an add-on insurance broadly covering healthcare costs for life-threatening diseases that exceed certain limits, irrespective of the diagnosis. The government has requested that CDI reimburse at least 50 percent of the total medical bill for critical diseases for rural and non-working urban residents. Participants do not need to pay extra fees for the new insurance coverage. By April 2015, CDI had been piloted in all 31 provinces, covering roughly 700 million people. At the recent State Council summit (July 22, 2015) hosted by Premier Li Keqiang, the government announced that CDI programs should be rolled out to all provinces by the end of 2015 to cover all rural and non-working residents. By 2017, a robust CDI system should be established to form a solid network with other existing medical assistance programs.

Risk-Sharing Arrangements with Pharmaceutical Companies

Some cities have explored innovative ways to work with pharmaceutical companies to improve access to expensive therapies that are not yet covered by the NRDL or the PRDL. For instance, Qingdao has negotiated access programs in which the pharmaceutical company donates a proportion of the medication used in the city to patients who meet certain physician evaluation and financial criteria. The remainder of the treatment cost is covered by the Qingdao government. Diseases and drug treatments covered by these schemes include multiple sclerosis (recombinant interferon beta-1b), leukemia (Dasatinib), breast cancer (Trastuzumab), and rheumatoid arthritis (Adalimumab). Established in 2012, the Qingdao scheme was extended to additional drugs in 2015, suggesting that the model is sustainable for both the public payer and partnering companies alike.

Convergence of NCMS and URBMI

The government is now contemplating a merger of the NCMS and URBMI schemes that would elevate NCMS coverage to URBMI standards. Just as important, the administration of NCMS would move under the umbrella of MoHRSS, creating a large “super-payer” in charge of all public insurance in China (at present, NCMS is administered by the NHFPC). Pilots are under way in several regions, including Sichuan, Tianjin, and Zhejiang.

Promotion of Private Health Insurance

While China has executed its public health insurance agenda, the government also sees an important role for private health insurance (PHI). For example, it has initiated measures such as tax breaks for PHI plans and relaxation of long-standing rules limiting foreign health insurers to minority ownership or 50–50 joint ventures with local players. Foreign insurers can now operate majority-owned businesses in Shanghai’s Free-Trade Zone.

There is a clear need for approaches that promote faster access to appropriate care, guaranteed quality of care, and (for select consumer segments) improved hardware and infrastructure (such as advanced diagnosis and treatment devices and high-end hospital wards). Nevertheless, the PHI market in China is still nascent (see Chapter 11). This stems from several systematic challenges, such as differing standards of treatment in public hospitals, lack of data transparency required for needs-based product design and proper claims management, and high-cost distribution models.

Outlook for Reform Objective 1

The government’s stated goal is to expand the coverage of basic medical insurance and steadily improve the level of security it provides. However, each province or city has to work within basic medical insurance budgets that could limit the depth of coverage that can be achieved. This has led to a fragmentation of reimbursement schemes. Whether innovative patented drugs, which are expensive yet potentially lifesaving, will ever be reimbursed at the national level, local level, or not at all is unclear. Innovative approaches like Qingdao’s patient access programs for specific therapies will therefore be of interest to manufacturers of high-cost drugs and medical devices. We expect further activity and innovation as industry and public payers explore win–win partnerships to provide access to patients. Basic medical insurance seems to have found its way as a pillar of health insurance, making full coverage by the end of 2015 a credible scenario.

As for PHI, several local and multinational companies are excited about its future, and substantial investments are being made in the quest for pole position in this largely untapped market. The emergence of digital channels and a growing private healthcare sector offer support for the optimism of PHI players.

Outlook for Reform Objective 2

Although we cannot predict what future versions of EDL will look like, we can safely assume that the molecule list will expand further and that the government will continue to push for its adoption as a mainstay of hospital prescribing beyond grassroots facilities and Class III maximum-care providers. Hospitals’ tendency to prescribe drugs outside the EDL is likely to be challenged by a mandate for a specific percentage of prescribed value to come from EDL drugs. Given the much lower prices of these drugs, the great majority of prescribed daily doses and volumes would be EDL drugs under such a mandate. The impact of these trends will depend on the number of molecules included on EDL, the relative weighting of quality and price, and the extent of EDL adoption across hospital levels (classes).

Outlook for Reform Objective 3

China needs a robust primary care system to sustain its healthcare in the long run. The government might pursue several avenues to bolster this system. First, it could close ailing CHCs, consolidate the remaining centers, and continuously upgrade those with stable patient flow. Second, the government could grant more authority to hospitals to operate the CHCs. This essentially would create referral networks for large public hospitals, and in turn commit them to steer patients to those centers and relieve the congestion in their outpatient areas. Third, the government could open the CHC market to private investment to draw needed entrepreneurship, talent, and capital.

For its part, the government would perform a steering role, managing cost (for example, through capitation models) and monitoring clinical quality and outcomes. Indeed, about 15 percent of patients are already being treated in CHCs that operate outside the public system and are outgrowing their government-run counterparts (7 percent year over year for the first 5 months of 2015 compared with 4.7 percent growth last year). In sum, evidence from China and elsewhere suggests that a more diverse CHC landscape and continued efforts by the government to strengthen the role of county hospitals on the one side and increasing operational and financial pressure at Class III hospitals on the other side will eventually lead to a sustainable primary care system.

Outlook for Reform Objective 4

The difficulty of assessing progress toward these targets makes it even harder to predict future developments. As in other areas of the reform, the interpretation of the guidelines and the determination to implement them vary widely across the country. Nevertheless, there are indications that progress has been made. For example, the WHO estimates that vaccination rates for Class I vaccines (BCG, DTP3, HepB3, and HCV) have risen by about 5 percent since 2009 to reach almost 100 percent. The incidence of measles has plummeted from more than 50,000 cases in 2009 to roughly 6,000 in 2012, representing about five cases per million people, an incidence lower than, e.g., Germany’s.

In other areas, the picture is more mixed. EMRs have been on the agenda since the tenth FYP 2001–2005, but the development of a multitude of approaches in isolation has produced a fragmented landscape that lacks interoperability. That puts the initial goal of EMR implementation – smooth and efficient documentation, storage, and exchange of patient data across hospitals – out of reach except in a few pilot areas in large cities.

Overall, progress seems most marked in areas with one-dimensional goals and key performance indicators (KPIs) such as vaccination rates and infrastructure delivery. These respond well to appropriate funding and do not require a highly skilled workforce or complex coordination across regions and stakeholders. It remains to be seen whether similar success rates can be achieved in areas requiring longer-term coordination and balanced incentives across different stakeholders – such as disease management for chronic diseases, implementation of a truly integrated EMR system, and educational efforts capable of changing people’s behavior at scale.

Counties

The National Development and Reform Commission – China’s economic planning and management agency – and the Ministry of Health plan to invest RMB 40 billion in upgrading more than 2,000 county hospitals. The first-wave pilot, including 311 county hospitals, was planned in three phases:

• By the end of 2011, at least one hospital per county should have reached the Class IIA level; county hospitals should have been capable of treating common diseases, severe or emergency diseases, and some complex diseases; and physicians should have been trained in THCs and village clinics.

• By the end of 2015, all county hospitals should reach the Class IIA level and be able to provide sufficient care to their local population.

• By the end of 2020, the quality gap between county and Class III hospitals should be closed; patient care conditions, treatment skills, and hospital management should have been upgraded; and there should be continuous improvement in medical care to county level populations.

Another 700 county hospitals joined the pilot in April 2014. In early 2015, NHFPC minister Li Bin commented on the 2015 healthcare reform plan, stating that the county hospital upgrade program would be a priority for the coming year. The focus would be implementing the zero mark-up policy and improving quality of county hospitals.

Cities

Building on the DRG model it set up in 2008, Beijing introduced a pilot in six Class III hospitals in 2011 (there were still six pilot hospitals based on the latest announcement). The results have been encouraging (see Figure 5.4).

Figure 5.4 Early success with DRGs in Beijing Class III hospital pilots

Source: 2012 Xiamen H-CEO Conference.

Shenzhen’s public hospital reform focuses on changing the funding mechanism and introducing measures to control costs. The plan is to introduce a zero markup in two stages, the first limited to local patients and the second extended to all patients, including migrants. The funding mechanism will be improved by gradually increasing government contributions and increasing the service fee according to the hospital’s level (class). The payment mechanism will be improved by moving to disease- or category-based payments for inpatients and to mostly capitation payments for outpatients. Competition will be introduced by allowing patients to use their prescriptions to purchase drugs at pharmacies: patients now can buy drugs in medical insurance-designated pharmacies, thus further lowering the healthcare cost. Drug purchasing will be reformed by centralizing purchasing and distribution and allowing manufacturers to sell directly to hospitals; this has been piloted in selected hospitals such as the University of Hong Kong-Shenzhen Hospital.

Outlook for Reform Objective 5

Progress to date in hospital reform has been the slowest of the five pillars. Many pilots have been launched, but they have not yet been fully evaluated.

In addition, the government should consider focusing on implementing treatment standards that are unified and linked to an appropriate funding mechanism that ensures hospital solvency. At this stage, hospitals other than those in Class III seem to have difficulty offering care at reimbursed fees; their real costs are higher than the sums they receive from the various public programs.

Experience from other, more mature health systems suggests that it will be helpful for the government to consider whether and how a division between medical and managerial leadership roles, supported by clear KPIs in service quality and operational efficiency, could support delivery of its objectives for transforming hospital management.

When discussing the status of hospital reform in China, we also must reflect on the progress made in the private sector. The objective of treating 20 percent of the patient population in private hospitals by the end of 2015 may not be achieved. But several regulatory changes may accelerate the provision of private offerings: (1) the official guideline that allows physicians to work at multiple sites helps to relieve the talent challenges of the private hospital sector; (2) the option to set up private hospitals as wholly foreign-owned entities; and (3) the possibility that public insurance programs might also be used to pay for treatment at private hospitals.¹¹ Regulatory changes are pointing in the right direction. Yet all the administrative requirements facing private hospitals and clinics in China create challenges and roadblocks.

Prevalence of NCDs

NCDs accounted for 70 percent of China’s total disease burden in 2012.⁵ The leading NCDs in China today are cancer, cardiovascular disease, cerebrovascular disease (stroke), chronic obstructive pulmonary disease (COPD), and diabetes. Osteoporosis is also commonly seen. According to the 2015 Report on Nutrition and Chronic Disease in Chinese Residents, NCD prevalence rates are estimated to be 25.2 percent for hypertension (over 300 million people), 9.7 percent for diabetes, and 9.9 percent for COPD among those 40 years of age and older.⁶ An earlier study found that 50.1 percent (493.4 million) of the adult Chinese population are prediabetic.⁷ The 2015 report also showed that the incidence of cancer, the leading cause of deaths in China since 2012, was 235 per 100,000 population.

NCDs are now striking Chinese at younger ages as in low- and middle-income countries, and are a major cause of not only poverty and household impoverishment but also morbidity and premature deaths. This poses serious implications for China’s economy going forward.⁸

Table 6.1 shows the changes in prevalence of chronic disease (both infectious and non-infectious) in China by gender, age, and urban–rural residence for 1993, 1998, 2003, and 2008 (years the Chinese government had collected such data).⁹ The prevalence of NCDs has been consistently higher among urban than rural residents and higher among women than men. Significantly, large numbers of relatively younger adults (those aged 35–64) of both genders are afflicted with NCDs.

Health and NCD Prevalence among China’s Migrant Workers

China’s rapid industrialization and urbanization in the past three decades saw large-scale migration of rural residents to urban areas in search of better jobs and escape from the hard agricultural life. China’s National Bureau of Statistics estimated there were 278 million migrant workers in China as of 2014. Premier Li Keqiang has acknowledged they are the driving force behind China’s “economic miracle.”¹⁰

Migrant workers appear to be at greater risk for developing NCDs despite their relative youth and presumed good health when they left home. Possible explanations range from mental and psychological stress from being homesick to difficulties in adjusting to industrial jobs and urban life. More importantly, perhaps, urban migrant workers have far less generous health insurance coverage – despite the overall health insurance coverage rate of approximately 95 percent – compared to formal sector employment, which comes with the best health insurance coverage in China (Urban Employee Basic Medical Insurance, or UEBMI; see Chapters 2 and 11). They are instead enrolled in either the Urban Resident Basic Medical Insurance Scheme (URBMI) or the New Cooperative Medical Scheme (NCMS). Because the latter schemes have less financing and therefore offer fewer covered benefits, many Chinese covered by these schemes lack the means to access needed care.¹¹

During July–December 2012, two Chinese agencies (the former Ministry of Health and the China Centers for Disease Control, or CDC) conducted a survey of chronic disease prevalence among China’s migrant workers.¹² The surveys focused on risk factors (smoking, harmful drinking, poor diet, and physical activities), physical measurements (height, weight, waistline, blood pressure), and laboratory measurements (blood glucose, cholesterol, HbA1C, and insulin level).¹³

Survey findings released in December 2014 highlighted several important differences in the prevalence of risk factors and health status between migrant workers and local residents (those with household registration in the cities and towns where they live):

• More migrant workers consume alcohol (although their level of alcohol overuse is lower)

• Fewer migrant workers (44.1 percent) do not consume enough fruits and vegetables, a rate lower than local residents

• More migrant workers (nearly 40 percent) consume too much red meat

• More migrant workers are either overweight (30.4 percent) or obese (10.9 percent), but only among males

• More migrant workers have abnormal (high) levels of total blood cholesterol and triglyceride, but comparable levels of low-density cholesterol and lower levels of high-density cholesterol

• Fewer migrant workers suffer from hypertension (15.6 percent) and diabetes (4.8 percent), and their control rate for these conditions is higher; but their awareness of having these two chronic conditions is lower and they are less likely to be treated

Another key set of findings highlights the importance of gender: more than half of male migrant workers smoked (55.3 percent) compared to women (1.9 percent; 32.5 percent overall) – a situation not much changed from 2010. Male migrants aged 18–59 also had higher rates of being overweight compared to women (35.1 percent vs. 24.1 percent; 30.4 percent overall) and being obese compared to women (13.5 percent vs. 7.3 percent; 10.9 percent overall), a higher incidence of hypertension (20.6 percent vs. 8.9 percent; 15.6 percent overall), and a higher prevalence of diabetes (6 percent vs. 3 percent; 4.8 percent overall). Male construction workers exhibited the worst risk factors and health status levels: they had the highest rates of smoking and drinking, and the highest prevalence of obesity.

Under-treatment and lack of control of these chronic conditions were also more common among male migrant workers. Among those with a definite diagnosis of hypertension, males were less likely than females to receive treatment (44.7 percent vs. 56.4 percent; 47.8 percent overall) and were less likely to have their condition under control (2.5 percent vs. 4.2 percent; 2.9 percent overall). Only 24.3 percent of migrants (26.4 percent men, 23.7 percent women) were aware they were hypertensive, and just 12 percent (11 percent men, 15.4 percent women) were being treated for it. Among those with a definite diagnosis of hypertension the treatment rate was 47.8 percent (44.7 men, 56.4 percent women).

The picture is slightly more favorable for diabetes. The overall treatment rate was 23.8 percent; among those with a definite diagnosis, 83.4 percent were being treated. The rate of control of HbA1C (glycated haemoglobin) was 28.6 percent (27.2 percent for men, 32.4 percent for women); the overall diabetes control rate was 34.8 percent.¹⁴ Gender differences were not as apparent here (34.7 percent for men vs. 35.2 percent for women).

The survey found that in 2012, the majority of those migrant workers 18–59 years of age diagnosed with hypertension (82.8 percent) and diabetes (83.4 percent) were not enrolled in active health management schemes. Low staffing and inadequate staff training are two main explanations. Moreover, the conduct of health management plans was seldom carried out according to guidelines: 16.2 percent for hypertension, 23 percent for diabetes. These rates were lower than those for local residents. Clearly, additional staffing, staff training, and use of evidence-based clinical guidelines are needed to carry out effective health management of migrant workers.

Mortality from NCDs

According to World Health Organization (WHO) data published in 2013, the absolute number of deaths due to NCDs fell 27.8 percent between 1990 and 2010 from 7.09 million to 5.94 million in China.¹⁵ However, as a percentage of the total, deaths from NCDs have increased from 85 percent in 2012 to 86.6 percent in 2014, according to a 2015 China report on Nutrition and Chronic Disease – a rate far higher than the global average of 67.9 percent.¹⁶

Table 6.2 ranks the ten leading causes of death by volume, gender, percentage of total deaths, and absolute number of deaths in China in 2012. The 2015 report reveals that three major NCDs – cardio- and cerebrovascular diseases, cancer, and COPD – accounted for 79.4 percent of all deaths. This accords with WHO estimates that deaths from cancer, cardio- and cerebrovascular diseases, diseases of the respiratory, endocrine-nutrition-metabolic, digestive, nervous, and urinary and reproductive tract systems accounted for 87.6 percent of total deaths in China in 2012.¹⁷

An additional 2015 report released by the WHO suggests that 3 million Chinese die prematurely each year from preventable diseases.¹⁸ Premature deaths from NCDs in China accounted for 35.8 percent of total NCD mortality (39.7 percent for men and 31.9 percent for women) in 2012. By contrast, premature NCD deaths are much lower in developed countries (discussed next).

Lifestyle-related Behavioral Risks

The 2015 Report on Nutrition and Chronic Disease shows both positive and negative changes in the health and nutrition status of the Chinese population. Positive changes since 2002 include (a) significantly declining rates of stunting, underweight, anemia, and malnutrition, (b) significantly improving nutritional status and stature of children aged 6–17 and young men and women 18+ years old, and (c) significantly declining rates of anemia among pregnant women (17.2 percent, down 11.7 percentage points). Today 18.7 percent of adults engage in regular physical exercise, compared to only 11.9 percent in 2011.¹⁹ The biggest negative change is an increased number of people suffered from NCDs during the period 2002–2012.²⁰

Several drivers underlie these trends. Rapid economic growth over three decades led to a 6.3-fold growth in urban household disposable income and a 4.7-fold growth in rural household income in the period 1995–2012 alone.²¹ Such growth resulted in an increased ability to pay for healthcare and better nutrition. However, rapid urbanization occurred in tandem with rising income and prosperity. Together, these forces fostered sedentary lifestyles, poor diets, higher smoking rates, and alcohol use – all known major risk factors for NCDs like cancer, heart disease, stroke, COPD, and diabetes. These risk factors are reflected in increased body mass and serum cholesterol levels.

According to the 2015 report, smoking, excessive drinking, lack of exercise, and other health risks still prevail among the Chinese population. Such problems are not limited to the migrant worker population. Between 2002 and 2012, the percentage of Chinese adults (18+ years) who were overweight increased 7.3 percent to reach 30.1 percent; the percentage who were obese rose 4.8 percent to reach 11.9 percent.²² In 2014, there were 300 million smokers in China, including 52.9 percent of Chinese men. Equally significant, 740 million Chinese (72.40 percent of non-smokers) were exposed to secondhand smoke.

Environmental Risk Factors

Environmental pollution plays an important role in major NCDs such as cancer, cardiovascular disease, and COPD. China’s economic transformation in the past three decades has led to one of the most severe cases of environmental degradation the world has ever seen. Data on the environmental impact on health in China are not readily available.²³ Glimpses may be had, however, from published reports. For example, the Lancet reported that air pollution is estimated to cause 500,000 premature deaths in urban China,²⁴ and China-CDC has estimated that total deaths (urban and rural combined) attributable to air pollution range between 960,000 and 970,000.²⁵ Another Lancet study, based on 2010 data, reported that China had significantly higher levels of ambient and household air pollution, compared to G20 nations.²⁶

Polluted water poses an additional serious threat to the health of the population. According to China CDC director-general Wang Yu, 50 percent of the water supply in rural China today does not meet WHO standards for clean water.²⁷

Institutional Risk Factors

Lack of health insurance coverage can delay or prevent access to needed healthcare and thus serves as an institutional risk for NCDs. In 2000, only 15 percent of China’s population had health insurance coverage.²⁸ The 2009 health reform dramatically elevated the level of health insurance coverage to over 95 percent of the population by 2012²⁹ see Figure 2.2. Nevertheless, benefits vary by type of insurance. The UEBMI offers the most generous coverage, followed by the NCMS and URBMI schemes (see Chapter 11). The benefit levels offered by URBMI have been catching up with those in NCMS in recent years. The higher out-of-pocket costs borne by beneficiaries in these two schemes create financial barriers to needed healthcare for those who cannot afford the expense.

Other NCD Risk Factors: Aging, Nutrition, and Socioeconomic Status

In 1999, China officially became an “aging society.” The proportion of its population 60+ years old reached 10.1 percent; the percentage of those 65+ years reached 7 percent.³⁰ By 2013, Chinese aged 65+ years constituted 9.7 percent of the population, compared to an average of 15.7 percent among OECD countries.³¹ China is thus a relatively younger country. However, the rate of aging in China has been rapid. It took 46 years for the percentage of the population 65+ to double in the United Kingdom (from 7 percent to 14 percent), 68 years in the United States, and 116 years in France; it took only 26 years in China.³² Driven by both a low birth rate and an increase in life expectancy, that trend is likely to continue in China.³³

Why is this important? The risk of NCDs increases with age. As a result, aging is a major driver of the increased prevalence of NCDs and their associated healthcare costs.³⁴ In 2005, healthcare costs for the elderly accounted for 21.8 percent of China’s total health spending; by 2010, that share had risen to 36.4 percent.³⁵

In developing countries, a host of other risk factors drive NCDs, often occurring later in life. For example, shortages of natural resources (arable land, water) impact the food supply, nutrition, and thus disease. Malnutrition, stunting, anemia, and parasitic infections all affect the health of mothers, infants, and children – exposing them to greater risks for certain NCDs later in life. Research has shown that fetal and early childhood malnutrition predisposes those affected to becoming overweight and obese, or to develop heart disease, stroke, and diabetes.³⁶ Parental socioeconomic status and educational attainment – especially the education of the mother – similarly affect child health, with implications for health status later in life.³⁷

Household Costs

In 2012, household out-of-pocket spending comprised 34.3 percent of China’s total national health expenditures. This represented a 24.6 percent reduction from the high of 58.8 percent in 2000.⁴⁰ Out-of-pocket payment for NCD prevention and treatment, on the other hand, accounted for 47.3 percent of China’s total NCD-related healthcare expenditure in 2010. In some provinces, such spending exceeded 50 percent.⁴¹

Out-of-pocket spending for NCD-related prevention and treatment constitutes a heavy financial burden on some households, especially low-income families and the poor. This burden is especially high for NCD inpatient care. In 2010, the average cost of an inpatient episode was 6,978 RMB, or 36 percent of the average annual disposable income for urban residents.⁴² Treatment costs for complicated diseases such as stroke and post-acute follow-up care impose continuing heavy financial burdens, especially on households in rural areas. This burden is a major source of poverty and impoverishment, despite the significantly improved health insurance coverage and access to medical services following the 2009 health reform.⁴³

Nevertheless, discussions with senior health officials in Beijing suggest that out-of-pocket spending for NCD care is not an economic burden for the average Chinese.⁴⁴ Essential medicines for NCDs are inexpensive and nearly universally affordable. For example, one month’s supply of antihypertensive drugs costs only several RMB (approximately $1–$1.50).⁴⁵

Societal Costs

In 2010, total spending on NCDs accounted for 70 percent of China’s total national health spending. This represented 3.2 percent of China’s total GDP that year.⁴⁶ According to the 2011 Report on Cardiovascular Diseases in China released by the National Center for Cardiovascular Diseases, treatment costs for heart attacks, stroke, diabetes, and COPD will rise by 50 percent from 2010 to 2030.⁴⁷

In addition to the added public and private spending on healthcare, NCDs also impose certain other costs on society. One is lost labor productivity and thus a decline in GDP. The other is the economic value of the disability-adjusted life years (DALYs) lost.⁴⁸ For 2010, dietary risk factors alone generated an estimated 16.3 percent of the total DALYs from all risk factors in China and 30.6 percent of all deaths.⁴⁹ Hypertension generated the second highest number of DALYs (12 percent) and 24.6 percent of all deaths. Tobacco use generated 9.5 percent of DALYs and 16.4 percent of all deaths.⁵⁰

The WHO estimates that for the period 2011–2015, cumulative economic losses due to NCDs in low- and middle-income countries (LMICs) amounted to $7 trillion, a sum far larger than the estimated annual $11.2 billion cost of implementing effective interventions to reduce the NCD burden.⁵¹ Certain diseases account for major shares of total lost output during this period in LMICs: cardiovascular disease (51 percent), respiratory disease (22 percent), cancer (21 percent), and diabetes (6 percent).⁵²

Analysts have developed estimates of the economic cost of the five major NCDs in China (diabetes, cardiovascular disease, respiratory disease, cancer, and mental illness) using the WHO’s EPIC model of economic growth. The EPIC model, developed by Abegunde and Stancioli and applied by Bloom et al., builds on Nobel Laureate Robert Solow’s seminal 1956 neoclassical theory of economic growth as a function of two main factors of production: capital formation and labor supply.⁵³ The EPIC model adds a third factor, the health of the population, which along with education comprises a major component of what economists call “human capital.” NCDs cause a diversion of savings from capital investment into nonproductive healthcare; and NCD mortality leads to reduced stocks of available labor. In other words, NCDs impose a negative cost on economic growth because they affect both capital formation (through reduced savings) and labor supply (through lower labor productivity due to illness and premature mortality), the two most important factors of production in any national economy. This enhanced model shows that for the period 2012–2030 the cost of foregone societal output resulting from four major NCDs in China (cardiovascular disease, cancer, COPD, diabetes) will total $18.5 trillion. If mental health is included as a fifth NCD, the total is estimated at $23.0 trillion (in 2010 US$).⁵⁴ This cumulative GDP loss due to NCDs is staggering, considering that in 2014 China’s total GDP was $10.4 trillion.⁵⁵

Additional analyses suggest the relative contribution of these five NCDs to overall lost output for China for the period 2012–2030: cardiovascular disease (33.1 percent), cancer (24.4 percent), respiratory disease/COPD (20.8 percent), mental health (19.6 percent), and diabetes (2.1 percent).⁵⁶ To be sure, the estimates from the EPIC model have serious limitations. A major drawback is that the estimates are derived from mortality data alone. Failure to include the morbidity component of NCDs significantly understates the true magnitude of the overall costs of NCDs in China. Additional limitations of the EPIC model are described elsewhere.⁵⁷

Can China’s Health System Cope Adequately with the Growth of NCDs?

In the face of rapidly rising healthcare spending, rapid aging, a rising dependency ratio, a slowing macro economy, a shrinking labor force, and large numbers of premature deaths from NCDs, one may ask whether China’s healthcare system has the financial capacity and physical infrastructure to adequately cope with NCDs? The proper answer to this question is, “it depends.” China certainly will not be able to cope adequately with its growing NCD burden unless several actions are simultaneously undertaken. It must allocate more financial resources to its healthcare system. It must also dedicate more physical resources (e.g., land) and infrastructure (labor, capital equipment). Third, it must reform its delivery system to become more cost-effective. Fortunately, the Chinese government has embarked upon a multipronged, proactive policy to achieve these goals. The following section and the appendix provide an overview of these policy and program initiatives.

The China National Plan for NCD Prevention and Treatment (2012–2015)

The China National Plan for NCD Prevention and Treatment (“the plan”) represents the first-ever national effort to target NCD prevention and control formally articulated by the Chinese government. The importance attached to the NCD issue by the government lies in the fact that it was jointly issued by 15 ministries and state administrations, including the powerful National Development and Reform Commission (NDRC) in the State Council. Since its issuance, provincial and local governments throughout China have followed suit with their own efforts based on the national plan.

The plan is a clearly articulated national roadmap to comprehensive NCD prevention and control in China. Its goal is to “protect and promote the health of the people, and facilitate sustainable economic and social development.”⁶² The plan adheres to the basic principles of government leadership, inter-sector cooperation and coordination, and social participation. To achieve its goal, the plan emphasizes primary prevention along with the integration of prevention and treatment through a strengthening of primary care. The plan targets key NCDs for intervention (cardiovascular diseases, cancer, diabetes, COPD), their key behavioral risk factors (tobacco use, imbalanced diet, insufficient physical activities, excessive drinking), and their key biological risk factors (elevated blood pressure, elevated blood sugar [HbA1C], dyslipidemia, overweight-obesity).

The plan also aims to increase the number of NCD prevention and control professionals to more than 5 percent of the professionals in disease control institutions at all levels nationally. As an ultimate aim, the plan sets a target to increase the average life expectancy of the Chinese by one year at the end of the plan period (2015). To carry out this ambitious effort, the government has allocated a budget nearly twice the size of its fiscal commitment for 2011.

The State Council Framework for Food and Nutrition Development in China 2014–2020

Earlier initiatives in NCD control and prevention originated primarily at the cabinet ministerial level. In January 2014, China’s State Council issued its “Framework for Food and Nutrition Development in China 2014–2020 (Office of the Premier Document [2014] No. 3)”.⁶³ This framework clearly articulated the State Council’s vision and ambition for population health improvement for all Chinese. With the backing of the full power and prestige of the highest administrative office of the land, the framework document will serve as the highest guideline for all levels of governments in all 31 provinces (including the autonomous regions and municipalities and the Xinjiang Production and Construction Military Corps), all ministries and national commissions, and all state agencies under the State Council on matters relating to food and nutrition development in China.

The document outlines priority areas such as food production and supply, residents’ nutrition status, and awareness regarding health and nutrition. The objectives are to safeguard the effective supply of foods and improve food composition to improve the nutrition and health status of the Chinese.⁶⁴

Earlier dramatic successes in improving population health through national government nutrition policies provide a strong evidence base for the State Council’s bold move in the same direction. The effort is reminiscent of the highly successful Finnish national nutrition policy implemented in the 1980s to address the unacceptably high rates of morbidity and mortality from cardiovascular diseases.⁶⁵

National Campaign on Healthy Lifestyle for All

The National Campaign on Healthy Lifestyle for All is an ongoing initiative that started in 2007. Its goal was to promote health knowledge, awareness, and healthy behaviors among all Chinese. Unlike the State Council framework, the initiative was not a formal top-down government plan, but rather was organized by the Ministry of Health, the China CDC, and the National Commission for Patriotic Health Movement – all of whom share responsibility for healthcare.

The initiative focused at first on (a) promoting healthy lifestyles through reasonable diet and physical exercise, and (b) building a supportive and health-enhancing physical environment. The latter included healthy restaurants, healthy school cafeterias, public parks, designated pedestrian walkways, and even innovations such as gas stations equipped with blood pressure gauges and scales. Smoking cessation, oral and mental health, and accident and injury prevention activities were added in 2011. The initiative also trained volunteer “advisors” – often retired healthcare workers – to organize activities, public lectures, and speech contests for the public. As of April 2015, Beijing had trained close to 10,000 “healthy lifestyle advisors.”⁶⁶ A 2012 evaluation showed that compared to those areas that had not participated in the initiative, participating sites had much higher levels of health literacy, use of health-promoting equipment, and adoption of healthy behaviors.⁶⁷

In 2011, the initiative was included in the national basic public health service package and became a major platform of the government’s stepped up efforts to promote healthy lifestyles – a key strategy in the National Plan for NCD Prevention and Control 2012–2015. The government also began more formal evaluations of the program’s effectiveness. In 2012, the Ministry of Health (National Health and Family Planning Commission since 2013) included the initiative’s performance as a measure of overall performance evaluation on NCD prevention and control.⁶⁸ By the end of 2013, 71.4 percent of China’s counties were participating in the initiative.⁶⁹

National Demonstration Sites for Integrated NCD Prevention and Control

In 2011, before the 2012–2015 National Plan was announced, the Chinese government began testing a new working model for NCD prevention and control. The model was based on the WHO Health-in-All-Policies (HiAP) approach, which was a key WHO strategy in NCD prevention and control. HiAP seeks to engage all sectors of society beyond just healthcare and urges policy makers to include consideration of health impact in all public policies. HiAP was introduced in the European Union in 2006. In China, policy makers created a series of demonstration sites nationwide to implement the HiAP approach.

This new working model takes a formal top-down approach, with government leadership at the top, followed by “inter-sector cooperation and societal participation.”⁷⁰ Local governments have been supportive of the project, which helped the model to quickly gain momentum. As of March 2015, there were 265 demonstration sites in both urban and rural areas in all 31 provinces (including the autonomous regions and municipalities), with over 500 provincial-level NCD prevention and control demonstration districts in operation.⁷¹

Batteries of metrics have been developed to monitor and evaluate the various dimensions of the demonstration sites’ programs. The metrics include risk factors, health education, high-risk population screening, disease management, and the environment. Overall results of this “Chinese HiAP in action” are reportedly encouraging. The project is considered a model for NCD prevention and control “with Chinese characteristics.”⁷²

Constraints on the HiAP Approach

Despite the recognized importance of the HiAP approach in pursuing NCD prevention and control, implementing HiAP in public policies and programs in China is still a challenge. According to Wang Yu, China needs time to deal with several constraints. These include constrained natural resources (insufficient arable land, water, and energy supply), the country’s rapidly aging population, the population’s growing appetite for more of everything including unhealthy foods, and rising consumer expectations.⁷³ There are also institutional constraints such as the absence of or insufficient levels of coordination and cooperation within and between governmental bodies.⁷⁴ Perhaps most important, HiAP in China still lacks a coordinating mechanism at the top, as well as a national health law to serve as a legal framework to guide the next steps in China’s health reforms.⁷⁵

Other constraints include the lack of regulation over products and services closely linked with health risk factors. Such products and services encompass salt, sugar, food labeling, restaurant hygiene, tobacco, and tobacco warning labels. HiAP in China thus remains a work in progress.

Inadequate Budgets for NCD Prevention

China needs to increase its budget for NCD preventive services. Of the total spending on NCD prevention and control in China, preventive services account for a paltry 1.26 percent.⁷⁶ The bulk of this funding comes from the central government’s public health services equalization program.⁷⁷ The Chinese government has been steadily increasing the per capita budget allocation for public health services; however, greater allocations are needed. By contrast, treatment costs (inpatient and outpatient services) account for the bulk (83.85 percent) of the total healthcare spending on NCDs.⁷⁸ Figure 6.1 decomposes total spending on NCD treatment by type of service: inpatient- and outpatient services, healthcare products, administrative expense, preventive services, and auxiliary services.

Figure 6.1 Health spending on NCDs in China, by type of service, 2013

Source: China National Health Development Research Center. Strategies for Healthcare Expenditure and Financing for Chronic Disease. China National Health Development Research Center, Ministry of Health. Beijing, China. 2012.

Inadequate Primary Care Workforce

While the 2009 health reform has greatly increased the supply of China’s health workforce, manpower levels remain woefully inadequate to handle the vastly increased demand for healthcare services.⁷⁹ Table 6.4 compares the number of general practitioners per 1,000 population and the number of nurses per 1,000 population in OECD countries versus China. Among China’s 2.5 million doctors (2015), only 130,000, or 5 percent, are primary care physicians. This translates into one primary care doctor for every 10,000 Chinese.⁸⁰ China’s nursing supply also remains quite low, despite a 46.7 percent increase in nurses per 1,000 population between 2009 and 2013 – largely due to the 2009 healthcare reform.

Why is this important? Good primary care is a cost-effective way to improve patient outcomes and population health. One barrier is that primary care doctors are the lowest paid and have the lowest standing of all specialties in China. Higher salaries and prestige are needed to incentivize more medical students and doctors to go into primary care.

The Role of Evidence-based Clinical Guidelines and Clinical Pathways

As part of the 2009 healthcare reform, the Chinese government has invested heavily in its healthcare system. As an illustration, the central government investment in healthcare facilities during 2009–2010 exceeded the sum of all government investments in the prior 30 years (i.e., since China’s economic reform). During 2009–2011, the Chinese government invested more than US$ 204 billion (PPP$) in the health sector.⁸¹ Financial investments are necessary but insufficient, however. Policy makers must make sure the new money is efficiently spent, and not just poured into a dysfunctional system.

Two major instruments are crucial in this endeavor. First, there must be a parallel effort in healthcare technology assessment (HTA) to discover which treatments and practice arrangements work better than others (see Chapter 13). Second, there must be evidence-based clinical pathways derived from clinical guidelines to help physicians navigate and follow best practices in patient treatment. These clinical pathways can help reduce unnecessary and inappropriate care, but generally leave sufficient room to allow physicians’ clinical judgment and discretion. Such pathways now exist in computer-based algorithms.

With its health reform beginning in 2009, the government has adopted health technology assessment to bring about quality and efficiency improvements, albeit on a limited basis. China’s Ministry of Health established an HTA unit within its China National Health Development Research Center (CNHDRC, a policy think tank that serves multiple government ministries and agencies involved with healthcare in China). China might consider developing its nascent HTA capacity and applying HTA techniques to health insurance benefits design, coverage (including public health services), and payment models.

Soon thereafter, the Ministry of Health collaborated with the UK’s National Institute for Care Excellence (NICE) to develop evidence-based clinical pathways for single diseases treated in rural public hospitals. These evidence-based clinical pathways were paired with changes in provider reimbursement from fee-for-service to case payment and achieved several important results: lower costs, reduced lengths of stay, reduced use of drugs (including overly prescribed antibiotics), improved patient outcomes, and increased satisfaction among patients, providers, and payers.⁸² These encouraging results prompted the government to roll out this reform model nationally. The Chinese government (again in collaboration with NICE) is currently developing and implementing evidence-based clinical pathways for key chronic diseases, beginning with stroke and COPD.

Financial Access to NCD Care

Another constraint to NCD prevention and control is the continuing high level of out-of-pocket spending in China. Such spending accounts for 41.6 percent of the cost of outpatient visits, 51.5 percent of the cost of inpatient care, and 72 percent of the cost of drugs at retail pharmacies.⁸³ High out-of-pocket spending constitutes a financial barrier to needed care. In his report to the 12th China’s National People’s Congress held in March 2015, Premier Li Keqiang stated that the government will increase (a) subsidies to health insurance for both urban and rural residents by 19 percent, from 320 RMB to 380 RMB per person; and (b) public health budgets by 14 percent, from 35 RMB to 40 RMB per person.⁸⁴ Such continuing investments in the government’s 13th Five-Year Plan (2016–2020) in public health and NCDs are expected, barring unforeseen circumstances.

Need for Measurement, Monitoring, and Evaluation

One final constraint is the nascent stage of development of NCD program measurement and evaluation. As of 2012, systematic evaluation of program efficacy and outcomes has not kept pace with new program implementation.⁸⁵

To be sure, China CDC has engaged in a number of important monitoring and measurement programs (see Chapter 3). For example, it fielded the national causes of death surveys, the national NCD and nutrition surveys, and cancer registries. As of 2011, systematic measuring and monitoring appear concentrated in the 265 NCD demonstration sites spread throughout China’s 31 provinces including the autonomous regions and municipalities and the Xinjiang Production and Construction Military Corps.

As of 2015, the National Health and Family Planning Commission has been actively conducting evaluations of the effectiveness of the various NCD prevention and control programs implemented in preparation for the 2016 national work plan as well as for either the 13th Five-Year Plan (2016–2020) or a ten-year plan 2015–2025. The length of the next-phase NCD plan had not yet been determined as of March 2015.⁸⁶ Overall, however, more evaluations of program efficacy are needed to determine the value of the government’s increased resource allocations for NCD prevention and control.

Private versus Social Goals

Fostering PPPs in healthcare, however, is more challenging than might be imagined. The goals of private enterprises tend to conflict with the social goals of government. Government policy is focused mainly on (1) maintaining and improving the health of the population, (2) protecting individuals and households from the financial risk of ill health, and (3) achieving both in an equitable manner to promote a “harmonious society.” Private enterprise – especially investor-owned for-profit enterprise – is not structured to pursue social goals but rather to maximize shareholder wealth. Practically, this means maximizing the difference between revenues and costs over time, without violating the laws of the land.

This mandate implies that on the production side, management should seek to minimize the cost of production – e.g., by using productive inputs as sparingly as possible and paying for them the lowest prices and wages sufficient to attract an adequate supply of the resources. It is this feature of private enterprise that leads many economists, management consultants, and bureaucrats to believe that private enterprise is more efficient than public enterprise.

On the revenue side, however, the mandate to maximize profits implies that the managers of private enterprises should seek to extract from buyers the maximum revenue possible for the products being sold. In healthcare, this can be done by recommending and delivering more healthcare than is clinically necessary (a phenomenon widely known as supplier-induced demand). It can also be achieved by charging buyers the highest prices possible. That certainly occurs in the United States, where prices in the private healthcare sector tend to be much higher than comparable prices in Europe and Canada.⁸⁸

This latter point is often overlooked by advocates of private enterprise and private markets in healthcare. Buyers – be they patients, government, or private health insurers – care primarily about the prices they are charged for healthcare. It does not help them to know that production costs are minimized or, as economists put it, when production is economically efficient. It is the main reason why in most developed nations the prices for healthcare are not left to the market but instead are regulated by government.

Governments do so because spending on healthcare entails significant opportunity costs. For government spending, these opportunity costs include education of the nation’s young at all levels, infrastructure building, including social programs and institutions, and external and internal national security. For households facing health insurance premiums and out-of-pocket outlays on healthcare, the opportunity costs consist of all the other desirable goods and services.

What are the policy implications for China? If the government (a) seeks to enlist private enterprise in healthcare – particularly investor-owned, for-profit enterprises – and (b) wants the healthcare system to achieve the social goals for healthcare – that “everyone enjoys” access to needed basic healthcare as a means to achieving a “harmonious society”⁸⁹ – it cannot avoid regulating the behavior of private enterprise, especially prices. Switzerland’s widely admired private health insurance system is a model in this regard; for example, in Switzerland the Ministry of Health sets drug prices.⁹⁰

Moreover, the government and private information technology companies must combine their efforts to monitor the quality of healthcare delivered by all sectors of the health system, including not only the private sector, but the government sector as well. Efforts to do so are now under way in many parts of the developed world. One approach is the development and implementation of evidence-based clinical pathways mentioned above; other means to monitor are now being developed worldwide.⁹¹