web_vol47 4.pdf - International Hospital Federation

Policy: China
Figure 1: Three eras in the evolution of the hospital system in China
Era I
Establishing the public hospital
system before the market
reform (1949–1980)
Era II
Transferring the fiscal burden to
public hospitals and emerging private
medical facilities (1980–2009)
Era III
Exploring options to address
access and cost issues in the
public hospital system (2009–now)
Source: Authors
devolving more power to localities and allowing hospitals to
develop ways of generating revenue and to retain profits. This
reform fell under the broad category of market reform starting in
1980, when many formerly state-owned enterprises (SOEs) were
privatized. However, the public hospital reform was much slower
than the privatization of the SOEs because of the ongoing debate
over whether to let public hospitals, a major player in a vital social
sector, enter the marketplace in a socialist country. As a
consequence, the degree of privatization in health care was much
weaker than in other sectors. In 1989, the State Council (China
Government 1989) promoted a number of new contracting
mechanisms for medical institutions, which allowed public
hospitals to earn profits from specialty medical services and to
charge more for higher-quality services, while the prices for basic
medical care were still regulated by the government. This reform
injected new funds into hospitals. For example, public hospitals
were allowed to raise capital from medical staff and retirees, which
could then be invested in private for-profit units within the public
facilities. Public hospitals can also enter into joint ventures with
companies in the private sector.
The decentralization of power and the incentives for hospitals to
retain profits helped promote innovation by public hospitals and
raised money through private funding and patient fees. The highertier
public hospitals in metropolitan areas, with more highly trained
medical staff, were particularly successful in bringing in revenue
and earning higher returns; but the lower-tier smaller hospitals
struggled to keep up, and the new policy failed to help them
succeed in the market. There were also a number of other
unintended consequences.
The sense of social responsibility by public hospitals grew
weaker. When government financial contributions to public
hospitals were reduced, public hospitals became responsible for
their own profits and losses. Driven by profit seeking, they
behaved more like private providers, selling medicines to make up
for low revenues and providing unnecessary and elective medical
services, which usually involved the use of modern technologies in
diagnosis and treatment (Eggleston et al. 2008). The conflicts
between hospitals’ need to generate self-funding and their social
functions were pronounced, and their social role grew weaker. As
a result, hospital-patient relationships grew increasingly tense, and
trust between patients and medical institutions deteriorated.
At the institutional level, the incentives for public hospitals did
not promote efficiency or competition. The government viewed
public hospitals as public enterprises; but financial subsidies from
the government were minimal, and hospitals were encouraged to
seek profits from new technologies and new projects. Caught in the
middle, hospital managers sometimes avoided governmental
control and overinvested in medical technology. Human resources
and wage and salary reforms also lagged behind. Performance
indicators were neither clear nor aligned with better management,
resulting in low efficiency and noncompetitive behavior.
A parallel development over the same period of time was the
emergence of private hospitals. Before 1949, China had about
520 private hospitals (mostly mission hospitals operated by
churches). However, with collectivization and nationalization in
early 1950, almost all health facilities were converted to ownership
by different levels of government or state-owned enterprises (Liu
et al. 2006). Since the economic reforms in the 1980s, several
private and semi-private organizational forms in the health care
sector have emerged, first in the big metropolitan areas, such as
Beijing and Shanghai. The emergence of private hospitals is driven
by both market conditions and favorable policies (Hou and Coyne
2008). The increased and differentiated demand combined with
inadequate supply created market niches for private hospitals.
With market reform deepening, public policy also began to favor
private facilities. In 1980, the State Council approved the Ministry
of Health’s request to permit doctors to establish private practices.
This change has significantly affected rural areas, and private
clinics began to flourish in the countryside. In 1989, the MOH
issued “Regulations on Hospitals and Clinics for Foreigners and
Overseas Chinese and the Practice in China of Foreign Doctors.”
In 2000, the Chinese government issued regulations on nonprofit
World Hospitals and Health Services Vol. 47 No. 4 7