THE REFORM OF CHINA'S MEDICAL CARE SYSTEM
IN CITIES AND TOWNS
----Materials for the News Conference Held by the Information Office
of the State Council

Recently the General Office of the State Council has transmitted the Guiding Opinion on the Health System Reform in Cities and Towns prepared by the System Reform Office of the State Council and other departments. The health system reform in cities and towns should be carried out in the context of the Chinese situation, in the line with the principles of the socialist market economy and in combination with the reform of the health insurance system. In 2-3 years hard efforts are to be made to build up a basic system for medical and health care management and service in cities and towns. The objectives of this reform are as follows:

I. Why a health system reform should be carried out in cities and towns?

Over the past decades, the health care in this country has witnessed a great success and its general situation is good. We should keep sober-minded, however, and recognize that the current system of medical and health care is not in line with the development and requirements of the situation and hampers the reform process of the insurance system for workers. The existing problems are mainly as follows:

  1. The distribution and structure of health resources are not reasonable. The medical resources in this country are concentrated in large hospitals and the health resources for grassroots service are seriously inadequate.
  2. The utilization ratio of health resources is not high. The improper distribution of health resources results in its low utilization and high costs for operation. Furthermore, the rapid increase of medical costs evidently retrains the demand for medical service. Statistics shows that in hospitals throughout the country the daily average rate of outpatient visits in-patient cares per doctor, as well as the bed utilization ratio are tending to decline.
  3. The medical costs increase too quickly. From 1978 to 1997 the medical expenditure for staff and workers throughout the country was increased from RMB 2,700 million to RMB 77,370 million accounting for 28 times. For hospitals the drug income amounts to more than a half of the gross income, and in a few middle and small hospitals it is as high as 70-80%. The high speed of medical cost increase brings about a heavy pressure and burden for employers and workers.
  4. The public medical institutions have poor capacity in management and operation. Currently most public hospitals actually are not yet corporate bodies with self-controlling and self-stimulating mechanism. They lack ownership spirit and consciousness to timely adjust their operation in accordance with the market and social demands, and haven't the awareness of the need to strive for quality service and engage in competition. Some medical institutions are overstaffed with low efficiency. Their medical and nursing staff are not sufficiently qualified and their management lags behind.
  5. The drug monitoring is to be strengthened. The operation of drug manufacturing and distributing enterprises is at low level, and their structure is not reasonable. Across the country there are 6000 drug manufacturing enterprises, 16000 wholesale ones and 120000 retail ones. The difference in management and quality of products in these enterprises results in a chaotic market and disorderly competition. This causes a bubble price setting and high sales commission in drug promotion, which directly brings about the rapid increase of drug costs. Furthermore, the incidents of counterfeit and low quality drugs occur from time to time, and there is an urgent need to strengthen the drug monitoring and intensify legislation and its implementation.

The promotion of the health system reform is urgently needed for the developing circumstance to insure the rights and benefit of the wide population.

II. Main contents of the health system reform in cities and towns

  1. The governmental departments concerned should change their functions to strengthen the medical and health care regulation. Firstly, the health administrations should regulate hospitals instead of direct involvement in their operation. Legal, administrative and economic measures should be introduced for health regulation. Secondly, classified regulation is to be carried out for medical institutions; social sectors are encouraged to run medical institutions; and fair competition for quality and efficiency is promoted among medical institutions. The medical institutions are to be classified in profitable and unprofitable ones. The unprofitable ones occupy the leading position in the medical service system, enjoy the preferential tax policy and follow the guiding prices of the Government in their medical service. The profitable ones have a free hand in medical service prices, do their business according to the laws and pay taxes as required. Thirdly, The control of the health resource allocation should be strengthened and medical resource distribution adjusted. Measures for restructure are to be adopted for hospitals with low service load for long time, including shift to other service, scale reduction, close down or merge with other institutions. The establishment of medical service groups is encouraged. Finally, the prevention and health care should be further strengthened. A comprehensive system for disease prevention and health care is to be established, in order to give guidance for public health, disease control and preventive care, as well as to provide technical advice and to investigate and deal with unexpected health incidents.
  2. The public medical institutions should accelerate the reform pace to meet the needs of the society and the wide population. Firstly, the decision-making power of the public medical institutions should be enlarged. Secondly, the appointment of directors is mainly on the basis of open competition and competitive selection among other ways. A system of target responsibility is adopted for their terms of office. Thirdly, technical norms and service standards should be established and medical practice standardized, in order to ensure the quality of medical service. Furthermore, the management in economic terms should be strengthened and the socialization of logistic service promoted in medical institutions. Finally, the reform of personnel and distribution system should be deepened. The post description and requirements should be made public, the two-way selection adopted, the competition among staff members encouraged, and their income related to their skills, service and contribution.
  3. The policy of separate accounting and management for medical and pharmaceutical affairs is to be adopted gradually, and a system of economic compensation is to be standardized. Firstly, the direct economic relations between medical institutions and drug distributors should be disconnected. A financial subsidy scheme is to be adopted gradually and the prices for medical service adjusted. On this basis the pharmacies in the outpatient departments of hospitals will be transformed into drug stores which have their independent accounting and pay taxes as required. In every area several hospitals will be selected for experiments in substituting pharmacies in outpatient departments for drug stores. Before this measure of reform is implemented, a two-way management of drug income will be adopted, namely the balance of payments surplus from drug selling should be turned over to the health administration and kept in a special account for reasonable return. Except drugs for routine and emergent use approved by the provincial health authorities or drug supervising departments, the community health organizations, private clinics and outpatient departments cannot engage in drug distribution. Secondly, in accordance with the requirement of the public and by-level financial system, a financial subsidy scheme is to be adopted for health and medical institutions. Thirdly, a general control of the total income of medical institutions will be conducted, and its structure will be adjusted. In the context of the total income control, the medical costs, financial subsidy and income from drugs will be considered in a comprehensive way. The unreasonable prices of medical service will be adjusted to realize the value of technical work performed by medical personnel. The patients are encouraged to be diverted accordingly to smaller hospitals or community health centers. In the adjustment of the prices of medical service, the special features of the community health service should be taken into account, so that to stimulate the development of community health service, traditional Chinese medicine and traditional medicine of national minorities.
  4. The drug manufacture and trade should be reorganized to promote the reform of drug manufacturing and trade system. Firstly, the supervision and control over law implementation for pharmaceuticals should be strengthened in order to establish a strict control system for the whole process of drug development, manufacture, trade and use. Secondly, the enterprises engaged in drug manufacture and trade should be regulated by the Good Manufacturing Practice (GMP) and Good Selling Practice (GSP). The set standards should be reached within a specific time, otherwise the production and trade should be discontinued. Thirdly, Pilot projects will be launched for mass drug purchasing by public bidding in order to reduce the number of intermediate links and facilitate a fair, public and equitable drug trade. The cost reduction achieved in this way should benefit patients and society in burden alleviation. Furthermore, price regulation should be strengthened in drug retails. For pharmaceuticals covered by the basic health insurance, as well as drugs for preventive use, necessary drugs for children and special monopoly drugs, set prices or Government guiding prices are to be introduced. Unified retail prices across the country should be worked out when it is feasible. For other pharmaceuticals, the prices are decided by the enterprises according to provisions concerned, and regulated by the market. Finally, efforts will be made to print the retail prices on the drug package to raise transparency and to facilitate the self-protection of consumers.