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Navigating the Complexities of China’s Healthcare Reforms

ChinaNavigating the Complexities of China's Healthcare Reforms

China’s healthcare system, known for its state-covered cradle-to-grave care, experienced significant changes after the 1980s’ market reforms. The shift from a public welfare perspective to a business model led to rampant rent-seeking and heightened complaints about expensive and sometimes unattainable medical services for the vulnerable. The “Sanming model,” born in the Fujian province, promised to resolve these issues. Yet, with Beijing’s recent anti-corruption drive targeting the healthcare sector, many wonder if enough has been done.

Origins of the Sanming Model

A decade ago, the Sanming model was the beacon of hope for China’s struggling medical sector. Born in Sanming, Fujian province, an old industrial town nestled in the mountains, this innovative approach came at a time of dire necessity. In 2011, the town faced a massive fiscal deficit of 208 million yuan, mainly due to the frequent hospital visits by a high population of pensioners.

The model, which provided cheaper medications and treatments, increased remuneration for healthcare professionals, and reduced government expenses, was celebrated as a prototype for the entire country.

The Crux of the Sanming Approach

In essence, the Sanming model was a reaction against the flawed healthcare system that emerged after the 1980s’ market reforms. These reforms allowed hospitals significant autonomy in determining charges, while simultaneously cutting back on state funding. Such changes led to issues like:

  • Pervasive rent-seeking behaviors, with pharmaceutical teams offering kickbacks to healthcare practitioners.
  • Bribes disguised as academic sponsorship or lecture fees, often reaching millions of yuan.
  • A tendency to focus on expensive medications and equipment.

The Sanming solution was comprehensive:

  1. Centralized procurement.
  2. Bulk drug purchases at standardized rates.
  3. Pay limits for doctors.
  4. Salaries for hospital administrators linked to cost-cutting efficiencies.
  5. A shift in focus from costly drugs produced by international companies to affordable local generics.
  6. Encouraging prescriptions from a pool of low-cost medications for common and chronic conditions.
  7. Any residual medical pension funds were returned to hospitals as incentives for cost-effective operations.

Chinese President Xi Jinping commended the Sanming model in 2021, emphasizing its embodiment of a ‘people-first’ philosophy.

Beijing’s Recent Crackdown

Jump to the present, and the Chinese government is rigorously implementing an anti-corruption campaign reminiscent of the Sanming model’s principles. The campaign, which targets hospitals, pharmaceutical entities, and insurance funds, is said to have been triggered by economic concerns and the nation’s desire for medical self-sufficiency, especially given the rising US-China competition.

Reports suggest a significant decline in pharmaceutical-sponsored visits and events in hospitals since the campaign’s launch, leading to a more standardized drug prescription system. But is it enough?

Amy Zhu, an eastern China-based neurologist, highlighted that while some changes were evident, the campaign had limited impact on frontline healthcare workers like herself.

A Deeper Dive into the Pharmaceutical Sector

It’s worth noting that pharmaceutical companies have a history of exorbitant spending to strengthen ties with hospitals and boost sales. Recent data from Wind, a Chinese business analytics platform, highlighted that out of over 5,000 listed Chinese companies, approximately 1% (or 57 companies) reported sales expenses exceeding half of their revenue, with 40 of those being pharmaceutical entities.

The authorities are taking notice. Directives issued in May clamped down on disguised junkets and, in the following month, many medical forums were postponed, including events by influential entities like the local Chinese Medical Association affiliates.

An anonymous pharmaceutical marketing consultant shared that the recent crackdown is attributed to the government’s efforts to safeguard medical pensions, especially considering the Covid-19 pandemic’s resource strain. Having witnessed several anti-corruption drives in his two-decade-long career, the consultant expressed concerns about the current campaign’s intensity.

The GlaxoSmithKline (GSK) scandal stands out as a stark reminder of past industry issues. In 2014, GSK’s China division was penalized a hefty 3 billion yuan (US$411 million) for bribing hospitals and doctors.

Reform and Responsibility: Navigating China’s Healthcare System

In China’s intricate healthcare system, there has always been a delicate balance between drug development, prescription, and the role of the medical fraternity. Doctors, as critical stakeholders, must be thoroughly informed about medicines. “The drug development-to-use bridge is vital. This nexus is not going away anytime soon,” a pharmaceutical expert comments.

Zhu, a renowned neurologist, highlights the shifting sands of medical policy. Centralized drug procurement has become a significant focus, with guidelines being provided to physicians on drug utilization. There was an era when unscrupulous practices prevailed, with doctors influenced by pharmaceutical kickbacks to prescribe expensive, often superfluous medications. Hospitals, on the other hand, maximized their revenue through costly diagnostic procedures.

“The dynamics have evolved,” Zhu notes, “Now, every drug or examination we prescribe is absolutely essential.”

Yet, some believe that this crackdown doesn’t hit the core issue: inadequate funding for public hospitals. The lack of state support has compelled many institutions to adopt profit-centric operations, obscuring the government’s role and responsibility.

Historically, Beijing, in a bid to address the healthcare budget deficit, reduced its contribution to national healthcare expenditure from 36% to 15% in the 1990s. This abrupt reduction compelled numerous hospitals to adopt alternative revenue avenues.

While regulations stipulate that hospitals can only claim a profit margin of up to 15% from medical services, most institutions grapple with financial constraints. They often resort to practices like increasing drug prices or inflating diagnostic fees.

Dr. Shawn Lin, a seasoned heart surgeon in Fujian, opines, “The anti-corruption campaigns address personal avarice but overlook structural issues.” Lin describes the longstanding tussle hospitals face to stay afloat. Regulatory clampdowns on drug pricing prompted hospitals to advise unnecessary check-ups, which, in turn, instigated regulatory interventions.

A prevalent sentiment among healthcare professionals is disillusionment. The exhaustive training and long hours aren’t compensated with adequate remuneration. “Most doctors spend decades in the system, working extensive hours, before achieving any semblance of stability,” reveals an anonymous physician.

Yanzhong Huang, an expert at the Council on Foreign Relations in New York, sees the system’s structure as a breeding ground for corruption. He suggests a dual-pronged solution: “Either offer ample funding to public hospitals or transition them into competitive private entities.”

Given the current trajectory, Huang isn’t very optimistic about substantial systemic alterations. Recent statements by Guo Yanhong from the National Health Commission also hint at caution. While addressing a medical conference, Guo emphasized that anti-corruption initiatives shouldn’t unduly impede medical professionals’ regular compensation or deter their participation in academic events.

There is conjecture that post this crackdown, reforms resembling the Sanming model could be introduced. However, experts like James Wu, a heart surgeon, see challenges. “The Sanming blueprint could drive talented physicians out of public service due to salary restrictions,” Wu, who transitioned to a private hospital for better compensation, explains.

Moreover, Wu draws attention to the quality variance between local and imported drugs. A strict adherence to the Sanming approach might deprive patients of superior imported drug options.

Huang provides further insights into medical reforms, indicating potential stagnation. During the recent campaigns, state media frequently juxtaposed individual corruption cases with the public’s struggle to access affordable, quality healthcare.

Previously, Beijing aimed to invigorate public hospitals and stimulate competitiveness among private institutions. But the COVID-19 pandemic reshaped priorities. Public hospitals were at the forefront, designated as primary treatment hubs and quarantine facilities, while numerous private institutions faced financial crises.

Huang concludes, “Three years into the pandemic, our medical reforms haven’t progressed; they seem to have regressed.”

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