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What is the best way (if any) to control health care costs in China?

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The public recently praised a Chinese doctor in Zhengzhou city because the 4 pills of anti-allergy drug that she prescribed cost only 4 Chinese cents (less than 1 US cent) to treat a 2-year-old patient’s rashes. Many Chinese netizens wish more doctors could behave like this one since expensive drugs are becoming prevalent to treat minor symptoms.

Expensive drugs and services is one of the two most common complaints that Chinese people have when seeking health care services (the other one is the difficulty of seeing a doctor.) Multiple factors can cause health care costs to increase. Drugs have long been believed to be a main contributor that drives up the health care costs. In addition, high-ranked officials have their costs covered under the national budget and receive high quality health services. In contrast, people whose income and social status are lower may return to poverty due to diseases because the out-of-pocket portion of their costs is relatively significant compared to their annual income.

In fact, health care providers in China marked up drug prices in the past for additional revenue because the government only provides less than 10% of the budget to public hospitals, and the health care service fees set by local pricing bureaus are too low to keep the hospitals running.  For example, the Beijing Commission of Development and Reform set the pricing standard in 2003. The registration fee in a top-tier Beijing hospital (equivalent to doctor visit fee in the U.S.) is at most 14 RMB (less than 2.50 USD). The labor cost of a gastrectomy surgery, including fees of all health care professionals who participate, is 1060 RMB (less than 200 USD). [1] As a result, some doctors and hospitals find excuses to receiving kick-backs, mark-ups, and other gray incomes to make a living. Those sources of incomes exacerbate the rise of health care costs and become a focus of patients and media’s complaints.

The Chinese government recognizes cost-control as one of the priorities in the ongoing health care reform. It has taken various measures to reduce drug prices in hopes of easing health care cost burden on ordinary citizens. An essential medicine list has been established based on the World Health Organization’s guidelines. The 15% mark-up on wholesale prices of drug sold in hospitals, which was allowed by the central government in the 1950s to subsidize hospitals’ operation costs, is eliminated. Provinces have started to use bidding processes to regulate drug purchasing. The effects of these measures, however, are not identical to what policy makers might have expected. Pharmaceutical companies stopped producing drugs whose bidding prices are lower than costs of production regardless of patients’ demands. Hospital managers complain that without the drug price mark-ups, it is more difficult to maintain daily operation. Patients, on the other hand, still feel the health costs are high because they pay a large portion out of their own pockets even though state health insurance plans provide basic coverage.

Decreasing drug prices is one approach that the Chinese government has adopted in response to high health care costs. Chinese economists and policy makers are researching other possibilities.  Potential means of cost-control include introducing the diagnosis-related groups (DRGs) model (payment made based on classified diagnosis) to substitute fee-for-service payment, increasing basic health insurance’s coverage, providing premium subsidies to rural residents, and encouraging private capital to invest in the health care industry. Any single one of them or any combination needs time to test its effectiveness. It is very hard to tell whether what the government is doing is the best way for cost control. While the government is busy promoting competitions in the health care market, it is equally, if not more, important to figure out the proper role of the government in this aspect of health care.

China is not the only country facing challenges brought by skyrocketing health care costs. Learning from peers’ diverse challenges and solutions may be eye opening for Chinese policy makers, helping them decide what fits the most with their country.


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The views reflected in this expert column are those of the individual authors and do not necessarily represent those of the O’Neill Institute for National and Global Health Law or Georgetown University. This blog is solely informational in nature, and not intended as a substitute for competent legal advice from a licensed and retained attorney in your state or country.

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