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The Chinese Health Care System

by Hai Fang, Peking University

What is the role of government?

In China, the central government has overall responsibility for national health legislation, policy, and administration. It is guided by the principle that every citizen is entitled to receive basic health care services, with local governments—provinces, prefectures, cities, counties, and towns—responsible for providing them, with variations for local circumstances. Health authorities include the National Health and Family Planning Commission and the local Health and Family Planning Commissions, which have primary responsibility for organizing and delivering health care and supervising providers (mainly hospitals). Health authorities at the prefecture, county, and town levels have limited flexibility in carrying out provincial health policies.

Who is covered and how is insurance financed?

Generally, health insurance is publicly provided and financed by local governments.

Publicly financed health insurance: In 2014, China spent approximately 5.6 percent of its gross domestic product (CNY3,531 billion, or USD992 billion1) on health care, with 30 percent financed by the central government and local governments and 38 percent by publicly financed health insurance, private health insurance, or social health donations.2 There were three main types of publicly financed insurance: 1) urban employment-based basic medical insurance (launched in 1998); 2) urban resident basic medical insurance (launched in 2009); and 3) the “new cooperative medical scheme” for rural residents (launched in 2003).

Urban employment-based basic medical insurance is financed mainly from employee and employer payroll taxes, with minimal government funding. Participation is mandatory for employees in urban areas; the insured population was 283.3 million in 2014.3 Employees’ nonemployed family members are not covered. Urban resident basic medical insurance, which is voluntary at the household level, covered 314.5 million self-employed individuals, children, students, and elderly adults in 2014. Both urban employment-based and urban resident basic medical insurance are administered by the Ministry of Human Resources and Social Security and run by local authorities. The rural new cooperative medical scheme, administered mainly by the National Health and Family Planning Commission and run by local authorities, is also voluntary at the household level and covered a rural population of 736 million in 2014, representing a coverage rate of 98.9 percent of rural residents.

Urban resident basic insurance and the new cooperative medical scheme are financed mainly by government, with minimal individual premium contributions. In regions where the economy is less developed, the central government provides the largest share of subsidies, with provincial and prefectural governments accounting for the rest. In more-developed provinces, most subsidies are locally provided (mainly by provincial government).

The financing strategies and coverage benefits of urban resident basic insurance and the rural cooperative medical scheme are similar. In 2016, China’s central government, the State Council, announced that it will merge the two, with the expectation that doing so will expand the risk pool and reduce administrative costs.4 Each province was required to make merging arrangements by June 2016; prefectures and cities need to have developed implementation plans by December 2016.

Coverage by publicly financed health insurance is near-universal—exceeding 95 percent of the population since 2011.5 The few permanent foreign residents are entitled to the same coverage benefits as citizens. Undocumented immigrants (there are very few) and visitors are not covered by publicly financed health insurance.

Private health insurance: Complementary private health insurance is purchased to cover deductibles, copayments, and other cost-sharing, as well as coverage gaps, in publicly financed health insurance, which serves as the primary coverage source for most people. Private health insurance is also called commercial health insurance, because it is provided mainly by for-profit commercial insurance companies. The total of collected private health insurance premiums increased from CNY67.7 billion (USD19.0 billion) in 2010 to CNY241.0 billion (USD67.7 billion) in 2015, representing an annual growth rate of 28.9 percent.6 In 2015, private health insurance premiums accounted for 9.9 percent of total premiums collected in the entire insurance industry, or 5.9 percent of total health expenditures.7

Purchased primarily by higher-income individuals and by employers for their workers, private insurance often enables people to receive a better quality of care and higher reimbursement, as some health services are very expensive or are not covered by public insurance. There are currently no statistics on the percentage of the population with private coverage, but the Chinese government is encouraging development of this market. Growth in private coverage has been rapid, with some foreign insurance companies recently entering the market.

What is covered?

Services: Publicly financed insurance covers primary, specialist, emergency department, hospital, and mental health care, as well as prescription drugs and traditional medicine. A few dental services (e.g., tooth extraction, but not cleaning) and optometry services are covered, but mostly such services are paid for completely out-of-pocket. Home care and hospice care are often not included either. Local health authorities define the benefit packages. Preventive services such as immunization and disease screening are included in a separate public-health benefit package funded by central and local governments; every resident is entitled to these without copayments or deductibles. Coverage is person-specific; there are no family or household benefit arrangements.

Cost-sharing and out-of-pocket spending: Inpatient and outpatient care, including prescription drugs, is subject to different deductibles, copayments, and reimbursement ceilings. There are no annual caps on out-of-pocket spending. In 2014, out-of-pocket spending per capita was CNY1,306 (USD367) and CNY754 (USD212) in urban and rural areas, respectively—representing about 32 percent of total health expenditures.8

Most out-of-pocket spending is for prescription drugs. Reimbursement ceilings are significantly lower for outpatient care than for inpatient care. For example, in 2016, ceilings were CNY3,000 (USD843) for outpatient care in primary care facilities, CNY10,000 (USD2,809) for outpatient care in secondary/tertiary hospitals, and CNY180,000 (USD50,562) for outpatient care in the rural new cooperative medical scheme in Beijing.

Provider networks are specific to the insurance scheme, normally at the prefecture level for urban employment-based basic health insurance and urban resident basic health insurance (which may share the same network, but with different benefits) and at the county level for the new cooperative medical scheme. People can use out-of-network health services (even across provinces), but these have higher copayments. There are no universal cost-sharing arrangements, and each risk-pooling unit (network) has its own policies. Cost-sharing in primary care facilities (village clinics, rural township hospitals, and urban community hospitals) is also different from that in secondary or tertiary hospitals, with the lowest copayments in the former. Secondary and tertiary hospitals are accredited by the local health authorities based on their qualifications, and both provide primary care, outpatient specialists, and inpatient hospital care. Migrant populations face much higher cost-sharing and out-of-pocket spending, since they often use out-of-network care. Fee schedules for primary and secondary care are regulated by the local health authorities and the Bureaus of Commodity Prices, and it is unlawful for public clinics and hospitals to charge patients above the fee schedules. To encourage nongovernmental investment in health care, in 2014 China began allowing private clinics and hospitals to charge more.9

Safety net: For individuals who are not able to afford individual premiums for publicly financed health insurance or who cannot cover out-of-pocket spending (which is not capped), a medical financial assistance program, funded by local governments and social donations, serves as a safety net in both urban and rural areas. In Beijing, individual poverty-level income in 2016 was defined as CNY800 (USD225) per month in both rural and urban areas; poverty levels for other provinces may be lower than in Beijing. Medical financial assistance programs prioritize inpatient care expenses. Funds are used mainly to pay for individual deductibles, copayments, and medical spending exceeding annual caps, as well as individual premiums for publicly financed health insurance. In 2014, 67.2 million people (approximately 5% of the Chinese population) received such assistance for health insurance enrollment, and 24.0 million people (1.8% of the population) received funds for direct health expenses.10

There are other financial assistance programs to help with unreimbursed emergency department and other health expenses. These are funded mostly by local governments.

How is the delivery system organized and financed?

Primary care: Primary care is delivered mainly through village doctors and health workers in rural clinics, general practitioners (GPs) in rural township and urban community hospitals, and medical professionals in secondary and tertiary hospitals. Village doctors, who are not licensed GPs, can work only in village clinics. In 2014, there were 1.06 million village doctors and health workers.11 Although rural patients are encouraged to seek care in village clinics or township hospitals and urban patients in community hospitals—as such providers are associated with lower cost-sharing rates—residents can also see any GP in upper-level hospitals directly.

Registration with a GP is not required and, except for the very few areas that use GPs as gatekeepers, referrals are generally not necessary to see outpatient specialists. In 2014, China had some 173,000 licensed and assistant GPs, representing 6.0 percent of all licensed physicians and assistant physicians.12 Unlike village doctors and health workers in the village clinics, GPs rarely practice solo or through partnership but instead work in a hospital with nurses and nonphysician clinicians. Village clinics in rural areas receive technical support from township hospitals.

Fee schedules for primary care in government-funded health institutions are regulated by local health authorities and the Bureaus of Commodity Prices. Village doctors and health workers in the village clinics receive income through reimbursement of public health services (e.g., immunizations and chronic disease screening) and clinical services, as well as through markups on prescription drugs and government subsidies. Incomes vary substantially by region.

GPs at hospitals receive a base salary along with activity-based payments (e.g., patient registration fees, surgeries performed). With fee-for-service still the dominant payment mechanism for hospitals (see below), hospital-based physicians have strong financial incentives to induce demand. It is estimated that wages constitute only one-quarter of physician incomes; the rest is thought to be derived from practice activities.

In 2014, 47 percent of outpatient revenues and 38 percent of inpatient revenues were from prescription drugs provided to patients in tertiary hospitals.13 Care coordination is generally not incentivized, although it is always encouraged by health authorities.

Outpatient specialist care: Outpatient specialists are employed by and usually work in hospitals, through which they obtain their practice licenses. Although practicing in multiple settings is being introduced and encouraged in China, most specialists practice in one hospital only. They receive compensation in the form of a base salary plus activity-based payments. Patients can usually see outpatient specialists without GP referral and have a choice of specialist through their hospital.

Administrative mechanisms for direct patient payments to providers: Patients pay deductibles and copayments to hospitals at the point of service. Hospitals directly bill insurers for the covered payment at the same time if the payment mechanism is fee-for-service or a diagnosis-related group (DRG) system. Hospitals receive annual lump-sum payments under global budgets or capitation.

After-hours care: Because village doctors and health workers often live in the same community as patients, they voluntarily provide some after-hours care when needed. Rural township hospitals and urban secondary and tertiary hospitals have emergency rooms or departments (EDs) where both primary care doctors and specialists are available, minimizing the need for walk-in after-hours care centers. In EDs, nurse triage is not required and there are few other restrictions, so people can simply walk in and register for care at any time. (Urban community hospitals often do not provide after-hours care, given the availability of secondary and tertiary hospitals.) ED use is not substantially more expensive than usual care for patients. Information on patients’ emergency visits is not routinely sent to their primary care doctors.

Hospitals: Hospitals can be public or private, nonprofit or for-profit. Most township hospitals and community hospitals are public, but both public and private secondary and tertiary hospitals exist in urban areas. Rural township hospitals and urban community hospitals are often regarded as primary care facilities—closer to village clinics than “true” hospitals. In 2014, there were 13,314 public hospitals and 12,546 private hospitals (excluding township hospitals and community hospitals), of which 17,705 were nonprofit and 8,155 were for-profit.14 In 2014, there were 491,885 public primary care facilities and 425,450 private village clinics.

Hospitals are paid through a combination of out-of-pocket payments, health insurance compensation, and, in the case of public hospitals, government subsidies—the last of these representing 13.2 percent of total revenue in 2014.15 A significant number of patients pay 100 percent out-of-pocket, because they receive out-of-network services. Although fee-for-service is dominant, DRGs, capitation, and global budgets are becoming more popular in selected areas. Local health authorities set fee schedules, and doctors’ salaries and other payments are included in hospital reimbursement.

Mental health care: Mental health care, including disease diagnosis, treatment, and rehabilitation services, is provided in special psychiatric hospitals and in the psychology departments of tertiary hospitals. Patients with mild illness are often treated at home or in the community; only severely mentally ill patients are treated in psychiatric hospitals. Both outpatient and inpatient mental health services are covered by insurance, with benefits subject to lower copayment rates. In 2014, there were 34 million mental health patient visits to special psychiatric hospitals, and on average one psychiatrist treated 4.8 patients per day.16 Mental health care is not integrated with primary care.

Long-term care and social supports: In accordance with Chinese tradition, long-term care is provided mainly by family members at home. There are very few formal long-term care providers. Family caregivers are not entitled to financial support or tax benefits, and long-term care insurance is virtually nonexistent; expenses for care in long-term care facilities are paid almost entirely out-of-pocket. Local governments often provide some subsidies to long-term care facilities.

On average, conditions in long-term care facilities are poor, and there are long waiting lists for enrollment in high-end facilities. Formal long-term care facilities usually provide only housekeeping, meals, and basic services such as transportation, with very few health care services. Some, however, may coordinate health care with local township or community hospitals. Governments encourage integration of long-term care and health care services, particularly those funded by private investment. There were 3.9 million beds for aged and disabled people in 2014.17 Some hospice care is available, but it is normally not covered by health insurance.18

diagram of health care system

What are the key entities for health system governance?

In 2013, the Ministry of Health and the National Population and Family Planning Commission were merged into the National Health and Family Planning Commission as the main agency for health controlled by the State Council. The State Administration of Traditional Chinese Medicine is affiliated with the new agency. The National People’s Congress is responsible for health legislation. However, major health policies and reforms may be initiated by the State Council and the Central Committee of the Communist Party as well, and these are also regarded as law.

The National Development and Reform Commission, which has been heavily involved in the recent health care system reform, oversees health infrastructure plans and competition among health care providers. The Ministry of Finance provides funding for government health subsidies, health insurance contributions, and health system infrastructure. The Ministry of Human Resources and Social Security runs urban employment-based basic insurance and urban resident basic insurance. The China Food and Drug Administration is responsible for drug approvals and licenses, but assessment of health technology and cost-effectiveness has not played a significant role yet. The China Center for Disease Control and Prevention is administrated by the National Health and Family Planning Commission, although it is not a government agency. The Chinese Academy of Medical Science, under the National Health and Family Planning Commission, is the national center for health research.

The National Health and Family Planning Commission directly owns some hospitals in Beijing, and national universities directly administrated by the Ministry of Education also own affiliated hospitals. Local government health agencies, usually the Bureau of Health or the Health and Family Planning Commission in each province, may have a similar structure and often own provincial hospitals. Local governments (of prefectures, counties, and towns) may have departments of health and own hospitals directly. Centers for disease control and prevention also exist in local areas and are administered by the local bureaus or departments of health. At the national level, the China Center for Disease Control and Prevention provides only technical support to the local centers.

Both the national and local Health and Family Planning Commissions have comprehensive responsibilities for health quality and safety, cost control, provider fee schedules, health information technology, and clinical guidelines.

What are the major strategies to ensure quality of care?

The Department of Health Care Quality, which is within the Bureau of Health Politics and Hospital Administration and is overseen by the National Health and Family Planning Commission, is responsible at the national level for the quality of care. The National Health Service Survey is conducted every five years (the latest was in 2013), and a report is published after each survey highlighting data on selected quality indicators.

To be accredited, hospitals must obtain a license from the local health authority. Physicians get their practice licenses through hospitals; licenses are subject to renewal. Several national rankings of hospitals are published by third parties, although there are no financial incentives for hospitals to meet quality targets.19 No public information about individual doctors is made available.

Following release of the “Temporary Directing Principles of Clinical Pathway Management” by the former Ministry of Health in 2009, clinical pathways are now regulated nationally and used in a similar manner as clinical guidelines are in Western countries. Previously, pathways were created at the hospital, rather than the national, level.

What is being done to reduce disparities?

There are still severe disparities in accessibility and quality of health care, although China has made significant improvements in this regard in the past decade. Income-related disparities in health care access were especially serious before the reform of the health insurance system more than 10 years ago, as most people did not have any coverage at all. Health coverage through publicly financed insurance is now nearly universal, and there are safety nets for the poor (see above). As a result, income-related disparities have been reduced substantially.

Remaining disparities in access are due mainly to variation in insurance benefit packages, urban and rural factors, and income inequality. Urban employment-based basic insurance offers broader benefit packages than the other two insurance schemes. To improve benefit packages and reduce disparities, central and local governments intend to consolidate insurance schemes, an effort that has already been piloted in selected areas, such as Dongying City in Shandong Province and Jinhua City in Zhejiang Province. In addition, central and local government subsidies of urban resident basic insurance and the rural newly cooperative medical scheme have increased in recent years.

Most good hospitals (particularly tertiary hospitals) are in urban areas, where there are better-qualified health professionals. Village doctors are often undertrained. To help bridge the urban–rural health care divide, the central government and local governments sponsor training for rural doctors in urban hospitals and require new medical graduates to work as residents in rural health facilities. Nevertheless, the China Health and Family Planning Statistical Yearbooks show that substantial disparities remain.

What is being done to promote delivery system integration and care coordination?

Medical alliances are regional hospital groups, often including one tertiary hospital and several secondary hospitals and primary care facilities, that provide access to primary care facilities for patients with minor health issues. The aim is to reduce the need for people to visit tertiary hospitals. At the same time, patients with serious health problems can be referred to tertiary hospitals easily and moved back to primary care facilities after their condition improves. It is hoped that this type of care coordination will meet the demand for chronic disease care, improve health care quality, and contain rising costs. The hospitals within a medical alliance share a common electronic health record system, and results of labs, images, and diagnoses are easily available within the alliance.

There are three main medical alliance models.20 Hospitals in the Zhenjiang model have only one owner (usually the local bureau of health). Those in the Wuhan model do not belong to the same owner, but administration and finances are all handled by one tertiary hospital. Hospitals in the Shanghai model share management and technical skills only; ownership and financial responsibility are separate.

What is the status of electronic health records?

Nearly every health care provider has set up its own electronic health record (EHR) system. Within hospitals, EHRs are also linked to the health insurance systems for payment of claims, with unique patient identifiers (insurance ID or citizenship ID). However, EHR systems vary significantly by hospital and are usually not integrated or interoperable. Patients often must bring with them a printed health record if they want to see doctors in different hospitals. Even if hospitals are owned by the same local bureau of health or affiliated with the same universities, different EHR systems may be used. Patients generally do not use EHR systems for accessing information, scheduling appointments, sending secure messages, refilling prescriptions, or accessing doctors’ notes.

How are costs contained?

Health expenditures have risen significantly in recent decades because of health insurance reform, an aging population, economic development, and health technology advances. Health expenditures increased from CNY584 (USD164) per capita in 2004 to CNY2,582 (USD725) in 2014.21 The key cost-containment strategy is reform of provider payment. Prior to the introduction in 2009 of DRGs, global budgets, and capitation, fee-for-service was the main provider payment mechanism, and consumer- and physician-induced demand increased costs significantly. Global budgets have been used in many regions, since these are relatively easy for authorities to implement. As noted above, government encourages the use of community and township hospitals over the more expensive care provided in tertiary hospitals. Hospitals compete on quality, level of technology, and copayment rates.

In township, community, and county hospitals, a campaign of “zero markups” for prescription drugs was introduced in 2013 (see below) to contain the rising drug costs. The National Development and Reform Commission places stringent supply constraints on new hospital buildings and hospital beds, and the National Health and Family Planning Commission controls the purchase of high-tech equipment such as MRI scanners.

What major innovations and reforms have been introduced?

Sales of prescription drugs have been a major revenue source for hospitals, which are allowed a 15 percent markup, and providers have strong financial incentives to induce demand for more and expensive drugs. Prices for services, on the other hand, are rather low, in accordance with traditional health practice in China. However, as of 2015, 3,077 public county hospitals and 446 public city hospitals were participating in a government-financed pilot program to eliminate the markup of prescription drug prices. At the same time, 224 prefectures and cities in 21 provinces adjusted the prices of health care services upward to reflect true costs. In 2016, more public city hospitals participated in the zero-markup drug policy. For example, all public city hospitals in Beijing and Hunan Province were to end markups by the end of 2016, and by 2020 all public hospitals in the country are to do so as well. Where it has been implemented, zero markup has been found to have significantly reduced total medical spending.22

Another important health reform was the introduction in 2015 of special health insurance for severe diseases, such as cancers, kidney disease, and acute myocardial infarction, that supplements the regular publicly financed schemes. Severe-disease health insurance provides reimbursement beyond the rather low reimbursement ceilings. It is also mostly publicly financed, particularly for urban resident basic insurance and the current rural cooperative medical scheme, and administrated by local health authorities. However, private commercial health insurance companies, given their experience in providing complementary insurance, are heavily involved as well. In 2016, the central government provided CNY16 billion (USD4.5 billion) in subsidies to severe-disease insurance. By 2016, severe-disease insurance is expected to be available throughout China.

References

1Please note that, throughout this profile, all figures in USD were converted from CNY at a rate of about CNY3.56 per USD, the purchasing power parity conversion rate for GDP in 2015 reported by OECD (2016) for China. Organisation for Economic Co-operation and Development (OECD), OECD.Stat. (2016), https://stats.oecd.org/Index.aspx?DataSetCode=SNA_TABLE4; accessed Aug. 8, 2016.

2National Health and Family Planning Commission, China Health and Family Planning Statistical Yearbook 2015 (China Union Medical University Press, 2015).

3Ibid.

4The State Council, The State Council’s Suggestion on Merging Urban-Rural Resident Basic Health Insurance (2016) (in Chinese); accessed Aug. 8, 2016.

5C. Jiang and J. Ma, “Analyzing the Role of Overall Basic Medical Insurance in the Process of Universal Health Coverage,” Chinese Health Service Management, 2015 2(320):108–10.

6Z. Song and Q. Hu, “Development Forecast of Commercial Health Insurance in the Period of the Thirteenth Five-Year Plan,” China Insurance, 2016 5:12–15.

7National Health and Family Planning Commission, Statistical Communiqué of China Health and Family Planning Development in 2015 (2016), accessed Aug. 2, 2016.

8National Health and Family Planning Commission, China Health and Family Planning Statistical Yearbook 2015 (China Union Medical University Press, 2015).

9National Development and Reform Commission, National Health and Family Planning Commission, and Ministry of Human Resources and Social Security, Announcement About Issues Related to Market Adjustment Prices of Health Care Services by Non-Government-Funded Health Institutions (2014), accessed Aug. 8, 2016.

10National Health and Family Planning Commission, 2015.

11Ibid.

12Ibid.

13Ibid.

14Ibid.

15Ibid.

16Ibid.

17National Bureau of Statistics, China Statistical Yearbook 2015 (China Statistics Press, 2015).

18X. Chen, “Hospice Care: Pass Away with Warmth,” China Social Protection, 2014 12:64–65.

19S. Dong, S. Guo, L. He, et al., “Study of Present Situation and Countermeasures of China’s Hospital Rankings,” Chinese Hospital Management, 2015 35(3):38–40.

20L. Jiang, S. Song, and W. Guo, “Study on the Models and Development Status of the Regional Longitudinal Medical Alliance in China,” Medicine and Society, 2014 27(5):35–38.

21National Health and Family Planning Commission, 2015.

22C. Fu and J. Yang, “Influence of Carrying Out Zero Price Addition Policy of Drugs on Public Hospital Expenses in Shenzhen,” Chinese Hospital Management, 2013 33(2):4–6.