China's Health Care: A Return to Planned Economy System?

By Weng Shiyou
Published: 2008-10-23

By From News, page 5, issue no.390, October 20, 2008
Translated by Liu Peng
Original article
: [Chinese]

A health care system reform draft aimed at providing universal medical coverage for all Chinese citizens at reasonable prices has been labelled as "a return to the planned economy mechanism" by some critics.

After two years of deliberation, the reform draft was finally opened to public comment from October 14 to November 14. The details were published on the website of China's macro-control regulator, the National Development and Reform Commission.

Appointing selected producers for medicine, having centralized distribution for medical supplies, and government-guided pricing mechanisms were among points in the draft that raised criticism.

Officials said the reform was aimed at quelling public complaint over unequal distribution of medical resources between rural and urban areas and soaring medical costs in recent years, but pharmaceutical industry players claimed the government was using the banner of public welfare to push for "planned economy health care".

A Return to Planned Mechanisms?
The Chinese National Pharmaceutical Industry Association held a meeting the day after the draft was revealed to gather extra suggestions for submission to the State Council.

Though government agencies had solicited opinions from industry players while drafting the reform plan, a source from the association said the outcome was disappointing.

"Full of technical and obscure terms," said one source after reading the 13,000-word draft, adding he failed to comprehend the document fully despite having graduated in pharmacy studies and gained a MBA from Tsinghua University, one of the most prestigious colleges in China.

Another health care industry observer, who requested anonymity, said the ambiguity expressed in the document was a result of compromises to balance the gains of various interest groups through rounds of negotiations.

Niu Zhengqian, deputy general manager of Jointown Group, a private pharmaceutical enterprise, said: "The reform claimed to champion public welfare, but in reality, it is promoting the power of related government agencies and going back to a planned and controlled mechanism."

The draft stated that the government would select and appoint medicine producers through bidding, and prices should be standardized under government guidance, and distribution channels should have centralized control.

These measures resembling the planned economy system used to be imposed on the grains market and led to low incentives in production, said Peking University's School of Governance and Administration professor Gu Xin.

Other scholars also raised questions over transparency and accountability in the tendering process. As for the centralized distribution system, which level of government would have the authority - the central, provincial, or municipal agencies? If the authorization power was handed down to local government level, would the system lead to regional protectionism? Would the centralized power promote "rent-seeking" among officials?

Pharmaceutical industry sources said the tendering process usually suppressed prices to unreasonably low level, and some producers in their eagerness to win the bid, would compromise on products quality to meet the cost.

Earlier in February, the Chinese government had commissioned ten enterprises to produce 18 types of basic medicines under a pilot project. However, a source familiar with the project said six of the enterprises had yet to start production.

Public Hospitals Reform
In China, public hospitals have major share and control over the pharmaceutical retail business, which contributed some 40% to their revenues.

The scenario was widely criticised, as some deemed that "hospitals had thrived through selling medicines" and that health practitioners were regarded as pushers for medicine instead of prescriptions based on needs.

The draft proposed to separate the management of medical treatment from the sales of drugs.

In addition, to prevent corruption at the local level, the draft suggested a system that would compel grassroots public health care institutions to hand in all revenues to the government, which would in turn allocate budget for spending according to needs.

Yu Hui, a researcher of Institute of Industrial Economy under Chinese Academy of Social Sciences, said the proposal was against the principal of jobs and duties division for better management.

"The first step to establishing good corporate governance for hospitals is to distinguish the duty boundary between ownership and management.

"Having to take care of the finances of hospitals would mean that the administrative agencies are doubling up as owner, supervisor and manager," said Yu.