Global implications of China's healthcare reform

Authors

  • Fei Yan,

    Corresponding author
    1. Department of Social Medicine, School of Public Health, Fudan University, Shanghai, China
    • Correspondence to: J. Zhang, Jiann-Ping Hsu College of Public Health, Georgia Southern University, Statesboro, Georgia, USA. E-mail: jianzhang@georgiasouthern.edu or F. Yan, School of Public Health, Fudan University, Shanghai, China. E-mail: fyan@shmu.edu.cn

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  • Shenglan Tang,

    1. Duke Global Health Institute, Duke University, Durham, North Carolina, USA
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  • Jian Zhang

    Corresponding author
    1. Jiann-Ping Hsu College of Public Health, Georgia Southern University, Statesboro, Georgia, USA
    • Correspondence to: J. Zhang, Jiann-Ping Hsu College of Public Health, Georgia Southern University, Statesboro, Georgia, USA. E-mail: jianzhang@georgiasouthern.edu or F. Yan, School of Public Health, Fudan University, Shanghai, China. E-mail: fyan@shmu.edu.cn

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    • Dr. Jian Zhang was a visiting professor at the National Key Laboratory of Public Health Security, School of Public Health, Fudan University, when this work was carried out.

  • This work was carried out as part of the collaboration between Jiann-Ping Hsu College of Public Health, Georgia Southern University, USA, and the School of Public Health, Fudan University, China.

ABSTRACT

The ongoing healthcare reform in China has a powerful spillover effect beyond the health sector and the borders of China. A successful completion of the Chinese reform will offer a new model for social justice development, shift the global economy toward sustainability and create a new hub for science and technology in medical and health science. However, reforming the healthcare system in the most populated country is a daunting task. China will not live up to its promise, and all the potentials may end with hype not hope if coherent national strategies are not constructed and state-of-the-art navigation is not achieved with staggering domestic and global challenges. The cost of failure will be immensely high, socioeconomic costs for Chinese and an opportunity cost for the world as a whole. A full appreciation of the global implications of China's healthcare reform is crucial in keeping China receptive toward good practices evidence-approved elsewhere and open minded to fulfill its international obligations. More critically, the appreciation yields constructive engagements from global community toward a joint development and global prosperity. The current report provides a multiple disciplinary assessment on the global implications of the healthcare reform in China. Copyright © 2014 John Wiley & Sons, Ltd.

Introduction

Ranked as the world's second-largest economy and with one-fifth of the world's population, China does everything on a grand scale and is a substantial part of virtually all global challenges. The undergoing rapid and profound health transition in China is of enormous importance to global health and is a dynamic factor of the global economy as well (Meng et al., 2012). In January of 2009, China unveiled a plan to fix the healthcare system plagued by inefficiencies, poor quality of services and maldistribution of the qualified workforce and to ensure fair and affordable health services for all 1.3 billion citizens (Chen, 2009). Since then, about $215bn has been invested into health development for facility upgrading of public hospitals, expanding healthcare coverage and reestablishing the national essential medicine system (Yip et al., 2012). Every village in China currently has at least one community clinic (Stone, 2011), and now, more than 95% of its 1.3 billion citizens are covered by insurance for basic health services (government reports, not independently verified) (China Ministry of Health, 2011). By the year 2020, the world's most populated country will have a healthcare system to provide safe, effective, convenient and affordable services to all its citizens (Meng et al., 2012). To fully appreciate its tremendous implications on global social-economic development, and vast challenges ahead of China as well, we prepared this report to prospectively assess the global implications of China's new endeavors.

Redefining the “equality” and creating a new model for social justice

It has been observed as early as mid-20th century that development disparity and the resultant inequality must exist because economic development does not start in every part of the economy at the same time (Lewis, 1985). However, predominated by state capitalism rather than a perfect free market, inegalitarian in China, to a large extent, is artificially exacerbated by various government policies, such as the household registration (hukou) system, which creates one of the largest rural–urban income divides in the world (Dollar, 2007; Meng et al., 2012). It is a widespread belief that the mantra “to get rich is glorious” has been promulgated deceptively and that Deng Xiaoping's maxim—“let some people get rich first”—has gone too far (Fan et al., 2002). Indeed, the current administration led by President Hu Jintao is fully aware of the daunting inegalitarian it confronts, and the majority of current leaders in the central governments are viscerally cognizant of the notion that China's widening gap between rich and poor is a significant threat to social and political stability (Meng et al., 2012). Hu's administration, since 2003 when it took the office, has made fairness a central theme of its agenda, and President Hu personally called for a “harmonious society” anchored on inclusive growth (Zhang, 2010). Distinguishing from egalitarianism, the legacies of Maoism, China is redefining equality as an equal access to opportunities not outcomes and is focusing on creating equal opportunities for success.

To ensure each individual a fair chance of succeeding from the start and to unleash individual's potentials, regardless of the “conditions of their upbringing, place of birth, ethnicity, and political connections”, and thus promote efficient development of a nation, the government should provide equal access to basic public services, including good health, a solid education and freedom from vulnerability to poverty and illness to allow each individual to participate completely in society (Dollar, 2007). Accordingly, Hu's administration has introduced various measures to mitigate disparities of basic public service, including relaxation of the hukou system (Congressional executive commission on China, 2008), abolition of the centuries-old agricultural tax (Yao, 2005), development of minimum support payments, establishment of the National Pooling of the Basic Pension Fund and increasing Mobility of Pension and Medical Care Insurance (the Standing Committee of China's National People's Congress, 2010). Universal healthcare—a commitment by the Chinese government to guarantee access for all citizens to adequate healthcare—is a critical part of the effort to reach equality of opportunity. The effort has been optimistically labeled as a healthcare democracy (Liu, 2009). Unfortunately, due largely to the increasing difficulties in sustaining the growing disconnect between a dynamic society and an anachronistic authoritarian state, the government's determination to provide equal opportunity has been insulted by the soaring housing prices, spiraling education costs, wide-spreading corruption and the ruling elites bound together by personal and family ties. The fundamental goal of providing equal opportunity to each member of society has been fading into the distance, rather than closer to the average citizens (Pei, 2012). Increasing access to basic medical service, albeit far from sufficient, might be one of a few tangible fruits from the poorly coordinated reform for the average Chinese, in particular, the rural residents (Figure 1).

Figure 1.

Coverage of and government subsidies to New Cooperative Medical Scheme 2004–2010, China. CMS, Cooperative Medical Scheme; NCMS, New Cooperative Medical Scheme. Note: The CMS, a community-based insurance program, can be dated back to the 1950s. By the late 1970s, approximately 90% of the rural populations were covered by the CMS. However, the market-oriented economy started in early 1980s dismantled CMS, leaving virtually all rural residents uncovered by health insurance. In 2002, China initiated the policy of the NCMS, a voluntary and government-subsidized scheme designed to reduce the financial burden of illness on the rural population. The NCMS is jointly funded by central, provincial and local government; the policy implementation responsibilities, however, are decentralized to county governments. The NCMS mainly covers inpatient services.

Data source: Health Statistics Bulletin, Ministry of Health, China. 2011. Available from http://www.moh.gov.cn/publicfiles/business/htmlfiles/mohwsbwstjxxzx/s7967/201105/51862.htm. [Accessed 19 February 2012].

The discussion on the pros and cons of provision of medical services by the state has never stopped (Barnett and Chalk, 2010). As of today, no dogma has been proclaimed, either laissez-faire or Keynesian health service (Light, 2003). Global financial and economic turmoil, triggered by the subprime mortgage crisis and further compounded by the European sovereign debt crisis, makes reassessing of various policy options on the provision of healthcare in the new reality immensely more urgent now than ever (Barnett and Chalk, 2010). By exploring a way “with Chinese characteristics”, the healthcare democracy experiments undergoing among 1.3 billion Chinese will enrich the global dialogs on the definition of “equality” and advance the theory and practice of social justice development.

Keeping the world engine running for growth by protecting human capital

China has been the driver of the world economy for years. The global economy increasingly depends on China for growth, from expanding demand for commodities in developing countries to industrial products in developed countries. However, after three decades of stellar growth, the Chinese economy is encountering strong headwinds. Domestically, the expected explosion of the older population, a low fertility rate and disabilities caused by the exponentially increased non-communicable diseases will reduce the size of labor force (Peng, 2006) and certainly increase the odds of a future economic slowdown, posing a significant social challenge in China and the entire world as a whole. If no effective action is being taken immediately to sustain the human capital, the forthcoming labor force shortages will be further exacerbated and the quality of human capital will be fundamentally compromised because a substantial amount of disease burden currently falls on the economically active population (Bloom et al., 2011). Population aging is not avoidable, and low fertility cannot be reversed in a visible future. Improvement of the quality and skills of the existing labor force and extending the retirement age may help to mitigate the labor shortage; the sustainable solution, however, is to keep the working age population healthy by empowering and inspiring individuals to actively pursue a healthy lifestyle (Wang et al., 2011; World Health Organization, 2005). It is estimated that a 1% decrease of cardiovascular mortality per year over a 30-year period (2010–2040) could generate an economic value equivalent to 68% of China's real gross domestic product (GDP) in 2010 (Wang et al., 2011).

Measured by purchasing power, China surpassed Japan in late 2001 and became the world's second-largest economy after the USA (International Monetary Fund, 2011). By 2030, China might become the largest equity market in the world (Moe et al., 2010). Together, four BRIC countries, Brazil, Russia, India and China, among which China, to many academics and experts, is the muscle of the group, may account for 41% of the world's market capitalization by 2030 (Moe et al., 2010). There are, however, many uncertainties and assumptions in the BRIC thesis with improved national health being the most crucial. Without coherent national strategies and concerted efforts to effectively enhance human health and protect human capital, China will not live up to its promise. The comprehensive healthcare reform, if efficiently and quickly implemented, will certainly create a win-win situation for all, China and the global economy at large. It would make China's continuously strong economic development more sustainable, therefore spearheading the global economic recovery.

Stimulating domestic demands and creating a sustainable market for the global economy

The global economic crisis hits the export-oriented economy in China severely, and the momentum created by government investment in big projects has been slowing down. Thousands of factories in the export-dependent south east coastal region have been closed, and millions of Chinese have lost their jobs, creating a potentially destabilizing phenomenon in urban unemployment (Barboza, 2011). It is widely assumed that China must achieve growth rates of at least 8% in order to keep ahead of unemployment and maintain social stability (Morrison, 2011). There is no increase in a visible future of global demand for Chinese exports. China must take aggressive action to ensure growth from alternative sources, and the investment-driven model must give a way to a more efficient consumption-driven model. The investment-driven growth in the past decades in China has been underwritten by household savings—not spending. The national gross savings rate hovered at 54.3% in 2009, well above the average of 33% among other emerging markets, substantially higher than the average among advanced economies (Aridas, 2012). In a sharp contrast to that in advanced economies, the saving as a share of disposable income among households in China was as high as 30% (The New York Times, 2011), leaving a large room for policy maneuverability to stimulate demand-driven growth.

Family consumption accounts for only 36% of the Chinese GDP, in a sharp contrast to over 70% of GDP in the USA in 2007 (Bi, 2009). Without a doubt, the lack of a social safety net is a significant factor influencing people's proclivity to save as opposed to consume. Many believe that the skyrocketing healthcare expenditure is a key driving force of this phenomenon (Chamon and Prasad, 2008). When people have to worry about expensive medical bills, they are less likely to spend money on other things (Freeman and Boynton, 2009; Ma and Wang, 2010). Experience in Taiwan, where culture and tradition resemble that of mainland China, demonstrated that households significantly reduced their savings and increased consumption when universal healthcare was available (Kuan, 2009). The universal health insurance, introduced in 1995, immediately reduced the level of household savings by an average of 8.6–13.7% in Taiwan (Chou et al., 2008), and the crowding-out effects remained detectable years after (Kuan, 2009).

The revved up government spending on health development has successfully boosted the health coverage nationwide (China Ministry of Health, 2011) but has not translated into tangible gains in domestic consumption because of the soaring housing prices, spiraling education costs. Private spending remains low as a share of expenditure-based GDP at 34% in 2011, contributing to one-fifth of total GDP growth (Lommen and Zhuang, 2011). It is also noted that the broadening coverage of insurance disguises the extremely low level of benefits that most people receive (Yip et al., 2012). Pilot studies observed that the financial burden of diseases for urban residents had been reduced by less than 5% (Chen et al., 2009). Out-of-pocket payment for health services is higher than 50%, and a costly catastrophic or chronic illness may exhaust a family's mean in most regions of the country (Huang, 2011). The momentous impact to boost the demand market cannot be materialized in a foreseeable future without a concerted effort to strengthen its social safety net and a massive increase of government spending on public services.

Reshaping the landscape of global healthcare industry

A flat demand for medical products and the sluggish conditions in advanced economies have prompted many multinationals to move to China and other emerging markets for years. The expansion of healthcare service in China represents a huge opportunity for the manufacturers of medical devices, medical services industry and pharmaceutical multinationals to increase exports to China and offset lagging demand elsewhere. In addition to substantially expending 986 county hospitals, 3549 town hospitals and 1154 community medical service centers, about 29,000 township hospitals urgently need to be upgraded (Xinhua News Agency, 2009). Significant portions of infrastructure expenditures from the fiscal stimulus package of the phase 2009–2011 have gone to expanding construction of hospitals and clinics and purchasing new medical equipment, in particular, devices for primary care hospitals (China Ministry of Health, 2011). It is estimated that the country's market value of medical devices in 2010 was at $8.6bn, one of the largest in the world (Research and Markets, 2011). The development of China's industry of medical device is, however, considered to be at a preliminary stage, resembling that of western countries 20 years ago (Research and Markets, 2011). A large portion of the medical equipment, devices and technology has to be purchased from international markets, creating growth points for multinationals. As a matter of fact, immediately following the Chinese government's investment plan announced in early 2009, IBM launched a new industry solution lab in China focusing on the healthcare market and developing software solutions that could help hospitals to streamline medical record management (Clarke, 2009). To honor commitments made when China joined the World Trade Organization 10 years ago, import tariffs have been further lowered starting from 1 January 2010 on more than 600 commodities, including medical products and pharmaceuticals. Further removal of various nontariff barriers on medical products as part of the healthcare reform plan to boost industry has also dramatically increased market penetration of foreign firms (Deloitte Global Services Limited, 2010).

China's accelerated economic growth parallels the expansion of millionaire families and the emergence of a new urban middle class. Currently ranked fourth among the world's countries in the number of millionaire families, China will have 50 million families whose annual income range from $7500 to $50,000 by 2017 (Romann, 2012). Among these groups, the demands for more privacy, better facility and personal attention from doctors of private providers are very high. As a part of the efforts to meet the precipitously increasing health demands among middle class and foster innovation and industry development, the State Council issued a circular to further open the door to private healthcare providers and foreign investors, as complementary partners (not competing rivals) in the healthcare sector currently dominated by public funds (Meng et al., 2012). There is already a boom in the building of foreign hospitals in China's major cities by multinational healthcare providers such as the United Family Hospital, an independent American provider (Moody and Ding, 2009). Private medical insurance is relatively undeveloped in China. The Preferred Provider Organization, populous private insurance plan in the West, was first offered in 2006 by Chindex International, another independent American health service provider (Moody and Ding, 2009). As the reform is moving further and policy of reimbursement is getting more flexible, Chinese people may be allowed to obtain reimbursement for at least part of the cost of their medical treatment at private providers, further increasing the market share for the healthcare providers from outside China.

The increasing healthcare demand driven by the expanded coverage in China also elevates the enthusiasm of multinational pharmaceutical companies to embrace China's market. China is currently the world's third-largest pharmaceutical market (China Daily News Agency, 2012). The market will continue to grow at an average annual rate of 20% to reach $11bn by 2015 (Figure 2) (Deloitte Global Services Limited, 2010). Alongside systemic changes in product selection, distribution channels have also been reconstructed in the overhaul of China's healthcare system. Tightening control on profit margins from drug distribution will accelerate the consolidation of the pharmaceutical distribution sector and offer significant opportunities for leading multinational pharmaceutical distributors (Meng et al., 2012).

Figure 2.

The increasing trend of biopharmaceutical sales in China, 2005–2010. Note: The original estimates were provided in CN¥, and converted into $US at the rate of $1 = 6.30¥ (February 2012).

Data Source: Available from http://www.chinadaily.com.cn/cndy/2012-01/09/content_14402241.htm. [Accessed 21 February 2012].

Creating a global hub of science and technology in medical and health science

Historically, China has been a major source of medical innovation and leading developer of appropriate health policy (Han et al., 2008). Artemesinin, the most acknowledged contribution from Chinese traditional medicine, remains the most effective drug against the malaria parasite (Neill, 2011). Barefoot doctor, a well-known Chinese term for primary healthcare doctors, is part of Maoism's legacy (Hanson, 2008). The public health mass campaign, effectively utilized in Mao's era to control the epidemics of major infectious diseases within a short period, has been globally utilized to deliver immunization services for polio eradication and measles elimination (Wang et al., 1997; Hanson, 2008). Since its accession into the World Trade Organization, the spending on research and development (R&D) has increased by more than 20% a year, and China has overtaken Japan as the second-largest financier of scientific work in 2010 (Grueber, 2010). The last decade has seen a scaling up in the number of papers published in influential medical journals with the first authors from mainland Chinese institutions (Figure 3). Announced recently, seven of the 28 first International Early Career Scientist awards from The Howard Hughes Medical Institute, one of the world's most prestigious research foundations, went to Chinese researchers, more than in any other nation (Wines, 2011). The sheer scale of China's healthcare system, the urgency of reform, a diverse disease spectrum and more importantly the staggering public health challenges will further spur the trend.

Figure 3.

The number of research papers published in 115 influential English journals indexed in PubMed with first authors from mainland China, 1979–2010. Note: The influential English journals were defined as the ones with impact factors equal or greater than 10 in 2009. These include JAMA, NEJM, BJM and Lancet. Source: The numbers were presented by Dr. Michael Phillips of Shanghai Mental Health Center, Shanghai Jiao Tong University School of Medicine, China, in the plenary session II of Westlake Forum III—Healthcare Reform in China and the USA on 12 April 2011, Atlanta, USA. The title of his presentation is “Publish or Perish: China's Expanding Role in the International Medical Literature”. Permission was obtained from Dr. Phillips for reproduction in the current report.

Integrating cutting-edge technology into the healthcare system to ensure safe and effective service delivered in a convenient and affordable way is one key strategy singled out by the Chinese Healthcare Reform Plan. Regionally integrated health networks have been exploratorily set up in Dongcheng of Beijing and Minghang of Shanghai, linking hospitals, community health centers, nursing homes and households to enhance early detection of non-communicable disease using telemedicine and wireless technology. It is estimated that the total expenditure on healthcare information technology in China had reached $2bn in 2010 with an annual increase of 18.2% (Chinese Association of Health Informatics, 2009). The major global players in technology innovation such as GE, IBM, Siemens, Oracle and Cisco have levered themselves into China's booming healthcare information technology market stimulated by the healthcare reform initiative (Chinese Association of Health Informatics, 2009).

The preferential drug pricing policies for innovative drugs, another key topic of healthcare reform still under extensive discussion, will stimulate investment in pharmaceutical R&D activities and the success of new drugs. Shifting from imitating unpatented or generic drugs to building an industry focusing on innovation, China has allocated $20bn to key drug-creation programs in an anticipation of 30 new treatments in 10 major therapeutic areas to be successfully developed by 2020 (China Daily News Agency, 2012). Additionally, the tax regulations have also been under revision to provide tax incentives to financially encourage R&D activities on new drugs. International drug makers also benefit greatly from rich clinical trial resources, cost reductions and easier registration and approval to effectively mitigate the huge investment and high risks of failure of pharmaceutical R&D (Deloitte Global Services Limited, 2010). Unlike their previous sales-centered strategies, an increasing number of multinational pharmaceutical companies are eyeing the Chinese market as part of their efforts to boost their global R&D chains. Pfizer Inc., the world's largest drug maker, has been collaborating for years with MicuRx Pharmaceuticals Inc., a Chinese biopharmaceutical company specializing in the development of antibiotics to treat drug-resistant bacteria (China Daily News Agency, 2012). Merck & Co., the second-largest drug producer in the world, recently reached a deal with Shenzhen-based BGI for a new generation of personalized therapies (China Daily News Agency, 2012).

Health policy research will also be greatly accelerated by China's reform effort. A large-scale study is underway in about 100 state-run hospitals chosen from 12 cities in various geographic areas with diversified development levels, to explore the effective strategy to shift financial risk from the payer to the provider and the focus of care to patient outcomes (Yip et al., 2012). It is expected that upon completion of this large-scale study, what does and does not work in the healthcare system of China will be identified and the good practices obtained from this experiment will be translated into nationwide practice (Central Committee of the Chinese Communist Party and State Council, 2009). The universal healthcare creates new data banks and new experimental sites to train budding health service researchers for China as well as other parts of the world (Hsiao and Maynard, 2009). This will further promote China's engagement in global health and create a more comprehensive dialog between government, industry and academics to improve the health of citizens across the world.

Conclusion

Reforming the healthcare system in the most populated country is a daunting task (Yip et al., 2012). The magnitude of the problem and the challenges in finding an innovative and well-rounded solution make China's effort the biggest ever social experiment in world history (Chen, 2009). China's efforts to overhaul its healthcare system not only offer an unprecedented opportunity to the global community but also benefit tremendously from the international collaboration. By fostering scientific and institutional alliances, and engaging in respectful partnerships with the rest of the world, China can learn much from the best practices of success and deeper lessons from other countries (Meng et al., 2012). Without an open mind, visionary and coherent strategies and state-of-the-art navigation with vast domestic and global challenges, China will not live up to its promise, and all the potentials may end with hype instead of hope (Meng et al., 2012). The price of failure will be immensely high, a direct socioeconomic cost for China and an indirect opportunity cost for the world as a whole. A full appreciation of the implications of China's healthcare reform is certainly critical to keep China receptive toward good practice evidence-approved elsewhere and a “responsible stakeholder” for its international obligations. Most critically, this appreciation will yield more constructive engagements from the global community toward a joint development and global prosperity.

Conflict of Interest

The authors have no competing interests.

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