Reform China's public hospitals to give the market a fighting chance

Hu Shuli says the government must make good on its pledge to promote the growth of the private medical industry by changing outdated rules

PUBLISHED : Wednesday, 23 October, 2013, 9:40pm
UPDATED : Thursday, 24 October, 2013, 12:26am

Public attention on China's health care reform has been growing. While disagreeing on specifics, people generally see the need to make health care more widely available. This means more medical facilities, higher efficiency and better allocation of resources. We need more, and better, hospitals.

Private hospitals and clinics are seen as one solution. Guidelines released by the State Council this month, which set out the government's aim to develop the health care industry, make this clear. The document pledges to lower the bar of market entry for private capital, allowing it to compete in every area of the industry that the law does not specifically prohibit.

This is a good move. As the latest round of health care reform gathers pace, following its introduction in 2009, the injection of private capital into the industry has long been seen to hold the key to a truly competitive market.

With the help of the central government's loose monetary policy and local governments' accommodating regulations, there are now more than 10,000 private hospitals in operation, accounting for 40 to 50 per cent of the total number of mainland hospitals. Yet these hospitals treat fewer than 10 per cent of patients. Their impact on the market is minimal.

The reason is simple. They are mostly small, and mediocre in terms of technical skills and service. Standards also vary widely. Hence, though their number is substantial, they do little to ease the supply shortage.

Private capital has long been seen to hold the key to a truly competitive market

This problem will not be solved as long as resources remain concentrated in the public system, and it continues to be treated as the star of China's health care structure. In this environment, private capital simply cannot compete and help raise overall industry standards.

China does not lack investors with deep pockets, but most give the industry a wide berth. Without sufficient investment, the problem of high fees and poor access will continue to plague most Chinese.

The State Council's guidelines reiterate the importance of market reform in the health care sector. By its decree, medical services and all other health-related goods and services were grouped together for the first time for development, including health insurance, pharmaceuticals and medical devices, health foods and fitness products. The plan aims to foster, by 2020, a thriving health care market worth more than 8 trillion yuan (HK$10 trillion) that could become a major engine of economic growth.

Besides lowering the bar for market entry, it also calls for better planning rules, land security and sound rules for financial management, in particular stressing the need for private capital to receive fair and equal treatment.

It's a pity, then, that the proposals for public hospital reform were so mild. For example, the guidelines stress the importance of following regional health rules and medical system regulations. They call for a clear accounting of the number, size and system of operation of public hospitals, and urge them to meet their duty of providing basic health services. However, it does not spell out their role vis-à-vis the private hospitals.

The government should have clearly required public hospitals to limit their provision of "special medical services" to allow private capital to gain a foothold. It could have given private capital priority in investment in new services.

A shortage of doctors is also a problem. In China, most doctors work for public hospitals and cannot easily leave their assigned "unit". Doctors' groups have long called for a revamp of this system to allow them freer movement.

The guidelines back management reform, and say it should move towards a more professional system based on organisational roles, rather than on personal roles. This is encouraging. But on the right of doctors to choose their job, it fell far short of the call for job freedom, only urging hospitals to speed up efforts to allow a doctor to provide services for more than one hospital.

Doctors must have job mobility for private hospitals to solve their problem of staff shortages. Without doctors, private hospitals cannot develop.

Since reforms were introduced, the health-care- system hardware has improved significantly. But unaffordable fees and poor service standards continue to be a problem.

Under the current framework, there can only be limited improvements to the public health system.

Further, some of the pilot schemes to consolidate and expand raise questions about efficiency. Besides, market reform is needed in many areas of management, including pricing.

At its heart, the success of reform depends on a clear separation of the functions of government and market. China must push to dismantle interest groups and open the market to more players to avert the misallocation of resources. Any breakthrough would make history.

This article is provided by Caixin Media, and the Chinese version of it was first published in Century Weekly magazine.