Hospitals in China resist bid to reform drug sales

Government initiative to scrap mark-up on medication prices faces backlash as chiefs of staff say it will result in crippling revenue loss

PUBLISHED : Tuesday, 27 November, 2012, 12:00am
UPDATED : Tuesday, 27 November, 2012, 3:42am

The central government's attempt to control the mainland's soaring health costs by scrapping a long-standing mark-up on medicine sales has run into stiff resistance from the chiefs at major hospitals.

The move by health minister Chen Zhu has garnered wide support from health care reform advocates, who argue that the 15 per cent add-on, which most hospitals depend on to cover their salary costs, has resulted in doctors overprescribing drugs to their patients.

But hospital executives contend that the loss of revenue would cripple them, and are calling on Beijing to increase subsidies to cover the shortfall.

Although more than 300 county-level hospitals have implemented the price reform since Chen announced it at the beginning of the year, only a dozen city-level hospitals - including two in Beijing and 10 in Shenzhen - have stopped charging the mark-ups.

The health ministry hopes to end the practice nationwide by 2015, but many more will have to sign on in the next two years if it is to meet its goal.

Several hospital chiefs aired their concerns at an annual trade conference hosted by China Hospital CEO magazine over the weekend in Xiamen .

"Axing the medicine mark-up will cause many hospitals to close due to a lack of money," Shi Yingkang , president of the 4,300-bed West China Hospital in Chengdu . "More hospitals in undeveloped regions will die than in rich regions."

West China Hospital gets only 3 per cent of its revenue from the government, Shi said, and removing the mark-up would leave his facility with an annual surplus of just 30 million yuan (HK$37 million). "Government's funding support is essential in this reform," he said.

The mark-up, established in 1954, allowed hospitals to tack on an extra 15 per cent to medical sales. The proceeds from the sales supplement the doctors' salaries, which have traditionally lagged far behind their counterparts in developed countries.

The country's economic reform and opening up policy that began in 1978 brought a rapid rise in health care costs. With government subsidies failing to keep pace, most hospitals had become heavily reliant on the mark-ups by the late 1990s.

"China has more than 10,000 public hospitals and it will be hundreds of billions yuan required from the government to sustain their operation every year," said Sun Hong , president of the 3,500-bed Xiangya Hospital in Changsha , Hunan . "Authorities should not kick off this reform if they cannot guarantee the funding."

Drug sales usually make up half the average mainland hospital's income while government subsidies account for another 8 to 10 per cent, experts said. This has led doctors to prescribe drugs to their patients that are both unnecessary and too costly.

"The medicine mark-up arrangement has pushed doctors into subscribing more drugs, leaving a heavy burden on patients and the medical insurance system," Professor Liu Tingfang , of Tsinghua University's Hospital Management Research Institute. "It's also a detriment for doctors' professional ethics."

Liu said it was important for hospitals to be able to raise diagnosis and nursing fees "which are unreasonably low and haven't been changed for about two decades" to compensate hospitals after they lose drug-sales profits.

Hospital chiefs said implementing the reform without the corresponding government support would force hospitals to seek other sources of revenue, such as in ordering patients to undergo more check-ups.

Sun said the government had inadvertently encouraged a reliance on the mark-up during their "marketisation" of public hospitals in the 1990s, and that doing so allowed many hospitals to make much needed improvements to their facilities.

"Before the marketisation, our hospital - long regarded as one of the most famous in central China - did not have a single modern building," he said.

Most hospitals that have stopped charging the mark-ups, such as Beijing Friendship Hospital and Beijing Chaoyang Hospital, have responded by increasing or initiating consultation fees for their doctors.

The Beijing municipal government, meanwhile, has increased government subsidies for the two hospitals. The capital aims to have 22 more public hospitals sign on for the reform next year, The Beijing News reported.

Qiao Jie , president of the Peking University Third Hospital in Beijing, said the hospital would find itself 54 million yuan short of what it needs to meet just its nurses' salaries if the mark-ups were scrapped.

"It has been rumoured that we will soon be included in the next batch of hospitals to undergo the reform and I am worried," Qiao said.

Meanwhile, Gao Jiechun , deputy director of Shenkang Hospital Development Centre in Shanghai, whose agency oversees the city's large public hospitals, said deciding how much to raise the hospitals' fees has been challenging. Nonetheless, three Shanghai hospitals will be forgoing their drug profits next year, he said.

But many hospital chiefs still argue that even increasing diagnosis and nursing fees would not raise enough to offset the profits they get from the drug sales.

Luo Zengyong , a vice-president at Sichuan Rehabilitation Hospital in Chengdu, said scrapping the mark-up would do little to fix the root problem of high drug costs. He said the real cause was corruption, particularly among health officials with the power to decide what pharmaceutical companies win bids.

Harvard School of Public Health Professor Liu Yuanli , who is a member of Health Ministry's think tank, said the reform would also require corresponding changes in the medical insurance system.

"Yes, there has been backlash from the hospitals," Liu said. "But the medicine mark-up is the worst system in the world and it must be dropped. No one can avert this direction."