Duke Research Advantage

The following post was written by Kevin Schulman, M.D., Director of Duke’s Health Sector Management Program:

Imagine a country of 1.3 billion people with 100 cities of 1,000,000 or more, a per capita GDP of almost $6,000 (PPP) growing at almost double-digit rates, and an economy ranked in the world’s top 5 and you’ll have a pretty accurate image of China today. While the economic miracle has worked in most areas of the Chinese economy, healthcare has struggled in the transition from communism to capitalism.

The Chinese government has just outlined a new health reform plan. This plan includes the acknowledgement by the government of two new rights for the population: the right to basic medical services and the right to basic medical security. This effort includes an expansion of the basic health plan to rural populations (to 150 RMB per capita in 2011, approximately $22US), construction of 5,000 new grassroots hospitals, 3,000 new regional hospitals, training of 10,000 new doctors for rural areas, reform of public hospitals, and new rules for private hospitals in China. This is clearly a very ambitious agenda, the details of which will be released in 21 specific documents over the coming months. Reform will also address incentives in the public hospital system which currently spurs utilization of imaging, long lengths of stay, and prescription dispensing as a means of generating income.

China is clearly under-spending in the health sector. Currently, healthcare is around 4% of GDP of which only 50% is public spending. If China moves toward the levels of healthcare spending of Japan or the EU, there will be a huge increase in health spending in the Chinese market. Adopting Western IP laws will also force changes in the pharmaceutical industry – which currently is a generic market rather than a research-based product market – and possibly the medical supply market as well. Increases in spending could also drive demand for private health insurance within China.

The most fascinating parts of this reform effort are the way it has been constructed and the debate around the program. The government asked informally for reform suggestions from several groups including McKinsey, and took ideas from each of these briefings.  This was a relatively unique occurrence for China, and was triggered by the failures of past attempts at health reform. Within China, there is also a basic debate ongoing about the role of the public and private sectors in healthcare. This debate includes a question about whether healthcare services are a core societal right (compared to nutrition or education), and about the social welfare resulting from health spending. Finally, the current debate has framed larger questions about reform within the Chinese economy: Can it best come from the public or private sector? Will entrenched (hospital) interests resist change in the face of a larger societal goal? Will competition between the public and private sectors spur organizational change?

It’s fascinating to note that the language surrounding this debate is almost identical to the rhetoric in Washington on these same issues. You can see how far China has come when a debate such as this can occur in public in front of government officials!