Healthy cut in cost of medicine A father cradles his daughter as she is treated at the Beijing Pediatric Research Institute on Monday. The...

Healthy cut in cost of medicine

A father cradles his daughter as she is treated at the Beijing Pediatric Research Institute on Monday. The government has vowed to boost medical reform amid growing public demand for better services. [Wang Jing / China Daily]

A patient collects his prescription at Gumei Community Health Center in Shanghai's Minhang district. The center spends more than 2 million yuan every month on drug supplies. [Gao Erqiang / China Daily]

The Capital Institute of Pediatrics is one of the busiest hospitals in Beijing. [Wang Jing / China Daily]

The Capital Institute of Pediatrics is one of the busiest hospitals in Beijing. [Wang Jing / China Daily]

For decades, Tan Shijin refused to visit his local community health center. Instead, whenever he was sick, he would travel 5 kilometers to the nearest public hospital.

"Doctors (at the center) were ill-mannered and prescribed expensive drugs," said the 76-year-old farmer in Huangshan, Anhui province, adding that he was once yelled at for asking if he could get a cheaper cold remedy.

Things have changed in recent years, however, largely thanks to a drug-procurement platform that has standardized the prices of about 600 essential medicines at rural clinics in Anhui and reduced the average cost for patients by more than 40 percent.

Reforms of the health sector began nationwide in 2009. However, experts and industry insiders say the process has entered a critical stage, especially for public hospitals.

At a February meeting of the State Council, Premier Wen Jiabao urged authorities to work together to change the way medical facilities generate revenue and to abolish the traditional practice of raising drug prices.

"To solve the problems that exist today, we urgently need to establish a scientific, rational, institutionalized and standardized compensation system (for public hospitals)," Minister of Health Chen Zhu told China Daily in an exclusive interview.

"With such a system," he added, "we'll be able to abandon the old ways - selling drugs for profit - and at the same time boost our doctors' enthusiasm for treating patients."

Chen said the government will pay special attention to county hospitals over the next three years, as well as push forward comprehensive nationwide reforms in administration, purchasing, distribution and pricing.

One of the forerunners of healthcare reform is Zhenjiang in East China's Jiangsu province.

Clinics in the city were previously allowed to sell medicine at 15 percent higher than the purchase price, which formed a large part of revenues.

Jiankang Road Community Health Center, for example, generated 18.84 million yuan ($2.97 million) in 2005, with 92 percent from drug sales and medical treatment charges and the rest from the government.

However, when officials decided to centralize drug procurement and distribution in 2007, taking supplies from the winning bidder, community health centers were banned from marking up prices.

The local medical insurance office also began setting annual budgets for centers based on the number of outpatients and patients with chronic illnesses they receive. Clinic administrators were warned that any overspending would not be covered.Li Yiping, director of the office, said the total medical insurance budget for Zhenjiang's facilities was more than 800 million yuan in 2011. The amount is increased annually, he said, as are government subsidies.

Jiankang Road Community Health Center, which serves a population of 86,000, generated total revenue of about 50 million yuan, with 21 percent coming from subsidies.

Chen, the health minister, has urged local authorities to ensure that policies on investment for public hospitals are carried out effectively so that facilities have sufficient funding for infrastructure, equipment, pension contributions, key services and research.

However, for many public hospitals, subsidies still only make up a small portion of their revenue.

Peking University Third Hospital had total revenue of 2.25 billion yuan last year, yet just 5 percent came from subsidies, according to its president Chen Zhongqiang.

After deducting the cost of medical materials, he said the hospital was left with just 800 million to 900 million yuan to cover operating costs, such as salaries, new equipment, training and research.

"More government funds should be allocated to public hospitals to cover basic operational expenses. (A contribution of) 5 percent is simply not enough," Chen Zhongqiang said, adding that he believes patients should not be made to pay for public welfare projects.

Price proposals

In addition to boosting investment, Health Minister Chen Zhu suggested that the government help hospitals by enabling them to increase charges for medical treatment.

Experts say the labor involved in medical services has been undervalued in China for a long time. IZhenjiang, for instance, prices for treatments have remained unchanged since 2005. Yet, in the past six years, the consumer price index a major indicator of inflation has climbed sharply.

After much debate, the city's health bureau submitted a plan to the provincial government this year that aims to incrementally raise the costs of many services, including day care and surgery. If approved, the cost of first-class nursing at top hospitals will eventually rise from the current 10 yuan a day to 45 yuan.

Whether such a plan is acceptable for residents remains to be seen.

Last year, the State Council told community health centers, health stations and town clinics to ask for a general treatment fee of 10 yuan instead of charging separately for registration and injections. However, this pushed up the cost, resulting in opposition from patients in Zhenjiang when it was introduced in July.

To solve the problem, the city requested the medical insurance office cover 90 percent of the fee.

Supervision demand

Creating a better compensation system is just one reform for public hospitals, said Chen Zhu, who added that authorities should also strengthen their supervision of treatments and spending with performance appraisals.

The health bureau in Shanghai's Minhang district launched a computer network to collate real-time data on its hospitals in 2010. It allows officials to evaluate the quality and safety of clinical facilities and treatments, such as the amount of antibiotics prescribed by doctors.

Appraisal reports are produced every three months and play a major role in maintaining discipline, as well as decisions on funding.

Minhang's public hospitals, which shared more than 400 million yuan from the health bureau in 2011, are given annual targets and are judged on a series of indicators, such as the average amount spent per outpatient. If they fall short, their subsidies are reduced.

"Supervision of public hospitals (nationwide) must be improved," said Xu Su, director of the district health bureau. "Healthcare reform will succeed once government funds are allocated based on supervision. Only in this way will money play an effective role.

"The problem now is that government supervision is not in place and medical expenses are out of control," he added.

Zhenjiang has adopted a similar system to subsidize hospitals based on the number of outpatients, while the city also reduces funding for clinics where patients are prescribed an excessive amount of medication.

"When I was the president of a hospital, I used to fine doctors the same amount as the value of the excessive drugs they prescribed," said Lin Feng, director of the city health bureau. "Hospitals should not only encourage doctors with financial incentives but also restrain their behavior."

He disagreed with calls to entirely remove the markup on drugs, saying that the price should include the cost of storage, wastage and labor. With this in mind, he said an 8-percent hike on the purchase price is justifiable.

Lin added that the compensation system can also help balance out resources.

As Zhenjiang's latest medical insurance policy covers 90 percent of all medical expenses incurred at community health centers, compared with 60 percent at top hospitals, more patients are now using smaller facilities. 

Jiankang Road Community Health Center, for example, saw the number of outpatients it handled increase from 160,000 in 2005 to 370,000 cases last year.

However, Zhu Chenping, deputy director of the center, said that just 36 employees have been recruited over the same period.