Medicine in China
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In the U.S., private and for-profit hospitals account for 65.3% and 13.7% of the total number of hospitals, respectively. Physicians can choose the hospital in which to be associated. In China, most hospitals are owned by the government, therefore physicians were previously quasi-government employees and enjoyed little freedom in the choice of the hospital to work with. In addition, decades of planned economic policy discouraged physicians from opening their own clinics, and the practice of medicine was generally non-private.
While there are private clinics in China, many of the owners of those clinics do not have formal medical education. Most of these private practitioners practice traditional Chinese medicine They learned medical skills and inherited secret formulas from their parents (mostly from their fathers).
Physicians now are encouraged to open private clinics or hospitals, and those who have been practicing medicine for five years after they received national physician licenses are can open their own clinics.
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[edit] Physicians
[edit] Physician compensation
At government controlled hospitals, physicians are salaried employees. Salaries are based on working experience and professional level. Some hospitals also pay a bonus to physicians according to the hospital's operating performances and the physician's contributions. Physicians’ salaries vary greatly. For those working at busy and well-known hospitals, their base salaries can be a few times as much as those of physicians working at low-ranking hospitals. Chinese hospitals are classified as three general levels, with level 3 at the top and level 1 at the bottom. Each level has sub-levels of A, B and C. Some elite hospitals are 3A+s.
For many physicians, in particular those at big hospitals, specialty hospitals or hospitals with large reputations, physician incomes can be larger than regular hospitals. Physicians, and in particular, surgeons, can augment their hospital salaries by operating surgeries at hospitals other than the one in which they are employed. Many physicians also receive commissions from prescribing prescription drugs and get “red envelopes” from patients (patients give money or gifts to their wanted patients for getting treatment) or from sales representatives of drug companies. However, a new regulation issued by the Health Ministry removes physicians from the practice of medicine if they are found to have taken "red envelopes" from patients, and a hotline has been set up to monitor physicians.
[edit] Social status
In China, physicians are well respected, but as a group they are not at the top of the social structure of the country because their incomes fall in the middle class.
According to a Ph.D. candidate at a U.S. Public Health School, who was a physician at a well-known 3A hospital in Beijing, like other junior physicians, she seldom received “red envelopes” from patients, and only senior physicians or physicians with fame would have such opportunities. The student said those senior physicians had become members of the high-income class. Like the student, many physicians, went abroad to study because they were not satisfied with their status.
According to a 2002 statistics from Beijing Physicians Association, over the past two years (2000 and 2001), in Beijing about 2300 physicians resigned, and most of them went to work as sales representatives of drug companies. Some still practice medicine but work with privately owned hospitals rather than public hospitals.
A junior physician, who was evaluated as a top performer at a 2A Beijing hospital, said she left her job because she made less than $120 a month. At her new sales representative job, her base salary increased to $500 a month. She also pointed out not all physicians have such “grey incomes” as commissions and “red envelopes”.
[edit] Competitive pressure for hospitals
Influenced by a centrally-planned economy, many hospitals were managed as government agencies rather than medical service organizations. Hospitals did not have competition pressures. The management team usually did not recognize the importance of developing and retaining high skilled physicians. Administrative personnel were more powerful than physicians at a hospital.
However, with the reform of the medical sector, Chinese hospitals are facing increasing competition from privately owned and foreign-investment-backed hospitals. Physicians are expected to enjoy higher legal income and better social status.
[edit] Physician training
The Chinese medical education system follows the British system, but it reduced the length from six years to five years to shorten the educational cycle. To become a physician, a person usually needs to study for five years at a medical school. Some medical schools used to run, and still offer three-year programs, but hospitals tend to recruit those attending five-year programs, and big-name hospitals only hire MDs, which take seven years (including the five years in undergraduate study) to complete, or Ph.D.'s of medicine.
Upon graduation, a physician starts as an assistant physician at a hospital. After having practiced medicine for three years, the physician will be eligible to take a national test for physician certification and become a professional physician (licensed physician) upon passing the test. A physician with a master’s degree in medicine (seven years including five years’ undergraduate study in medicine) can take the national test after one year’s practice of medicine.
Residency requirements have not been implemented nationwide in Chinese hospitals though almost all hospitals require their physicians to take turns working on night shift, and physicians will be called to work in an emergency. The first residency program was launched in 2003 at Huaxi Hospital of Sichuan University, where a professor who had studied in U.S. for two years proposed establishing a residency requirement for newly graduated medical school students. These students will complete their MD study and have to pass the national certification test during the residency. The residency requirement at Huaxi Hospital is expected to change the traditional physician training system in China.
There are specialties in general hospitals and specialty hospitals. The most common specialty hospitals or clinics include those treating hepatitis, cancers, sterility, dental diseases, dermatitis, nephritis, and diabetes. A medical school student rotates at several departments of a hospital and then is assigned to a specialty department according to his or her strengths and the hospital’s needs. But there is not a system of developing specialty physicians in China. Some medical experts have called for a standardized training and testing system for specialty physicians. The classification of specialties at a Chinese hospital is similar to that at a U.S. hospital.
The medical schools are located at Beijing, Shanghai, Tianjin, Chongqing, provincial capital cities, and some secondary cities.There are around 130 Chinese medical schools, 120 of which are recognized by the U.S., and those only offering 3-year programs are not included. Top schools include: 1) Peking (Beijing) Union Medical College 2) Beijing University Medical School. 3) Fudan University Medical School, Shanghai 4) Zhongshan University Medical School, Guangzhou 5) Sichuan University Medical School, Chengdu
[edit] Prescription drugs
According to BCG’s prediction in 2002, China’s prescription drug market is expected to reach $24 billion and become the fifth largest market following Japan. AstraZeneca now ranks as the No. 1 foreign brand in terms of prescription sales in the Chinese market.
Physicians control the distribution of prescription drugs. Some hospitals and clinics stipulate patients must buy prescription drugs from the hospitals or directly from the physicians who make the prescriptions. Such a restriction aims to prevent the loss of sales on prescription drugs to retailers, but retailing drug stores are unhappy with such a restriction, and some of them have tried all means to lure away prescription drugs buyer from hospitals. For instance, they offer to pay drug buyers half a dollar for each prescription the buyers brought to the drug stores. Normally a prescription is effective on the day it is issued, but it can be effective within three days of prescription under certain conditions.
Physicians use computers to make prescriptions.
[edit] Hospitals
[edit] The relation between physicians and hospitals
Physicians used to be hired as full-time and life-time employees at a government controlled hospital. But with the reforming of the medical service sector, both physicians and hospitals have more freedom in choosing each other.
Young physicians usually have an employment contract with the hospital they work with, and a person can quit at will. The hospital can also lay off the individual if it’s not satisfied with the employees performance or morality.
It’s not uncommon for physicians to quit and take a different job. The top three reasons that lead many physicians in Beijing to quit include: doctors are not well paid; hospitals are poorly managed; and there are not enough personal development opportunities.
[edit] Management of the hospitals
For a government-controlled hospital, the hospital is still operated and managed by a management team under the leadership of the president of the hospital, who is usually nominated and appointed by the healthcare department of a province, a city or a county. But for a private hospital or a publicly traded hospital, the ownership is the same as that of a private company or a public company. There are two types of hospitals in China – profit-oriented and non-profiteering, depending on who the owners are. The main differences between the two are:
- Profit-oriented hospitals may distribute their profit, but non-profiteering hospitals will turn earnings into additional infrastructure or hand them back to the respective government authorities.
- They face different regulatory treatment. Non-profiteering hospitals enjoy preferential tax treatment and several government subsidies. They also get low-cost financing from the government for their capital investment.
- The total number of hospitals in China dropped moderately by 0.6% during 1995-2001 as many small-scale hospitals exited the industry. During the period, hospitals above the county level grew at 1% compounded annual growth rate (CAGR) while smaller hospitals fell by 0.8% CAGR.
[edit] Number of Hospitals
By the end of 2002, China has 306,000 healthcare and medical organizations, 63,858 of which are hospitals and clinics, 219,907 of which are nursing homes and 22,270 fall into other categories. Among them, only 1% are for profit, but actually all non-profit hospitals and clinics are for profit because none of the hospitals or clinics can sustain on the government funding alone, and have to rely on profits of selling drugs and expensive diagnoses. Drug sales from hospitals account for 85% of total drug sales, with the remaining 15% going to drug stores.
Stripping out the government’s subsidies, all government-subsidized hospitals would have been in red. This poor operating performance can be partially due to that non-profit hospitals have little incentive to control costs, given the government’s subsidies.
[edit] Private Hospitals
Through the 1980s, hospitals relied on government funds and operational revenue to finance these services. The government covered hospital staff and capital costs, including both buildings and capital equipment, and set prices for health services without considering those costs. Prices of diagnostic and other non-pharmaceutical services were thus set far below costs. Governments and enterprises in turn reimbursed hospitals on a fee-for-service basis. Because of these price-setting and reimbursement policies, only pharmaceutical services could produce a profit, typically 15 percent of total sales. Hospitals used government funds and pharmaceutical sales revenue to offset the losses incurred in the provision of non-pharmaceutical services.
In 2000, a reform started to occur in the Chinese hospital system. Government owned hospitals are being restructured, some of them being sold to individual investors, and more and more private hospitals are founded.
In 2004, Beijing Aikang Medical Investment Company bought a state-run-enterprise owned AAA hospital (the highest standard), and the acquisition was the first of this kind in China. The investment company plans to buy 10 hospitals in the next three to five years. In Fuzhou, the capital city of Fujian province, a strait apart from Taiwan, four government owned hospitals have been sold to private investors.
Sources: News reports and China Statistics Annals
[edit] Problems of Chinese hospitals:
- Despite strong demand for better hospital services, the utilization rate will stay low because hospital charges are beyond the affordability of general public.
- Potential earnings disruption after the separation of medical consultation and drug dispensing services. Implantation of medical insurance will boost traffic but at the expense of margins.
- Additional financial burden to upgrade equipment when competing for medical insurance participants.
The earnings outlook will be adversely affected by the regulatory changes. For instance, separating medical consultation and drug dispensing may slash the turnover of a typical hospital by 45-58% because medicine charges account for 45-58% of a patient’s hospital bill. This explains why this policy has met with a lot of resistance from hospitals. The implementation of medical insurance system does not bode well for hospital operators either. While the introduction of medical insurance system will certainly lead to higher utilization rate of hospitals, margins are likely to come under pressure as insurance providers will request hospitals to offer discounts in order to protect their own margins. Given the intense competition, hospitals have little bargaining power.
Hospitals will need to upgrade its infrastructure, equipment and services in order to attract medical insurance participants. The result will be additional financial burden for hospital operators.
[edit] Nursing and support staff
Well-trained people with nursing certifications are eligible for this job, but support staff is equivalent to low-skilled hospital workers. Most hospitals used to mainly rely on full-time nursing and support staff, but more and more hospitals are hiring part-time support staff to reduce costs.
Nurses are normally well trained before being eligible for working with a hospital, but support workers are a problem. Some hospitals hire skill-less “underground” labors and after giving them some simple training use them as hospital support workers. These workers, mostly from rural areas to make a living in cities, on the other hand, are poorly paid by those hospitals and live hard lives.
To secure the quality of hospital services, Beijing recently has passed a regulation on training and hiring qualified hospital support workers. In Tianjin, China’s third largest city, about 1,000 unemployed people have been trained by local authority and passed hospital support work test. These people returned to work as certified support staff of a number of big hospitals.
In contrast, nurses enjoy a much better life than support staff do. One needs to study at a nursing school for around three years before being eligible to work as a nurse. Most nursing schools enroll middle school graduates (Grade 9) and senior high school graduates (Grade 12), and they run four-year and three-year programs respectively.
A bachelor’s degree in nursing has been available since late 1980s and early 1990s in China. Many medical schools including the School of Medicine of Beijing University offer five-year programs in nursing, and hundreds of graduates have played important roles in nursing departments at a number of leading hospitals.
The advent of nursing bachelors, some medical experts say, are transforming the nursing system in China and upgrading the country’s hospital services.
[edit] Hospital location
Most hospitals are located at downtown areas due to people’s reliance on public transportation in China. More than 80% of Chinese medical resources are concentrated in urban areas, and the rest in rural areas.
[edit] Payers
[edit] Payment for healthcare
The government, employers, and individuals pay for healthcare. In December 1998, a national medical insurance scheme was launched by the State Council. By end of 2002, most of the county or above level cities had joined the scheme and covered a population of about 100 million. Social Insurance Fund Administration Centre, a department of the Ministry of Labor and Social Security, oversees this insurance system. Currently, this system only focuses on employees of enterprises at or above township level. Those in remote or less developed areas cannot enjoy the benefits of this scheme, which is considered a shortcoming of the social medical insurance scheme.
The so called National Basic Medical Insurance Scheme ensures basic medical access by the public under the social security system. Individuals pay an affordable annual insurance premium for their basic medical treatment entitlements. This scheme has replaced the previous government-funded labor insurance medical system. Foreign-invested enterprises are required to provide health insurance benefits, but are not required to participate in the basic plan. For example, for employees of foreign enterprises in Beijing hired through Foreign Enterprises Service Corp. (FESCO), foreign enterprises pay FESCO, and FESCO then buys insurance policies for these employees. The government also allows commercial health insurers to operate in China.
In 2004, 119.41 million people had basic medical insurance. Revenues of basic medical insurance funds reached $91 billion, and payments were $74 billion.
[edit] Structure and Implementation
[edit] Premium sharing
Individual employees and their respective employers share the premium contribution. Premiums equivalent to 8% of monthly payroll will be credited to a designated account. Employee contributes 2% and employing enterprise tops up another 6%. Employee’s entire contribution plus 30% of employer contribution will be deposited into the employee’s individual account. The balance of employing enterprise’s contribution will be kept at the aggregate fund account for the scheme.
[edit] Charges
Outpatient expenses will be charged against the individual account. Inpatient costs within a pre-defined band can claim against the scheme’s aggregate account. Covered patients assume hospitalization costs of up to 30% of their annual salaries. The medical insurance scheme bears the balance but the amount is capped at equivalent to 4 times that of the insured patient’s annual salary.
[edit] Drug price regulation
The qualified drug catalogue under the basic medical scheme, which aims to control expenses on drugs, specifies drugs that are covered by the scheme and eligible for reimbursement. As the government-driven drug price regulation mechanism and the centralized tendering drug procurement program are only applicable to the drugs covered by the scheme, the scheme undoubtedly plays a crucial role in the development of the drug industry.
[edit] Impact
[edit] Drug Manufacturers
Those qualified manufacturers with patent products or operating in a less competitive product segment will enjoy robust sales growth. According to the statistics from the Social Insurance Fund Administration Center, Ministry of Labor and Social Security, gross revenue of medical institutions qualified for the insurance scheme rose by more than 30% in 2002.
Drug manufacturers will be R&D focused. Ability to imitate off-patent products quickly is the best way to protect margins. Strong R&D capability also boosts the company’s ability to shift its product mix toward higher value added products.
[edit] Drug Distributors
Drug distributors are among the major losers in the price regulation.
[edit] Hospitals/Medical Institutions
Under the insurance scheme, patients are free to choose hospitals for their medical services. This will inevitably place hospitals and medical institutions under competition. Those capable of providing high quality services are poised to benefit. On the other hand, weaker players will be phased out gradually.
Currently, there are 65,000 medical institutions in China, of which around 40% of them do not have sufficient patronage and thus rely heavily on drug sales. More consolidation and M&A in this segment are expected.
[edit] Prescription drugs
The basic insurance plan does not reimburse expenses for drugs not on the basic medical insurance drug list, the State Scheme Drug List for Basic Medical Insurance, which is based on clinical need, safety and efficacy, reasonable pricing, ease of use, and the desire to maintain a balance between Western and TCM products.
The basic medical insurance and at-work injury insurance of 2004 cover 832 traditional Chinese medicines, up from 415 of 2000; the number of chemical medicines covered by the insurance systems increase from 725 to 1031 from year 2000 to 2004, some of which are patent-protected new drugs of Western companies.
Some prescription drugs are paid for by the government (70% reimbursement), employers’ medical funds, or insurance companies. For those prescription drugs not covered by the government’s basic medical insurance plan, patients have to pay themselves. But people can buy medical insurance that covers such drugs.
Sino-Generali Life Insurance, a joint venture between China and Italy companies, offers a commercial medical insurance that reimburses 80% of prescription drugs, with an annual maximum reimbursement of $1000 per policy.
[edit] Changes
Before the reform of healthcare system, roughly 140 million workers and 60 million family members were covered under the State-owned enterprise (SOE) and collective insurance. This system has reimbursed 100 percent of employees' medical costs, and 50 percent of family members' costs. The system has been funded, in name at least, by the enterprises.
Hoping to reduce enterprise subsidies of all types, the State Council launched pilot reforms in 1994 of the two health insurance systems under its control. Begun in two midsize cities, Jiujiang, Jiangxi Province, and Zhenjiang, Jiangsu Province, and expanded to over 60 cities in 1997, this experiment has become national policy, applicable to domestic and foreign-invested firms. The two State health insurance systems would later be consolidated to be the Basic Medical Insurance System.
The true market for Western drugs in China was never 1.3 billion people strong. Only about 120 million to 180 million workers have some form of healthcare coverage that will pay for Western pharmaceuticals, according to industry analysts. Farmers, who make up the vast majority of Chinese, have no real coverage at all.
[edit] The role of government
The Chinese government used to cover up to 100% of medical fees for employees working with government agencies, state-owned enterprises, or educational organizations, but peasants didn’t enjoy the policy.
Starting from 2001, a new medical coverage plan took effect, marking the government’s withdrawal from shouldering whole medical insurance burden. Under the policy, urban residents must join a government managed basic insurance coverage plan for urban residents and pay a certain amount of monthly fees based on their income levels, and up to 70% of their medical expenses can be reimbursed. So far around 100 million urban residents are covered by the plan.
[edit] Private payers and insurance companies
According to a news report, 44.8% of urban residents and 79.1% of rural residents have no medical insurance. Many of people are private payers. They either cannot afford to buy medical insurance, or do not understand the value of medical insurance. It’s not uncommon to find a news report about some patient committed suicide after being unable to pay for large of medical fees.
In contrast to rural residents, urban residents have much better situation. Many employers have bought for their employees group or supplementary medical insurance, and employers deduct from employees’ payrolls a small percentage of their monthly incomes. For some high-income residents, commercial medical insurance offered by Chinese and western companies have become their top choice. China Life Insurance, Ping An Insurance, AIG and other big insurance companies are fiercely competing for the market share of commercial medical insurance.
Some employers buy supplementary insurance or group insurance for their employees, and employees pay a small part of their salaries for the insurance. Physicians, hospitals, and clinics get paid directly. Patients are reimbursed later from the social security department, their employers or insurance companies.
