‘Ticking Time Bombs’: China’s Health Care System Faces Issues of Access, Quality and Cost

China’s health care system is ailing, and the prognosis for a cure in the near future is not good.

Wharton health care management professor Lawton R. Burns recently returned from Beijing, where he and Gordon G. Liu, professor of economics at Peking University’s Guanghua School of Management, co-taught a four-day course on China’s health care system. The course, attended by 20 Wharton students and 20 Peking University students, looked at such topics as quality and availability of care, the disparity between rural and urban health care, corruption in the delivery system, medical training and the needs of a growing elderly population.

Underlying some of China’s most basic health care challenges is the “wide but shallow distribution of health insurance,” says Burns. Recent reforms have extended health care to 95% of the population — most of whom have never had insurance before — a development that has caused serious strains on the delivery system. Now that consumers have access, “everyone wants to go to the major academic health centers, which means there are enormous lines starting early in the morning to get in and see a specialist,” says Burns, who toured several health care facilities during his teaching week. Not everyone gets through the line, however, and people who do get in don’t always get the results they want.

“People expect good care now, and when they don’t receive it, they sometimes blame the doctors,” notes Burns, adding that there have been cases of medical personnel physically attacked by dissatisfied patients.

For the Chinese government, the issue is cost: How do you fund health care for a new group of insured people, in both rural and urban areas, who had until recently been lacking coverage for even the most basic health care needs? “There is always a trade-off between increasing access to health care, and funding that access. It has to do with the ‘Iron Triangle,’” says Burns, referring to a phrase that describes the three main cornerstones of health care: access, cost and quality. The difficulty comes when regulators try to improve all three, or even two, at once. “If you increase access, you increase cost. So how do you balance the two,” especially when the expectations of newly insured consumers are rising so quickly?

More Money, More Prestige

The problem of access to quality care is especially acute in rural areas of China. “Physicians find big disparities in terms of income, status and access to technology in the countryside versus the city,” says Burns, noting that doctors naturally tend to gravitate to the research opportunities, higher salaries and clearer career paths offered by big urban medical facilities. “Why would a doctor move from a class three urban hospital to the lower pay of a class one or two hospital in a rural area? Doctors lose prestige and money by going outside the cities.”

Indeed, with so much investment and technology targeted to urban medical centers — which then attract the best doctors and the highest-paying patients — meaningful redistribution of physicians is difficult to bring about. Burns does suggest one option: Provide incentives to medical students through a national rural health service program that encourages them to practice in rural areas for the first two or three years after graduation. The program could target new doctors who come from the countryside and might be more inclined to return there to work.

China’s aging population presents the health care system with another challenge, and one that is likely to get worse, as it will in many other countries facing a similar demographic shift. According to figures from the United Nations, almost one third of China’s population, or 438 million, will be over 60 by 2050, more than double the current number of 178 million.

“In China, the percentage of the population that is really elderly is 8% to 9%, but it is growing very quickly because of the one-child policy,” says Burns. Often referred to as “the 4-2-1 problem,” the policy has meant that one child has to support two parents and four grandparents. Meanwhile, no organized long-term care or home health care systems exist despite the increasing number of people who will need these kinds of services.

While China’s aging problem is significant, France and Japan face an even bigger problem in this area because they have more restrictive immigration policies, according to Burns. “In the U.S., what keeps our aging problem under control is the fact that we allow in immigrants who work, pay taxes and support the elderly, thereby keeping our age-dependent ratio lower than that in more restrictive countries.” While the U.S. has a positive and fairly high rate of immigration, China has a negative rate — meaning that more people leave the country than enter.

Another “ticking time bomb” in China is the middle-aged Chinese male who works long hours in often stressful conditions, says Burns. “Many suffer from hypertension and diabetes, and 30% to 50% of them smoke. All the Western diseases are showing up in China — the most popular Western restaurant now is Kentucky Fried Chicken — which means the country will have a growing problem with early onsets of chronic illnesses, comparable to the U.S.”

Professional Managers Needed

Health care reform in China is further impeded by the fact that the heads of many Chinese medical centers tend to be political appointees rather than professionally trained managers, Burns says, which results in serious performance and governance issues. Nor does the country’s medical education system offer hospital administration programs.

Add to that the existence of widespread corruption. “The government controls the prices on low-cost items to make them widely accessible and available,” says Burns. “But because that hurts the hospitals’ bottom line, the government lets the hospitals charge much higher prices on high-tech equipment and offer more expensive drugs, devices and procedures.” Patients end up paying the price. Indeed, a significant portion of health care spending in China — 50% — is still out of pocket, Burns adds. Finally, there are kickbacks at various junctures in the delivery process: Hospitals, for example, get kickbacks from drug and device companies, and hospital executives give a portion of these kickbacks to their doctors.

Burns acknowledges that the U.S. health care system is corrupt in some ways as well, “but not nearly to the extent that it is in China. There are conflicts of interest in the U.S., and there are hospital executives giving kickbacks to doctors. But those people go to jail. There is nobody going to jail in China.”

Other parallels exist to varying degrees between China and the U.S. when it comes to the health care challenge. Even as the Chinese government has expanded health care coverage, so has the Obama administration expanded coverage to an additional 30 million new people, “many of whom will be hard pressed to find a primary care physician,” says Burns.

Cost is an issue as well. If you “look at how Obamacare was pitched, administration officials said part of it will be paid for by taxing the insurance and medical device industries and reducing payments to providers,” says Burns. “Officials also said that some of the savings will come from employee wellness programs, efficiencies in delivery and so forth. Yet there is little evidence that wellness programs and restructured delivery systems save money.”

Neither country has had success providing coordinated health care — such as pairing patients who have chronic diseases with nurses and other care managers who can help these patients develop better health habits. “Most of the experiments in coordinated care have not worked in the U.S., nor have they saved money,” says Burns.

All these challenges will cause problems for the provincial and central governments in China that must foot the health care bill, Burns adds, noting that historically, China and also India — which both have much bigger populations than the U.S. — have spent very little of their gross domestic product on these services.

As for private health insurance, a number of Western insurance companies have been in China for several years to study this option. But so far, “they have developed insurance only for expats,” Burns says. “The local population does not have much of a private health care insurance industry.” Nor have the few private sector hospital chains in China proven very successful, “although the government is going to encourage them because it needs more supply to meet demand.”

Part of the problem is the lack of qualified doctors to treat the newly insured. “There is an insufficient supply of allopathic-trained physicians — those trained in the Western model as opposed to the indigenous traditional medicine model,” says Burns. Both China and India each have their traditional providers, “although there is no evidence they provide the same kind of care as allopathic doctors.” Meanwhile, he adds, there is “a huge push to increase academic research and to institute higher and more uniform standards of training.”

The course co-taught by Burns and Liu took shape after Burns had offered a similar course on health care in India and realized it could be duplicated in China. After further research and some negotiation, the two presented “China’s Healthcare System and Reform” for the first time in May 2012 and then again last March.

In addition, Burns has edited a book coming out this summer based on the course in India and titled, India’s Healthcare Industry: Innovation in Delivery, Financing and Manufacturing. Several of the chapters were written by course presenters, teaching assistants and enrolled students. Burns says he plans to edit a similar book based on the course in Beijing.

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