China’s Healthcare Reform: One Year On

March 22, 2010 – 1:11 am

In its latest report on China, market research company InMedica reminds us that in April 2009, the Chinese government announced the guidelines for healthcare reform, which is aimed at providing universal healthcare services to the country’s 1.3 billion population. China is to invest 850 billion RMB ($124 billion) on healthcare between 2009 to 2011, further stimulating demand for medical devices, in what is already one of the world’s fastest growing markets for medical technology. One year later, a number of new regulations and guidelines are in place that are beginning to reshape the structure of the Chinese healthcare industry. These are discussed in the company’s new guide to the Chinese healthcare industry for medical device manufacturers.

Although the Chinese government has not released details of how the investment will be distributed, InMedica believes that approximately 50% will be used to expand the coverage of medical insurance, 30% will be used for the construction of rural healthcare systems, and the remaining 20% will be used to fund public hospitals.

It is the first time that basic healthcare will be provided as a public service for all people in China. In addition, the Chinese government aims to solve the problems that have caused strong complaints from the public about high medical costs. The overall objective is to provide basic medical services to the population by 2011, with the long-term goal of rolling out universal coverage by 2020. The healthcare reform relies on joint funding by central and local governments. The central government will contribute approximately 40% of the total 850 billion RMB investment.

Pubic, non-profit hospitals will remain the major provider of healthcare services, but more priority will be given to the development of grassroots-level hospitals and clinics. The central government will fund the construction of 2000 county-level hospitals, 29000 township hospitals and upgrade 5000 township hospitals. Furthermore, approximately 3700 community health centres and 1000 community health stations will be established or upgraded by 2011.

Since the reform was announced in April 2009, a series of regulations and guidelines have been released, says InMedica. In June 2009, the guideline on the construction of county hospitals, health centres, community health service centres and village clinics was released. In October 2009, the guideline on the price of essential drugs was released. In January 2010, a guideline on training and development of village physicians was released. Most recently, in February 2010, the guideline on the reform of public hospitals in 16 pilot cities was released.

Public hospital reform is an important issue. Currently, public hospital revenues are derived from drug sales, medical services and government funds. In 2007, the total revenues of public hospitals in China was 375.4 billion RMB, including 200 billion RMB from the sales of drugs. In the same year, funds from the government were 28.5 billion RMB, which was only 7.6% of total revenues. Currently, public hospitals are permitted to make a 15% profit from drug sales. Although this market-oriented approach has greatly improved medical services in recent years, it has also resulted in soaring medical costs for the Chinese public.

According to the guideline, the 15% profit from drug sales will no longer be permitted. However, it is thought that government funding alone cannot fully meet the financial gap, especially in the Western regions. According to Owen Tang, market analyst at InMedica, “With limited government funding available, it is unknown if the public hospitals can maintain standards of care without the revenues from drug sales. This is why the government has chosen 16 cities to pilot the reform. The cities, including six in central China, six in the east and four in the west, were asked to start the reform from this year. The government will need time to evaluate the success of these early trials, and possibly conduct more trials with refined guidelines, before the healthcare reform can be rolled-out on a national level. Despite the impressive headline investment figures, China’s healthcare reform is likely to be a lengthy process.”

InMedica predicts that the main winners in the medical devices market will be suppliers of basic equipment such as general purpose ultrasound machines, analogue X-ray equipment and patient monitors, which are all funded by the healthcare reform. Chinese companies such as Mindray, Beijing Wandong and Yuyue Medical will benefit the most, because local suppliers are preferred by the government to meet the “Buy China” initiative.

These topics and more are discussed in a new report from InMedica called “Analysis of the Chinese Healthcare Industry: A Guide for Medical Device Manufacturers.”

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  1. 3 Responses to “China’s Healthcare Reform: One Year On”

  2. It’s very interesting what they have been doing, and this year brings to a close the 3 year span for the initial 1.4 billion spent. I’ve been following along closely.

    By Nikki on Mar 10, 2011

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