"Socialized" Medicine In China And The US. What's That You Say, Mrs. Robinson?
Mr. McGuire: I want to say one word to you. Just one word.From the movie, The Graduate.Benjamin: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes, I am.
Mr. McGuire: Plastics.
"Where have you gone, Joe DiMaggio?From the song, Mrs. Robinson, by Simon & Garfunkel
Our nation turns its lonely eyes to you.
What's that you say, Mrs. Robinson?
Joltin' Joe has left and gone away."
Earlier this year, in a post entitled, China Has Health Care Too I talked about health care as one of the great opportunities for foreign businesses in China:
A few months ago I was on a China panel at Northwestern's Kellogg Business School where, among other things, we were asked to list China's best opportunities. I stressed that because I am not a China business expert, I would have to answer the question based entirely on what I was seeing of my firm's clients and, based on that, I listed health care, technology, and food.If I had to pick just one of the three, I would pick health care and technology (I know I said one, but hey, it's MY blog). I would pick these two now because even within just the last few months, China's government has made clear, both in its policy statements and in its spending, that it is going to be increasingly emphasizing these two during the next few years.
Health care as an opportunity in China is huge. Plastics huge. Bigger even than plastics huge. The other day, I was talking with a client with a not so small medical company (I am being intentionally vague here) that he is actually thinking of shutting down here in the U.S. "because the opportunities and profits in China are just so much greater."
So with China healthcare being such a big thing, I was absolutely thrilled when Micah Schwalb agreed to do a guest post on it. Micah is just recently back in the U.S. after completing his LL.M in Chinese law from Peking University to go with his US based JD degree. Micah has his own blog called boulder2beijing.
So without further ado, I give you Micah's post on China healthcare:
Healthcare produced a lot of news items, lobbying dollars, and shouting this year. As of this writing, Google News is tracking 17,027 articles just about Obama's speech on reform efforts. But while the debate rages on in the U.S., China announced a healthcare plan back in April that, in theory, will provide "universal access to basic public health services." Signaling its importance, the plan has the imprimatur of both the Central Committee of the Communist Party of China and of the State Council, China's highest executive body.
The current state of affairs informs the plan. In China, the majority of in-patient facilities are state-owned and state-run, while many outpatient facilities like village clinics are privately owned. But many "doctors" and healthcare workers in rural clinics did not attend college, let alone medical school. (See page 5 of this PDF for further details) The rural poor receive about one fourth the healthcare subsidies urban residents enjoy. In terms of individual healthcare expenditures, 52% are out of pocket, 8% are private, and 40% are public. Much like American trauma centers, healthcare institutions in China receive grades, but public insurance plans will not pay for services in certain grades of hospitals, and the trust placed in "grade three" hospitals leads to severe overutilization of those top-notch facilities. (Check out this paper by IBM for more details)
China's effort (sub. req'd) seeks to alter domestic by covering familiar ground: standaridized digital records and universal coverage; improved primary and preventative care through expanded community clinics and increased numbers of primary care physicians; reduced drug costs achieved through price controls and centralized purchasing; and reformed payment mechanisms for hospitals and doctors. Central planners will determine "appropriate" levels of funding, staffing, and equipment for state-owned facilities. "Doctors" and "nurses" working in community clinics will receive additional training. The Chinese government will make large investments in state-run, lower-graded institutions while privatizing more state-owned hospitals. To finance it all, the PRC will use a "multi-channel fundraising mechanism with clear responsibilities and reasonable sharing among the state, entities, families and individuals to achieve social mutual assistance." After years of economic reform, government will assume a stronger role in the Chinese healthcare system.
"Payer" details also bear mentioning here. The government will subsidize the cost of basic drugs on an "approved list" that will integrate with a national formulary. Small modifications to the existing public insurance system will yield four types of public insurance: one plan for employed urban residents, another plan for unemployed urban residents and migrant rural workers in urban areas, a pooling option for rural residents called "new-type cooperative medical care" that's been around since 2003, and a fourth plan described as the "urban-rural medical assistance system."
As in the current system, China's "new" plan still distinguishes between "basic" and "special" medical services, stating that: The cost of basic medical services shall be reasonably shared by the government, society and individuals. The cost of medical services for special needs shall be paid by individuals directly or paid by commercial health insurance.
So the government will subsidize Tamiflu for someone with the sniffles, but advanced Parkinsonian tremor will result in a bill for the deep-brain stimulator.
But China's plan is no cure-all. The tobacco monopoly is not mentioned. Subsidies for rural people will only amount to about $20 per capita per year. The following statement taken from the annual report of a NASDAQ-traded manager of private Chinese hospitals explains the regulatory risks:
[F]uture legislative reforms may be highly diverse, including stringent infection control policies, improved rural healthcare facilities, introduction of health insurance policies, regulation of reimbursement rates for healthcare services, increased regulation of the distribution of pharmaceuticals and numerous other policy matters.
So there is a light at the end of the tunnel, but it may be a bear with a flashlight.
On the other hand, changes to Chinese healthcare present opportunities for foreign businesses. China's growing middle class will continue to pay a premium (pun intended) for private insurance and private care, as well as foreign medical brands. Foreign investors will pick up some bargains when local governments sell off more public hospitals.Hospital IT will be huge and centralized purchasing of drugs and devices will be a volume-driven boon for suppliers on the approved lists. Less obvious, perhaps, are the opportunities in micro-pharmacies and micro-clinics, cooperative hospitals, emergency medical services, distance education, telemedicine, home monitoring equipment, and hospital management.
More broadly, improved healthcare should increase total productivity and economic growth, while allowing Chinese consumers to save less and spend more on consumer goods. Better primary care should also reduce the risks associated with the transmission of infectious diseases like SARS and H1N1. And, finally, kids with better healthcare tend to spend more time in school, which leads to a better-educated population. So, if the Central Committee and the Standing Committee get it right, China's plan should be a very good thing for everyone.
UPDATE: Just saw a really good post over at China Business blog, entitled, "China Healthcare: The Land of Opportunity."
UPDATE: Another really good post on China health care and its opportunities over at the China Business Blog and Podcast, entitled, "Health Insurance in China, Really?"
http://www.chinalawblog.com/cgi-bin/mt/mt-t.cgi/3283
"Socialized" Medicine In China And The US. What's That You Say, Mrs. Robinson?:
Comments
Except for one tiny detail you omit. To get western medicines into Chinese hospitals requires huge amounts of bribery.
Posted by: Simon | September 14, 2009 9:45 PM
Hi Micah,
Great post on an interesting topic. Beijing Healthcare Forum will be having an open, informal meeting to chat about medical insurance reform and drug pricing in China tomorrow in Beijing. All are welcome.
Meeting details:
Time: 8:00PM
Date: Wednesday 16th
Place: Gingko Restaurant (2nd Floor)
Address: 199 Andingmennei Dajie
Beijing Healthcare Forum is an informal group that consists of a diverse body of Chinese and international students, local college professors (Beida, Renda, Tsinghua), and other professionals in the industry. Our goal is to better inform ourselves and others about emerging trends in health care administration, delivery, policy, and industry while expanding our network of professional contacts and resources. I have listed some key questions that we'd like the group to be focused on:
What is the optimal balance of public and private financing for insurance, healthcare service centers?
What is the role of free markets in the new reforms?
What is the relationship between intellectual property right (enforcement), investment, and innovation for health care products in the context of developing countries?
In terms of comparing healthcare systems globally, where can China learn from other systems? What lessons does China have to share with the rest of the world?
How will China’s legal, ethical and political framework impact the growth of the health care industry?
How will China tackle the healthcare needs of both the developed and developing world? How will this split the industry/delivery?
We'd love to see you there!
Best,
Beijing Heathcare Forum
Posted by: Beijing Healthcare Forum | September 15, 2009 3:13 AM
Sounds reasonable, the opportunity seems multi-faceted. Expanding on the idea of healthcare investing is to combine the China opportunity with that of the aging society of Europe, Japan, and the US. Time to figure out a portfolio that captures these ideas.
Posted by: Falen | September 15, 2009 4:45 AM
I had something about "lobbying" for inclusion in the catalogue of "basic drugs" when I first wrote this piece, but I removed it upon further reflection. I think it goes without saying that bad actors sometimes do bad things, whether in China or the USA.
For what it's worth, the State Council and the Ministry of Health continue to publish more Notices and regulations filling in the details of the larger plan. The latest, which came out on July 22nd, actually states that "we shall improve furnaces and stoves for 870,000 households in the coal smoke fluorosis areas, and maintain kitchen stoves for 450,000 households." While cook-tops bear a lot of responsibility for respiratory diseases in the developing world, I don't think it's too much of a stretch to say that inclusion of this wording in a healthcare regulation seems out of place.
Posted by: Micah Schwalb | September 15, 2009 6:36 AM
Micah,
Thank you for writing this article, and for linking up. I have a few additions I'd like to share.
On the healthcare reforms;
You correctly point out that the Chinese healthcare plan is no cure, but I do think that the efforts of China's health reformers are more "true day light" and less "bear holding a flashlight in the tunnel".
Although 20 dollars may seem like a paltry sum, this is nearly 20 times what many rural Chinese residents used to receive each year, per family. It is also enough to pay for several doctors visits per year: payments for a check up cost as low as 10 yuan per person in many hospitals.
You are correct about the sometimes lesser trained doctors in rural areas but it bears pointing out that a lack of top-notch rural physicians is a problem everywhere in the world and China's problems are by no means unique. If this plan does, by some miracle, manage to even partially solve that problem, China would emerge as a hero of public health planning.
They will not. One thing you did not mention - and I believe it really gets at the Achilles heal of the healthcare reforms - is that the question of doctors' status is never addressed. In today's China status in society is based on the amount of money one earns - doctors still receive state salaries. To compensate for their diminished societal horizons, they extort patients through an elaborate system of red envelope payments, hoarding of patients in already overcrowded departments, and over perscribing of medicine (again, not just a China problem).
But, more importantly, the doctor's view placement in the health system as the all important indicator of status within their profession. This means that good doctors, and even many bad ones, see the rural clinics not only as a career dead end, but also as a dead end for the continued social rise of themselves and the families they represent.
For more go here - http://www.asiahealthcareblog.com/2009/03/18/850-billion-yuan-will-lead-to-innovation-in-the-local-chinese-health-care-industry/
On opportunities for business;
Just one qualification - though the insurance market will eventually open, it is still too early to call private insurance a true opportunity. Depending on how quickly the Chinese Insurance Regulatory Commission wraps its brain around how to regulate private insurers, AND private healthcare institutions, private insurance in China is going to become a true opportunity in 5+ years. Until then, insurers have to comfort themselves with just planting a flag in China and waiting for signs that the market is opening.
Posted by: Damjan D. | September 15, 2009 8:43 AM
The reason getting drugs into hospitals requires huge amounts of bribery is that drugs are the only thing that doctors and hospitals are now able to raise prices on which results in a lot of under the table dysfunctional behavior. Because a lot of the services and charges are fixed, drugs are the only area in which doctors and hospitals can use to recover costs through kickbacks and bribes.
If the system is rationalized then a lot of the bribery (and overprescription of drugs) will likely go away. It's not a "bad actor" problem at all. It's a "bad incentive" problem. Any rational system is likely to pay doctors and hospital the amounts of money that they are currently getting via bribes.
Posted by: Twofish | September 15, 2009 8:50 AM
The other thing is that this is not a new initiative. The Chinese government has been spending the last several years on healthcare, and this is just another phase of a roll out that has been happening for several years. The first pilot projects for NCMS were in 2003, and the government has been gradually expanding that program, a lot of the new initiatives have involved looking at the previous round of changes, finding gaps and problems, fixing them, and then doing it over again.
In general, I'm skeptical of big ambitious programs, so if there were some totally new thing, then it probably wouldn't work, but it isn't some totally new program, but rather a continuation of things that have been happening for a while.
One big reason for the push this year was that the economic crisis caused a lot of the targets to be moved up in order to create economic stimulus.
Posted by: Twofish | September 15, 2009 8:59 AM
Damjan,
Health insurance is, right now, a great opportunity for foreign businesses and I have proof. My firm has worked/is working with two companies that provide services (one computer related, one not) to the health insurance industry. Both of these firms are going crazy with business in China right now.
Posted by: Dan | September 15, 2009 9:21 AM
You make some valid points, although I must say $20/year, though it may not seem like much, can be quite a fortune for the impoverished Chinese families.
Posted by: hotaruSTAR16 | September 15, 2009 9:39 AM
Dan,
I'm sorry, I should qualify - if you are an international private insurance firm, then you have to wait to really taste the full benefits of the economy. It is true that the health insurance market is booming, but the latest figures I saw put the total share of that market for foreign owned companies at 7%.
I will say again that the CIRC is very nervous about letting foreign players in. Where I made the mistake in my write is qualifying that FOREIGN PLAYERS have a while to wait before the market is truly opened to them.
There is a difference between being allowed to insure expats, or to offer supplementary insurance products to Chinese, and with being allowed to offer a full coverage plan to Chinese residents. The latter is yet to happen in China, as far as I know. Though, if anybody has it, I would love some new information so I don't keep expounding on half truths.
//D
Posted by: Damjan D. | September 15, 2009 2:54 PM