On March 17, 2009, the Central Committee of the Community Party of China and the State Council jointly issued the Opinion on Deepening the Healthcare System Reform, then subsequently released the Implementing Guidelines for the Healthcare System Reform of 2009-2011 (together the "Healthcare Reform Plan") on March 18, 2009. The Healthcare Reform Plan, which is the initial step in a 10-year plan to repair an ailing healthcare system, will be implemented in the next three years. It calls for China to spend RMB 850 billion (USD 124 billion) in order to provide accessible and affordable healthcare to the country's 1.3 billion citizens, by establishing or reshaping the public wellness, medical insurance, drug procurement and hospital systems.
Public wellness system
The reform calls for establishing a public wellness system in order to reduce the high cost of medical services through health promotion and disease prevention. Once implemented, basic wellness services such as immunizations, prevention of chronic and infectious diseases, regular physical checkups and pre-natal as well as post-natal checkups would be free for all citizens. More specific guidance on the scope and standards for the services are expected to be promulgated.
The public wellness system will be funded entirely by central and provincial governments, with the central government channeling additional funding to remote areas where health facilities are scarce. Over the next three years, the government plans to renovate and build more than 11,000 wellness centers and 3,700 community clinics to provide public wellness services.
Public medical insurance system
The reform will retain the current three basic medical insurance ("BMI") schemes that cover urban employees, other urban residents, and rural residents. However, the plan will expand the current BMI schemes to cover a larger slice of the population, by strengthening enforcement of laws requiring employer enrollment of workers, and by increasing subsidies for individual contribution to the non-employment based schemes.
The reform will also raise the cap for annual aggregated claims under the BMI schemes by 33%. The cap is based on the average annual salary in a region, and could differ from one region to another even for the same type of BMI.
The reform will cover more claims at higher percentages by lowering the co-payments, and increasing the scope of treatments covered.
Public drug procurement system
The Healthcare Reform Plan also calls for an overhaul of the public drug procurement system in order to regulate drug supply and price, improve the safety of drugs, and encourage new drug development. The issue of high drug prices is a major concern for the Chinese government from a healthcare accessibility perspective. The reform attempts to contain the escalation of drug prices by setting up a national list of basic drugs which would be covered by the various BMI schemes, as well as centralized bidding and procurement systems.
Hospital system and other public healthcare service providers
In order to make healthcare services more convenient and affordable, the reform aims to increase the number of basic healthcare facilities as well as trained professionals who will provide healthcare at these grass-root level facilities. In order to make hospital treatment more affordable as well, the government also plans to reform the financing of public hospitals by reducing or removing the income from drug sales and making public hospitals rely more on government funding and fees for medical services. The Healthcare Reform Plan also makes it clear that some public non-profit hospitals should be converted into private for-profit hospitals, and has encouraged private participation in this respect.
Impact on healthcare industry
The healthcare reform's goal of trying to make an equitable and affordable healthcare framework available to all Chinese citizens will undoubtedly bring challenges and opportunities to different players in the healthcare industry.
Drug distributors will be the most strongly impacted. In an attempt to cut down on the practice of inflating drug prices by hospitals and drug distributors, the government stated in the reform plan that it would appoint drug distributors for hospitals, as well as issue retail price guidelines for drugs. As a result, drug distributors will see their profits diminish, while the drug distribution sub-sector as a whole will likely face consolidation.
Meanwhile, the pending release of a national list of basic drugs, pricing guidelines, as well as bidding procedures should benefit generic drug makers. They appear the most likely to win the bids to supply drugs and vaccines at lower rates to the local governments in charge of distributing the drugs.
Medical device manufacturers and suppliers will also be beneficiaries, as the increase in basic healthcare facilities will lead to a huge demand for basic medical equipment such as X-ray machines, biochemistry analyzers, and electrocardiographs. The information technology sector is also likely to receive a boost. The healthcare reform calls for establishing IT networks for electronic records of patients and a medical record system to be accessed by hospitals. This system overhaul is expected to generate at least USD 1.5 billion in new spending for software and related services, as hospitals attempt to integrate and upgrade their management and clinical information systems.
The reform's focus on building additional hospitals and providing all Chinese citizens with access to affordable medical services should translate to market opportunities for foreign and domestic health care providers, as policymakers have indicated that many hospitals will need to be privatized so as to improve the quality of healthcare. Along with the need for private medical facilities, the number of wealthy and middle-class Chinese demanding premium healthcare continues to grow, so that opportunities to invest in high quality healthcare facilities will continue to develop.
Finally, as the Healthcare Reform Plan is aimed at providing access to only the most rudimentary medical care for the entire population, there will be significant opportunities for health insurance providers, as consumers will be encouraged to buy private insurance for supplemental coverage.
This article is one of several that appear in
Asia Pacific Pharmaceutical Newsletter, May 2009.