33231 Rural Health in China: Briefing Notes Series Taking Stock of China's Rural Health Challenges Taking Stock: An Essential First Step The primary purpose of the workshop was to take stock of current knowledge about the Chinese For many decades Chinese health achievements health sector. The workshop was organized around were the envy of the world. More recently, five themes: (a) government health spending and however, national and international media have resource allocation; (b) health service delivery; called attention to shortcomings in the health (c) public health; (d) rural insurance and financing; system in China: poor infrastructure, rising health and (e) urban insurance and financing.2 care costs, widespread lack of access to essential health services on the part of the poor, etc. For each theme, a multinational team, comprising Whatever the merits of these anecdotal accounts, both Chinese scholars and international experts, there is now a broad consensus that reforms are had been asked to critically examine available needed. There is, however, less agreement about material on China's health sector, and make what set of reforms are appropriate, and about recommendations about areas that need further what the health system of the future should look research and analysis. In addition to these five like. critical reviews, the MOH also presented findings from the 1998 and 2003 National Health Surveys At this important crossroads, the Government of (NHS), focusing specifically on the five themes of China (GOC) has asked the World Bank (WB) to workshop. This note summarizes eight undertake a comprehensive sector study on presentations made during the two days of the China's rural health system. 1 This study-- workshop, as well as the discussions that followed undertaken in collaboration with the Ministry of each session.3 Health (MOH) and other government agencies, as well as selected international partners--is intended to contribute to the Government's efforts to The Challenges: An Overview formulate a coherent reform path for the future. It will do so by learning lessons from past China's current health challenges can usefully be experiences in China, as well as from policies and understood in relation to the role that the reforms implemented in other countries. government plays in the health sector. This was the perspective offered by Mr. Adam Wagstaff, As a first step in preparing the study, a workshop Lead Economist at the WB, in the first of two was arranged by the MOH and WB in Beijing on scene-setting presentations. July 1-2, 2004. Mr. Wagstaff outlined the three classic market failures that provide a rationale for government intervention in the health sector: asymmetric information in insurance markets; asymmetric information in health care markets; and externalities and public goods (see Table 1). In addition to market failures, equity concerns provide a fourth reason why many governments intervene: most societies consider access to basic health care a right or entitlement, and are unwilling to accept large disparities in health outcomes. Mr. Adam Wagstaff, Lead Economist at the World Bank, in the first of two scene-setting presentations. 2A sixth theme safety nets and social protection in the health 1 The study is referred to as the China Rural Health AAA sector will be covered separately. (Analytical and Advisory Activities). This note was prepared 3 The workshop was opened with remarks from Dr. Wang by the World Bank AAA study team following the workshop. Longde, Vice Minister of the Chinese MOH, David Dollar, For further information on the study and related activities, Country Director of the WB Beijing Office, and L. Richard contact L. Richard Meyers (lmeyers@worldbank.org). Meyers, Task Manager and Lead Operations Officer, WB. Briefing Note No.1 1 October 2004 Mr. Wagstaff proceeded to show how, in each of contrasted the current situation with results from these four areas, inadequate or inappropriate earlier surveys in 1993 and 1998. government intervention in China has resulted in some disturbing, albeit familiar, trends in the Although the surveys provided some good news-- health sector: stubbornly low rural health for example, the rate of insurance coverage insurance coverage, high and rising out-of-pocket increased in rural areas from 12.7 to 21.0 percent medical expenses, over-provision of drugs and between 1998 and 2003--the results from the 2003 health services, under-provision of core public survey are mostly sobering. Medical expenditures health services, and unequal access to health care. have continued to increase (average annual growth rates between 1998-2003 reached nearly 14 The Government of China is firmly committed to percent); utilization of health services (outpatient addressing these problems in the medium and long visits and hospitalization) has declined in both terms. In doing so, it is clear that there are limits urban and rural areas; financial constraint is the to what can be achieved through the market. Thus, most frequently mentioned reason for not using this first presentation put two central questions on outpatient service; and lack of money is also a key the table for the rest of the workshop: what is the factor in constraining the utilization of inpatient appropriate role of the government in the health services (Figure 1). sector?, and how can it perform this role more effectively? The presentation also included evidence from the MOH database on health institutions, which The second presentation by Prof. Rao Keqin, confirmed that low levels of productivity continue Director, Center for Health Statistics and to be a problem in China: the number of Information, MOH, brought home more fully the outpatients per year declined from 504 per health nature and scope of challenges in the sector. Mr. professional in 1997 to 461 in 2002. Rao presented findings from the 2003 NHS, and Table 1: Rationales for government intervention and how they play out in China The issue How it plays out in China Uncertainty, insurance & Voluntary insurance suffers from Compulsory social insurance for some asymmetric information in selection problems, threatening workers in urban areas. Rural insurance insurance markets sustainability--compulsion often left to local communities; low coverage considered necessary. since early 1980s; high exposure to risk of out-of-pocket expenses. Asymmetric information in Providers may exploit informational Increased reliance on FFS plus health care markets advantage to generate demand, piecemeal price regulation creates especially if paid by fee-for-service negative incentives: unnecessary care; (FFS). Regulation needed--of price & over-billing; increases in price per quality. contact. Also quality concerns. Externalities & public goods Free market results in too little Limited subsidies for public health, with immunization, etc. Reduce price paid public health institutions (PHIs) by consumer, but not fee received by encouraged to generate fee income. provider. Also need surveillance, Neglect of public health in pursuit of monitoring, etc. other revenue-generating activities? Equity Poverty deters use or drives households Programs aimed at poor very limited. into poverty. Subsidies necessary for Insurance coverage low among poor. out-of-pocket payments & insurance Out-of-pocket payments a cause of costs. poverty. Briefing Note No.1 2 October 2004 Figure 1: Many who need care are not hospitalized because it is too expensive (%) Urban Rural 10.0 5.1 15.1 30.7 4.4 3.2 56.1 75.4 Reason for non-hospitalization Not necessary No time No money Other Source: 2003 National Health Survey Ms. Hou Yan, Deputy Director General, First, government expenditures on health are Department of Social Development, National dwarfed by rapidly growing private expenditures, Development and Reform Commission (NDRC), which now comprise nearly 60 percent of total and discussant of Mr. Rao's presentation, health expenditures. This trend is worrying from welcomed the hard evidence the NHS provides. both an equity and efficiency perspective. She noted that the findings are consistent with Second, a high level of decentralization of health what she sees as part of her daily work. She also expenditures, combined with limited equalizing pointed to some important questions raised by the transfers, result in a highly inequitable allocation survey. Why do we see these negative trends of public resources. Indeed, contrary to the despite all the efforts that are made to strengthen situation in some countries, public spending in the health system? Do we have any evidence of China is, at least in some areas, inversely related successful experiences? Are the NHS data to needs (Table 2). adequate to tell us about the impact of new policy initiatives? It is possible that the government efforts that Ms. Hou referred to have yet to bear Table 2: Health spending is lower where needs fruit, and that 2003 survey results are a reflection are higher in China of past rather than current policies. Her call for more and better evidence on the impact of Under-75 Public spending policies was a theme that was to recur throughout mortality rate per capita (% of national) (% of national) the workshop. Manchester 135.4 133.1 West Surrey 79.5 81.7 Public Expenditure for Health: ENGLAND 100.0 100.0 Value for Money? Gansu 100.6 87.2 In the first of the five thematic presentations, Fujian 86.9 111.0 Christine Wong, Professor at Washington State CHINA 100.0 100.0 University, presented her team's findings on public expenditure and resource allocation in the health sector.4 Government expenditure on health Third, the way in which the central and local as a share of GDP is low in China relative to governments currently spend money on health is many other countries. While this points to a not efficient. This can be seen in inadequate possible case for increasing spending over the financing of core public health functions, which, medium and long term, there are other features of in combination with financial incentives for health financing in China that are in even more providers to raise revenues through chargeable urgent need of attention. services, is resulting in a lack of attention to public health functions. But it can also be seen in 4Other team members included Zhao Yuxing of the China the approach to provider payment. At the National Health Economics Institute and Peter Smith of moment, providers are subsidized through a mix York University. Briefing Note No.1 3 October 2004 of demand and supply-side subsidies. Although Service Delivery: Incentives Matter new insurance initiatives are shifting some of public spending to the demand side to make provider payment contingent on patient choices, In the second critical review5, Karen Eggleston, norm and negotiation-based subsidies to Professor at Tufts University, presented her providers persist. team's review of the literature on service delivery in China. The team noted the GOC faces a unique opportunity to reform the level and modalities of The premise of the presentation was that public expenditure on health: there has been a incentives matter, and that many of the service shift in policy priorities towards balanced delivery problems observed in China today--low development and the rural sector; SARS and quality and patient satisfaction, high costs and other factors have resulted in a growing low productivity, and inequitable access to care-- awareness and acceptance of the need for health can be understood with reference to the incentives sector reform; recent increases in government that providers face. These incentives are shaped revenues as a share of GDP have created fiscal by key health system characteristics, including space to increase spending; and ongoing Public provider payment methods, organizational Service Unit (PSU) reforms create opportunities features of providers, ownership, and regulation to improve the efficiency of public spending. (Figure 2). In summary, increased public spending on health is likely to be required in the medium to long Figure 2: Analytical framework terms, but measures must also be taken to ensure that money is spent more effectively. System Incentives Payment Ms. Sun Zhijun, Deputy Director General, Organization Department of Social Protection, Ministry of Ownership Finance (MOF), concurred with the team's Regulation conclusions. She agreed that China needs to increase public spending on health, that Provider Performance geographical disparities must be reduced, and that Quality more strategic provider payment is essential for Efficiency improving efficiency. Equity Cost Containment According to Ms. Sun, there is a strong government commitment for this to happen, and Impact reforms are already under way. Nonetheless, Access successful reforms depend on clarity about the Cost roles and responsibilities of different levels of Patient Satisfaction Appropriateness of Care government in the health sector, and this is an area that remains unclear. In the general discussion that followed, most The team presented striking evidence of health contributors voiced agreement with both the system incentives at work, in particular in relation presentation and Ms. Sun's comments, but some to provider payment. Innovative reforms to also questioned the proposed shift towards replace fee-for-service with prospective payment, demand-side subsidies. They pointed out that the combined with careful data collection, has abandonment of direct supply-side financing generated valuable evidence that payment would have far-reaching implications--e.g. reforms can contribute to cost control. But Prof. relating to job security for staff--that would need Eggleston also pointed out the Chinese evidence- to be thought through, and that effective demand- base is limited in many areas, such as regulation side subsidies depended on strong government of drug and service prices, hospital organization capacity in areas such active purchasing, contract and management, provider competition, design and management, etc., where current privatization and other ownership reforms. expertise is scarce. 5Other team members included Meng Qingyue of Shandong Medical University and Li Ling of Peking University. Briefing Note No.1 4 October 2004 Despite a scarcity of evidence, the team argued about how the resultant financing gaps can be that theory and international evidence suggest filled. that more active purchasing by both government and health insurance agencies can improve provider performance, and that a "level playing Public Health: field" for the public and private sectors will not Old and New Challenges only promote value-for-money in the purchasing of health care, but also avoid excessive The third critical review was concerned with segmentation in the health care market. public health. 6 Professor Hu Shanlian, Fudan University, began the team's presentation by Similarly, Prof. Eggleston made a case for noting the considerable achievements in public improved regulation, including in the areas of health in China over the last five decades. pharmaceuticals and service pricing. Most importantly, however, the review pointed out that Core public health functions are related to market there are no "silver bullets" in the area of service failures, in particular externalities and public delivery reform, and that the impact of reform goods, which result in inadequate incentives for depends on context and implementation. It is individuals to invest in certain activities. A therefore important that reforms be accompanied classic example concerns communicable diseases. by careful impact evaluation and efforts to The prevention and control of diseases such as understand why a particular reform initiative can smallpox, polio, schistosomiasis, and TB have be successful in some contexts and not in others. broad benefits. Yet, individuals tend primarily to take into account private costs and benefits when The discussant, Mr. Fei Zhaohui, Deputy Director, making decisions. To overcome this problem, the Division II, International Department, MOF, Chinese government has in the past intervened appreciated the structured approach to looking at effectively to make sure that adequate resources service delivery and echoed the calls for reforms. are provided to address these market failures. He expressed particular concern about persistent growth in drug expenditures. "Radical reforms to Notwithstanding past successes, Prof. Hu cut the links between drug selling and hospital suggested that many challenges remain: new incomes are necessary," said Mr. Fei. Even infectious diseases are emerging (e.g. SARS, though the problems arise from institutional and HIV/AIDS) and some old problems are re- organizational factors, rather than the motivation emerging with new force (e.g. STIs, and integrity of health professionals, health schistosomiasis); non-communicable diseases and professionals are increasingly looked upon as injuries account for a growing proportion of the "wolves in white" rather than "angels in white". burden of disease and require targeted public This is undermining the respect and morale of the action; and MCH and TB comprise an unfinished profession, he suggested. agenda. Currently, the health system is not addressing these challenges as effectively as it Mr. Fei also noted that the current system is could. The team questioned whether adequate associated with strong vested interests, so any resources are channeled to core public health reform is likely to be controversial. Other functions. contributors from the floor agreed that reforms are necessary, but raised questions about what More importantly, perhaps, the past has seen an expenditure increases should be considered inappropriate reliance on user fees for some "reasonable". services, and provider subsidies have not been used strategically to promote efficiency and to A local health official from Shandong province ensure that public health agencies and providers noted the dual roles of MOH being both owner focus on the right set of activities. These and regulator of hospitals is inappropriate, and arrangements have both discouraged use of public called for international evidence on hospital health services (e.g. immunizations), and ownership reforms. He also mentioned that distorted the incentives of providers. reforms to separate drug prescription and sale is ongoing in Shandong. However, given the importance of drug revenues for hospitals, these reform initiatives have raised difficult questions 6 Other team members included Wang Hong of Yale University and Mariam Claeson of the World Bank. Briefing Note No.1 5 October 2004 The team also pointed at other weaknesses in the county-level risk pooling, a focus on catastrophic public health system: unclear overlapping costs, and financing through contributions both mandates of CDCs at different levels, and from individuals and different levels of between the CDC and other agencies; lack of government. clear guidelines and enforcement of public health regulation; and weaknesses in surveillance systems, relating both to data reliability, Figure 3: Health insurance coverage in rural transparency, and information disclosure. China is low The Government has made a commitment to GIS+LIS+BM CMS 1.8% 9.5% increase public support to public health. The overall conclusion of the critical review, however, Private Ins. 8.3% was to emphasize the need to look beyond the Uninsured Other Ins. level of financial support to ensure that public 79.0% 1.3% health functions are performed effectively and efficiently. Mr. Liu Yunguo, Deputy Director General, Foreign Loan Office, MOH and the discussant for Source: 2003 NHS the session, agreed with the team's inter-sectoral approach, and with the view that too much money is being spent on treatment of disease rather than While recognizing the innovative nature of the prevention and control. Mr. Liu was pleased to scheme, the team pointed out that voluntary see that the government is now putting new schemes are invariably unsustainable due to money into the public health area. These adverse selection ("better" risks opt out). Indeed, initiatives highlight the need to establish clear in the international context, the historical objectives and targets on what would be achieved evolution has been to schemes that are mandatory with this new money so that the impact on health and fully integrated with urban schemes. system performance can be properly assessed. The team also pointed at other problematic Other comments from the floor also concurred features of the CMS scheme. The focus on with the presentation, and reiterated the call for catastrophic costs may reduce the perceived reform of the arrangements for financing public benefits of participation. Even for catastrophic health services. costs, co-payments remain high, limiting the usefulness of the scheme for poor households who in many cases remain unable to pay for Health Insurance: health care. Which Way Forward? Although it is widely acknowledged that The main part of the workshop ended with two administrative capacity and accountability are presentations on health insurance in China. important constraints in implementing the new CMS, Mr. Nolan suggested that current policy In the first presentation, Brian Nolan, researcher debates have not fully explored all options for from the Economic and Social Research Institute addressing these problems. In particular, he in Ireland, discussed his team's review of health emphasized the need for facilitating learning and insurance arrangements in rural areas.7 Ongoing sharing of experiences across counties, and for reforms--in particular the introduction of the new, exploring administrative and other links between government-supported Cooperative Medical rural and urban insurance schemes. Scheme (CMS)--take place against a background of very low coverage since the old CMS schemes Mr. Han Jun, Director General, Department for collapsed in the early 1980s (Figure 3). The new Rural Development, Development Research scheme is premised on voluntary participation, Center (DRC), the State Council, commended the review for raising important issues, and pointed out that many of the problems documented by the 7Other team members included Mao Zhengzhong of China West Medical University and Liu Yuanli of Harvard review are consistent with findings from WHO University. and DFID case studies. He also noted that Briefing Note No.1 6 October 2004 government subsidies to the new CMS are quite But improved sharing of experience can also low, in particular relative to urban health usefully pave the way for more integration spending, and not very well targeted to the between urban and rural schemes in the longer poorest counties and individuals. term. Other contributors from the floor also commented Mr. Wang Hufeng, Director, Comprehensive on the public expenditure implications of the new Division, Department of Medical Insurance, scheme, wondering whether the new Ministry of Labor and Social Security (MOLSS), commitments by government are really affordable. was the discussant for the critical review on urban health insurance. Mr. Wang noted that many local In the second health insurance presentation, governments were undertaking research on the Gordon Liu, Professor at University of North new schemes, but concurred with the team's call Carolina at Chapel Hill, went on to present the for more careful data collection and detailed critical review on health insurance in urban areas8, analysis. He also agreed that urban and rural where far-reaching reforms have also been schemes needed to be studied together--both introduced during the last decade. Prof. Liu because lessons may be learnt across schemes, discussed the different models that have been and because decisions on policy reforms in one used for the new Basic Medical Insurance (BMI) area will undoubtedly have an impact on the other. scheme. While there has been a lot of variation in both Summing Up design and implementation across different cities, a number of fundamental issues arise in all Over two days, the workshop covered a broad schemes: How can coverage of the schemes be range of issues. There were many areas of expanded? What can be done to promote cost consensus, but some points also led to heated control and financial sustainability? What are the debates and disagreements. equity implications of the new schemes--both in terms of utilization and financing? In an overview of international experience, the team noted that most countries achieve universal coverage through a combination of tax and social insurance financing. This has often been a gradual process, whereby dependents, self- employed, and rural residents are folded into the overall scheme. In general, international experience clearly points to the merit of systems that include the poor in the general scheme rather than setting up parallel arrangements. Closing remarks by Vice Minister Wang Longde, MOH Looking ahead, the new BMI provides a good base for building a coherent and comprehensive Prior to the closing remarks of Vice Minister insurance scheme in China. Yet, as reform Wang Longde, Mr. Wagstaff summarized the progresses, solid evidence on the impact of the conclusions from the workshop by pointing to new scheme will be needed. Indeed, there are both areas of agreement and issues that remain currently many gaps in knowledge, concerning under discussion (Table 3). the merits of the medical savings accounts Mr. Wagstaff also emphasized the need to look approach to health insurance, provider payment beyond the individual themes, and to explore the methods, the appropriate role of private insurance, connections between different policy agendas: the etc. In this respect, lessons from urban areas can synergies between rural and urban health be of direct relevance for the design and insurance programs; the connections between implementation of rural insurance schemes. different levels of government; the links between public expenditure issues and service delivery; the connections between health insurance and 8 Other team members included Wen Chen of Fudan safety nets; and the connections between public University and Brian Nolan of Economic and Social Research Institute, Ireland. Briefing Note No.1 7 October 2004 health infrastructure and the delivery of personal work and detailed reform proposals--both as part health services. of the AAA process and more broadly. During the workshop many contributors called But while good evidence is essential for for more and better evidence on the impact of designing good policies, Mr. Wagstaff remarked health sector policies. that successful and sustainable reform also needs to take into account the interests of different The conclusions from the workshop provide a stakeholders, as well as the inherent constraints in solid foundation for developing further analytical transitioning from one set of institutional arrangements to another. Table 3: Some conclusions Public Expenditure Service Delivery Agreement Agreement · Higher government spending is warranted; already · Problems of cost escalation & inefficiency increasing; rural areas being favored acknowledged · Inefficiency: subsidies not linked to performance · Also problems with unnecessary care and over- prescription of drugs Under discussion · Reforms necessary to increase spending efficiency? Under discussion · Role of supply-side subsidies? Link those left to · What is the appropriate role for government and performance? private sector in service delivery? · Need for further equalizing transfers? · What are requisite institutional underpinnings for · Projections and prioritization of government good performance? expenditure? · Specific issue: how to reduce perverse incentives for · What increases in spending are reasonable and providers? affordable? Health Insurance Public Health Agreement Agreement · Health care increasingly unaffordable and access · Government has a fundamental role in public health inequitable and there is a commitment to increase public spending · Low coverage of health insurance still a big in this area challenge · Working "upstream" important to reducing health · Remaining design issues in health insurance costs Under discussion Under discussion · Links between urban and rural scheme: Cross- · What are key public health functions for government? learning on management and provider payment? What is appropriate level of financing? With limited Unified management? Eventual integration? resources, how should government (central and local) · What is best way of linking CMS and MA? prioritize between different public health activities · What is appropriate coverage mix of low-cost and · Is key problem inadequate financing for public health catastrophic illness? or low efficiency in spending? · Appropriate level of financing to CMS?· How should public health services and activities be Urban/rural equity? Targeting of public subsidies? paid for to promote efficiency in delivery? Affordability by different levels of government? · How will we know whether recent increases in public · How can insurance promote better performance by health spending have achieved impact? providers? Briefing Note No.1 8 October 2004