Price control in Chinese hospitals

FT on China's price control (Aug22, also Chinese translation if you don't have subscription): other than the widely publicized price control on gasoline, it is probably about time to lift the hands on hospital diagnosis, and that on utilities

"When Gao Qiang, China's health minister, responded to scathing criticism of his country's health system this month he turned his ire on local hospitals, saying they had put profits ahead patients. Mr Gao raged that patients were being billed for drugs to cover the cost of everything from wages to building maintenance, leaving an increasing number of citizens unable to afford to see a doctor.

From the hospital's perspective, however, the picture is very different. A squeeze on government funding and strict price controls on most services mean they are forced to rely on drug sales for up to 70 per cent of their budgets.

"The problem with hospitals centres on the draconian capping of doctors' fees and in-patient beds," said a foreign pharmaceuticals executive. "The result is that they run these services at a loss and have to make up the money elsewhere." The cost of a bed in China's hospitals, even in large cities, can be as little as Dollars 1 a day. Prices are kept low in the name of maintaining what the government calls "social stability".

China has extensively deregulated price controls since it abandoned the command economy in 1979, with the prices of nearly all consumer goods now determined by the market. But the prices of a host of other services - including water, oil, power and cable TV fees - remain under the command of the National Development Reform Commission, the chief economic planning body.The NDRC even controls parking fees for cars and bicycles, the latter because it is a staple cost for many workers.The controls are designed as a political tool, to ensure that ordinary citizens are not driven to protest against spikes in prices for daily necessities, and also as an economic measure to cool inflation."

What Gao tried to avoid was the fact that diagnostic charges are under strict price control, which has forced hospital to find profit from drug prescription and charging for using imported diagnostic equipments. I have visited many Chinese hospitals in the past 10 years, while consulting for pharmaceutical clients, when you enter any hospital in China, there is a price board (like the timetable in a train station, as in the picture, via Bingfeng), specifying how much each consultation cost, how much it costs for using gastroscope (imported gastroscope can charge a higher price tham domestic equipments), etc. Usually a typical visit you will have to pay RMB 5-20 for diagnosis and 50-100 for drugs. Physicians will ask about your insurance before deciding what drug to sell you. In other words, what you get might not be what you need. Furthermore, some patients are subsidizing others, while pharmaceutical companies act as the "tax agent". Plenty of opportunities arise also for corruption among physicians and wardens, via drug rebate. I am also pretty sure the new building in this picture is funded, in part, by pharmaco "donation"

This is hospital's answer to price control, although not as visible as that of the oil's companies.

Until the price control on diagnosis charges is lifted, and competition opened, it is unlikely to see this problem solved. (As to Gao Qiang, I despise anyone among the leadership of MoPH before Apr 20, 2003. Gao got "promoted" only because no one was clean and he was seen as an outsider in the clan, though he was not. I still remember Gao defended Zhang even 2 weeks after Zhang was fired. They were on the same boat. Gao was as guilty as Zhang Wenkang. I do not expect bureaucrats like Gao would be willing to solve the problem.)

Fair enough, price control should only be lifted gradually. Following the wisdom of Dengs' gradualism, I do not believe it should be changed over-night. However, there needs to be a plan and a schedule for reform, where clear milestones are set. An example is, to first use foreign insurers' reimbursement limit as an index, slowly enlarge the price cap to 10%, 20%, and finally maybe 50% or 100% of that index (or benchmarking foreign insurers, e.g. Singapore's, then adjust to RMB using PPP). The problem for MoPH under the leadership of Zhang and Gao is, they have all talked the talk without walking the walk for the past 10 years.