33233 Rural Health in China: Briefing Notes Series Health Service Delivery in China: A Review 70% of village doctors had no more than a high Backdrop to the review school education and had received an average of only 20 months of medical training.1 How do China's health care providers perform? What determines their performance? How can There is widespread evidence of unnecessary the government improve it? These were the care being provided in China, especially in the questions addressed by a critical review of the case of drugs. In 1998-99, a study conducted in Chinese-language and English-language 4 township health centers and 8 village clinics in literatures on service delivery in China and Wuxi County of Chongqing and Min County of abroad.* The review comes at a key moment in Gansu concluded that less than 2% of drug China's health reform process. There is broad prescriptions were `rational'. In the case of agreement that the health service delivery village clinics, only 0.06% of drug prescriptions system is not functioning well, but there is were deemed reasonable.2 Unnecessary care considerable disagreement about how to fix it. contributes to inefficiency in the health system. Some argue for turning over the entire system to For example, one study found that 20% of all a free market. Others recall the benefits of a expenditure associated with appendicitis and centrally planned health system. The truth--this pneumonia treatment was clinically critical review argues--lies somewhere between unnecessary.3 In the study, as much as one third these two extreme views. of drug expenditures were considered to be unnecessary by a panel of reviewing physicians. The panel concluded that, for both conditions, Provider performance in China's health length of stay (LOS) could be reduced by 10- sector 15% without any adverse effects on health outcomes. Quality is a key dimension of any provider's performance. Like many countries, China does There is some evidence that health care quality not have a strong system for monitoring the in China has improved over time, but these quality of care. But several indicators suggest improvements seem to be confined primarily to challenges ahead. The skill of providers is low, urban areas.4 For patients--especially poor especially at the village level. A large-scale ones--unnecessary expenses associated with study of 46 counties and 781 village doctors in 9 low quality can make the difference between western provinces conducted in 2001 found that health care being affordable and being unaffordable. In some situations, unnecessary * This briefing note was prepared as part of the World care may also have adverse health consequences. Bank's (WB) ongoing study on China's rural health sector. The study--referred to as the China Rural Health AAA Beyond the apparently low technical quality of (Analytical and Advisory Activities)--is being undertaken care, patients have expressed dissatisfaction in collaboration with the Ministry of Health (MOH) and other government agencies, as well as with selected about providers' responsiveness. For example, international partners. The review upon which this briefing in a recent sample interview with 642 urban note is based was prepared by a team that consisted of residents, roughly 70% expressed satisfaction Professors Meng Qingyue of Shandong University, Li Ling with health care services, and 65% were of Peking University, and Karen Eggleston of Tufts University (USA). The team benefited from the comments satisfied with the attitudes of the health of Mr Fei Zhaohui of the Ministry of Finance, who was the providers.5 However, 54% complained that their discussant for this critical review at the AAA workshop in doctors were not clear about their disease status, July 2004. The briefing note was prepared by the World and 4% said that they or their relatives had open Bank AAA team. The findings, interpretations, and conflict with the health providers (yiliao jiufen). conclusions expressed herein are those of the authors, and do not necessarily reflect the views of the World Bank or those of its Executive Directors or the governments they The efficiency of China's health care providers represent, or the Government of China. For further is also a matter of concern. In recent years, the information on the China Rural Health AAA and related number of providers has increased while activities, contact L. Richard Meyers (lmeyers@worldbank.org). caseload has been falling. Bed-occupancy rates Briefing Note No.4 1 February 2005 are, as a result, falling, especially in township performance? And how can the government hospitals where bed occupancy was low to start improve it? with (see Figure 1). Provider productivity-- measured in terms of patients per provider per day--is also falling in rural areas, from a Does ownership make a difference? relatively low base. There is also evidence of waste in the use of high-tech equipment. One hypothesis--often expressed in China--is Figure 1: Declining bed occupancy rates that poor provider performance reflects the heavy emphasis on public ownership above 100 90 village level. The international evidence on tear 80 whether ownership matters--mostly from the 70 cyn United States--is mixed. Some studies suggest 60 ownership and profit-status of providers do not pau 50 40 make a difference--that ultimately it is other occ 30 20 factors that determine performance.6 Other Bed 10 authors disagree and conclude that technical 0 quality is lower and mortality higher in for- 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 profit hospitals.7 While many studies focus on County hospitals and above the difference between for-profit and non-profit Township health centers hospitals, there is less evidence on the differences related specifically to ownership. A further concern as far as provider Some studies suggest that public hospitals performance is concerned is the rapid cost perform worse than private ones, but this may escalation that China's health sector has simply reflect their status as "providers of last witnessed in recent years. Costs have risen resort", whereby they are forced to handle more much faster than per capita income and prices complex cases. generally. This reflects in part a more complex caseload (less infectious diseases, more non- The limited evidence available from the Chinese communicable diseases) and the adoption of health sector is consistent with the international new technology. Whether costs have risen `too' literature: it suggests that ownership probably fast is not clear-cut. But what is clear is that the matters less than people often think. For-profit extensive overuse of drugs and high-tech and public providers are just as likely as one medical procedures is a matter for concern. another to over-prescribe drugs, and for-profit Rapidly rising health care costs in China have providers are just as likely to deliver preventive probably been one of the factors behind the fall activities as public ones, provided they are paid in demand for health care over the last 10 years. properly to do so.8 Patients often express a high And they have made health care increasingly level of satisfaction with the responsiveness of unaffordable for China's poor families. private providers, but also express some concern about their qualifications and motivations.9 China's health system also displays There is some evidence that for-profit providers considerable inequities in, for example, in China have a more efficient management. utilization and outcomes between rural and However, this reflects at least in part the fact urban areas, and across income groups. How far that public providers are constrained by the these can be blamed on providers is unclear-- relevant stakeholders in a way that private utilization and outcomes reflect both demand- providers are not. It may not be ownership per side and supply-side factors. What can be said, se that makes the difference, but rather the however, is that in recent years--in contrast to willingness of stakeholders to stay at arm's the 1960s--the health service delivery system in length from day-to-day decision-making. urban areas has developed much faster than in rural areas, and there is a growing gap in quality All of this has important implications for the of care between rural and urban areas. reform agenda in China's health sector. Provider behavior is influenced by a wide range of All in all, the performance of China's health factors--financing, autonomy, market structure, care providers--like providers in many accountability arrangements, etc. Ownership countries--shows considerable room for may be related with these factors, but often it is improvement. What explains this weak Briefing Note No.4 2 February 2005 not the primary determinant. As a consequence, non-profit hospitals. Similarly, competition in privatization is not likely to be the panacea that the markets for physicians, nurses, and medical some in China believe it to be. equipment and materials, and support services such as maintenance, catering, cleaning, and laundry can help to allocate resources in a way Is competition the answer? that rewards, and thus stimulates, improved performance. Input markets are generally less prone to `market failure', since they often Another commonly heard view in China is that feature organized purchasers and suppliers with the health sector needs more competition. The similar information and market power. international literature suggests extreme caution on this point, and is very clear on one key point: The evidence to date from China on the benefits competition for individual patients is not the of competition--be it competition between answer. Patients lack the knowledge to be providers or in markets for inputs--is very informed consumers as in a typical market. limited and research on this topic would be This blunts competitive pressures, and makes useful. In the meantime, policy reform in China patients vulnerable to exploitation by providers could usefully learn from the lessons of who take advantage of their superior knowledge international experience. The performance of of medical matters. China's health sector will almost certainly not be improved by encouraging competition What can be potentially useful, however, is between providers for individual patients. In competition among providers for contracts from fact, such a policy is likely to exacerbate purchasers (e.g. insurers). The evidence is existing problems. Where competition could be limited, mostly coming again from the U.S., useful is in a market for purchaser contracts, and where, for example, competition for Medicare in input markets. That would mean developing contracts appears to have improved patient the purchasing capacity in insurance schemes outcomes and lowered costs.10 Elsewhere in the such as the Basic Medical Insurance and the OECD, several other countries--including the New Cooperative Medical Scheme--an issue Czech Republic, New Zealand, Sweden and the we will return to later. Careful monitoring will United Kingdom--have experimented with be vital, not least to ensure there are no having hospitals compete for contracts. But as a unwanted side-effects. In order to realize the recent OECD report put it, "[these initiatives] potential benefits of competition in input have not achieved the expected results and have markets, providers would need to be given more run into considerable patient and provider autonomy to make decisions about what inputs opposition. However, as these experiments were and services should be contracted for, and from discontinued after a relatively short period, whom to contract. Again, careful monitoring more time may have been needed for positive would be vital. results to appear".11 Contracting is likely to work better when the Paying providers contract can specify quantity and quality clearly, both can be monitored easily, and contracts can be enforced.12,13 There has been some success The evidence is not at all clear, then, on how with contracting public health interventions, ownership and competition impacts on provider such as malaria control programs, nutrition performance. By contrast, what is clear from programs (Senegal) and reproductive health studies to date is that how providers are paid programs (Bangladesh).14 These services are matters in health care. Furthermore, payment- relatively straightforward for contractual related incentives can be improved without specification. Contracting for appropriate changing ownership, and without introducing clinical care, by contrast, is often more competition. challenging.15 An area where health care sector competition may prove more straightforward is The long-standing emphasis on fee-for-service in input markets. For example, in many (FFS) in China, coupled with the fact that a countries there is a competitive labor market for sizeable fraction of the population has a `third- hospital managers, who attract similar party payer', results in care that is profitable at compensation packages from both for-profit and the margin being over-provided. It also Briefing Note No.4 3 February 2005 discourages cost-consciousness among Figure 2: Provider payment reform at work providers. The way fees are set does not help in Hainan Province matters. They are often set below cost for simple and non-invasive care, and above cost MB) (R 12,000 FFS Hospitals for high-tech diagnostics (see Box 1). As a n 10,000 Reform Hospitals result, the former tend to be under-provided, 8,000 leading to concerns about low--and in some admissio 6,000 cases--falling coverage of key public health interventions, while the latter are over-provided. The price structure has also resulted in a rapid per.dn 4,000 2,000 adoption of new technology, which in turn has pexe. 0 helped fuel the escalation of costs in China's Av 59-l 5 6 966 t-95 96- 6 6 69-l 6 7 97 7 t-96 97- 7 7 health sector. Because of the markup pricing g-95 95-v c-9 n-9 n-9 g-96 96-v c-9n-9 n-9 Ju Au Sep-95 Oc No De Ja Feb- Mar-9 AprMay-9 JuJu Au Sep-96 Oc No De Ja Feb- Mar-9 AprMay-9 Ju scheme that has long been in force, drugs are also profitable--hence their over-prescription. China's high average LOS is another example Shanghai switched to a capitation based of incentives at work--because hospitals that payment for outpatient care for the government are paid on a FFS basis can claim insurance program.18 While findings indicate a reimbursement for the additional day, they have slow-down in cost-escalation, reform design and an incentive to keep patients in hospital. available data do not permit a rigorous assessment--a problem that arises with many payment reforms in China as well as in other Box 1: Price-regulation--in need of reform countries. Liu, Liu and Chen provide an overview of the Chinese experience with hospital price regulation.16 In many cases, provider payment reforms have They compare fees to average costs derived from a been introduced in conjunction with other health study of recurrent and capital costs for 130 service system reforms. For example, Meng et al. report items in 17 hospitals in Shandong province. The on a comparison between Nantong, an urban ratio of fee to average cost is well below 1 for simple health insurance pilot city that implemented and non-invasive services. For example, their results both provider payment reforms and new forms include registration (0.16), checking blood sugar of contracting, and Zibo, a city that did not levels (0.2) and the base charge for a hospital day implement reforms.19 They find a smaller cost- (0.25). This also holds for more clinically increase in Nantong, without measurable impact complicated but long-standing services such as on quality. Similar results have been found in appendectomies (0.48) and normal delivery (0.3). In other studies.20 contrast, regulated fees for some new high- technology diagnostics are set well above average Moving completely away from FFS to a fully cost. In the Shandong sample, the ratio of fee to prospective payment system can be risky-- average cost was 180 to 110 RMB for CT scans and providers may skimp on quality unless the payer 50 to 35 RMB for remote control x-ray scans (ibid, quality thresholds are laid down, and unless p.158). Although there are ongoing attempts to quality and quantity can be monitored reform price regulation, the problems of effectively. Some prospective payment systems misalignment of fees and costs persist in many parts also create incentives for risk selection.21 A of the country. mixed prospective payment-FFS system offers a potential solution to this, and has become Evidence from China--as from other popular across OECD countries. countries--suggests that providers' performance changes in response to changes in payment The implication for policy reform? There seems arrangements. For example, Hainan Province to be considerable scope for improving provider implemented prospective payment for six key performance in China through carefully hospitals in January 1997. Average expenditure designed and phased payment reform. This per admission fell below that of the other would most likely be done through strengthened hospitals that had continued to be paid FFS, and purchasing organizations, but must also include the growth in spending on high-tech services a reform of price regulation. On the was reduced (see Figure 2).17 Whether there was pharmaceutical side, separation of the any adverse effect on quality is not known. prescribing and dispensing functions has the potential of reducing adverse provider Briefing Note No.4 4 February 2005 incentives. Experience from Taiwan and elsewhere has, however, shown that such reforms have to reconcile many strong interests, Implications for government? making effective reform difficult.22 This briefing note has highlighted some Organization matters important areas of concern. Current performance by Chinese health care providers leaves room for improvement, in terms of The performance of any delivery system reflects quality, responsiveness to patients, efficiency, a number of organizational choices. For cost escalation, and equity. It also suggests that example, a well-functioning referral system these problems will not be solved by simply lowers costs and enhances equity.23 In its shifting ownership to the private sector, or by transition from the old system, China lost this: simply encouraging providers--public and patients now choose whichever level of provider private--to compete with one another for they can afford, so the higher-level (e.g. individual patients. provincial and county) hospitals are overloaded with higher-income patients, and the lower-level But the review also contains some important hospitals (e.g. township) are underutilized and positive messages. Active purchasing by patronized by mostly low-income patients. organized purchasers can be an effective way to affect system incentives. In both the urban and But other aspects of how the delivery of health rural areas, social insurers--e.g. BMI and care services is organized also matter. NCMS--and other purchasers can promote Overlapping functions and fragmented service improvement in service delivery through delivery responsibilities need attention. For selective contracting, mixed payment methods example, family planning institutions, township with quality bonuses, drug use monitoring and health centers, and maternal and child health formularies, and effective gate-keeping. facilities in China have overlapping functions. MOH, military, SOE and other enterprise While some of the problems observed in the hospitals all provide similar services in an Chinese health sector today are due to excessive uncoordinated manner. And there are also or inappropriate government intervention, other questions about the roles and responsibilities of problems arise from the government doing too different levels of government in service little. Information asymmetries and other market delivery. Several studies have found that failures call for effective government regulation decentralization in China has had a negative in the health sector. Regulation of advertising impact on delivery, especially equity of services can play an important role in protecting between richer and poorer regions.24 population health and reducing information asymmetries--e.g. in relation to tobacco. There Finally, quality and efficiency are also affected is also an important place for regulation of by the internal structure and management of behavior in insurance and health care markets, delivery organizations. Many hospitals lack such as preventing price collusion and "cream- effective quality control system, with skimming", controlling quality, protecting supervision responsibilities scattered across patient privacy, and providing information. In different departments and agencies. Moreover, health systems that allow a prominent role for financial management systems and personnel markets in shaping the delivery system, antitrust policies--e.g. in relation to compensation-- policy is a crucial tool for establishing a "fair affect incentives and provider performance. The playing field". study in Zibo and Nantong found that the main factors influencing unit cost, LOS, and other In most health systems, governments also play efficiency indicators were the bonus system, an important role in relation to the health competition for hospital positions, selection of workforce. China clearly has major challenges staff, and the accountability system. in this area. One challenge, already noted, lies with the quality of its medical personnel. So far, the focus has been largely on increasing the quantity of health workers. A clear challenge now is to increase quality, and to ensure that the distribution of health workers reflects need. But Briefing Note No.4 5 February 2005 it is not just China's medical skills that need 11. Docteur E, Oxley H. Health-Care Systems: Lessons improving. The health sector lacks managers, from the Reform Experience. OECD Health Working quality assurance personnel, and other key Paper: OECD, 2003. 12. Hart O, Shleifer A, Vishny RW. The Proper Scope of groups. For example, whatever the role of the Government: Theory and an Application to Prisons. market and government in service delivery, a Quarterly Journal of Economics credible system of supervision and certification 1997;November:1127-1161. of provider competence is necessary. 13. World Bank. World Development Report 2004: Making Service Work for Poor People. Oxford: Oxford University Press and the World Bank, 2003. In summary, Chinese experience matches theory 14. World Health Organization. The World Health Report and global evidence, namely that system-wide 2000: Health systems--improving performance. incentives shape provider performance. Geneva: World Health Organization, 2000. Fortunately, both Chinese and international 15. Harding A, Preker A, eds. Private Participation in Health Services. Washington, DC: World Bank, experience offer some clear lessons on how 2003. these incentives can best be harnessed. 16. Liu X, Liu Y, Chen N. The Chinese Experience of Unfortunately, there are no quick fixes. The Hospital Price Regulation. Health Policy and interaction of incentives calls for a package of Planning 2000;15(2):157-163. complementary reforms, including strengthened 17. Yip W, Eggleston K. Addressing government and market failures with payment incentives: Hospital purchasing and provider-payment reforms, reimbursement reform in Hainan, China. Social effective sector-neutral regulation, appropriate Science & Medicine 2004;58:267-277. vertical and horizontal integration of healthcare 18. Yang W, Xuan L, Shen R, Zhang M, Gu S. The institutions, and improved provider management. Effectiveness Evaluation of Capitaiton in Outpatience Items of Governmental Employee's As the AAA moves ahead, these and other Insurance System. Chinese Health Economics challenges will be explored further. 1999;12. 19. Meng Q, Rehnberg C, Zhuang N, Bian Y, Tomson G, References Tang S. The impact of urban health insurance reform on hospital charges: A case study from two cities in 1. Wang G, Xu H, Jiang M. Evaluation on comprehensive China. Health Policy 2004;68(2):197-209. quality of 456 doctors in township hospitals. Journal 20. Liu G, Cai R, Xiong X. Reform of Medical Insurance of Health Resources 2003;6(3):72-74. System in Chinese Cities: Discussion on Equity of 2. Zhang X, Feng Z, Zhang L. Analysis on Quality of Cost Allocation. Journal of Economics(Quarterly) Prescription of Township Hospitals in Poor Areas. 2003;2(2):435-452. Journal of Rural Health Service Management 21. Newhouse J. Reimbursing Health Plans and Health 2003;23(12):33-35. Providers: Selection versus Efficiency in Production. 3. Liu X, Mills A. Evaluating payment mechanisms: how Journal of Economic Literature 1996;34:1236-1263. can we measure unnecessary care? Health Policy and 22. Chou YJ, Yip WC, Lee CH, Huang N, Sun YP, Chang Planning 1999;14(4):409-13. HJ. Impact of separating drug prescribing and 4. Zhuang N, Tang S. Application and Research on dispensing on provider behaviour: Taiwan's Methods of Adjustment of Medical Quality and Case experience. Health Policy and Planning Mix in Measurement of Hospital Service Efficiency. 2003;18(3):316-29. Journal of Health Resources 2001;4(3):127-129. 23. Gerdtham U, Jonsson B. International Comparisons of 5. Cai Z, Chen P, Deng H. Elementary Investigation on Health Expenditure. 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Kin LM, Hui Y, Tuohong Z, Zijun Z, Wen F, Yude C. The role and scope of private medical practice in China: Commissioned by UNDP, WHO, MOH China. mimeo., 2002. 10. Kessler DP, McClellan M. Is Hospital Competition Socially Wasteful? Quarterly Journal of Economics 2000;115:577-615. Briefing Note No.4 6 February 2005