China Redux?

A major meme driving conservatives’ disparagement, nay hatred, of Obamacare, is that it is a socialistic approach to medicine, something that is ruining “the greatest healthcare system in the world” by turning competitive businesses (the medical industrial complex) into a massive, inefficient socialist bureaucracy. I believe this to be wrong thinking, a conviction which I submit can be supported by looking at healthcare in a strange place, China.

A poster from the Cultural Revolution, featuri...

A poster from the Cultural Revolution, featuring an image of Chairman Mao, and published by the government of the People's Republic of China. (Photo credit: Wikipedia)

Another Globe blogger, Anson Burlingame, commented my previous post, The Medical Contract, and directed my attention to a book he is currently reading that speaks to the Chinese system, including these surprising statements (emphasis added):

“I also note that the book upon which I have blogged and will add more blogs about, indicates that China’s HC system today is primarlily a privatedly funded HC system. To me that was astonishing. But I suspect most poor people in China deal with HC matters on their own and with a lot of help from families, as they have been doing for millennia now. And they have 1.4 Billion souls to attempt to take care of, not 320 Million. As well some 85% of Chinese like their current system of government today! Only 13% of Americans like what Congress is doing.”

One might get the impression then that maybe the Chinese know something we don’t know, and that maybe we might get some tips from them, perhaps even bolstering the GOP notion that private enterprise is the way to go for healthcare. As luck would have it a web search turned up a very interesting scholarly paper by one Niko Karvounis, writing for the Century Foundation. I found it to be a fascinating overview of the effects of different government policies on a healthcare system (China’s in this case).

The system under Mao’s regime can only be described as primitive, with salaried “barefoot doctors” in villages performing primary-care functions. But in 1978 China introduced market-based economic reforms that also changed their healthcare. By the 1990’s, with the elimination of the communes, the old system had vanished and healthcare became the responsibility of local governments, many of which had virtually no resources. Even today, “. . . less than one-third of the total Chinese population can feel secure that it has a place to go for care.” What medical talent there was had mostly gone to the larger urban centers. However, the standard of living in the countryside continued to climb, creating a capitalistic demand for medical services, and what happened thus provides a model for study of what happens to healthcare when there is minimal government regulation. Here’s Karvounis’ eye-opening description of it:

By the mid-1990s, the government provided only 10 percent of the funding for public health facilities in China. Put another way, modern Chinese hospitals have to secure 90 percent of their budget on their own, through so-called “revenue-generating activities.”

Most of the government’s meager support comes in the form of reimbursement based on staff size and number of hospital beds—a set-up that encourages excessively large staffs and construction. In this way public assistance actually hurts more than it helps—a pattern evident across Chinese health care today.

Most hospitals are government-owned, and the doctors who work there are on salary—and paid very poorly. Today, a junior doctor can make less than $120 a month. A doctor’s biggest payday comes with his yearly bonus, which is tied to the revenue he brings in for his hospital or facility. Thus not only do hospitals have an incentive to have a lot of beds, but doctors also have an incentive to fill them—all to turn a profit.

To help doctors and hospitals generate revenue, the Chinese government has set prices for two services—high-tech diagnostic services and prescription drugs—above the cost of delivery, meaning providers can charge more for scans or medications than it actually costs to provide them. The government’s price setting scheme also allows for a 15 percent profit margin on drugs.

The idea is to give hospitals and doctors a duo of cash cows from which to generate funds. But there’s an obvious downside: providers have a huge incentive to scan and prescribe, especially because doctors make so little and want to increase their income.

But procuring the newest gadgets and/or imported drug is expensive, which means that providers have to spend a lot in order to turn a profit. An article in the newest Health Affairs by Winnie Yip and William Hsiao, both professors at the Harvard School of Public Health, points out that a Chinese health care provider “has to dispense seven dollars’ worth of drugs to earn one dollar of profit.”

Yip and Hsiao note a striking example of this incentive to overdose. In China, 75 percent of patients suffering from a common cold are prescribed antibiotics, as are 79 percent of hospital patients—more than twice the international average of 30 percent. The piling on of prescriptions helps hospitals take advantage of high profit margins: a 2005 Washington Post story pointed out that pharmacies can provide up to 90 percent of hospital revenue. The result of these incentives has been a skewed system where primary care is all but non-existent, but which spends exorbitantly on designer drugs. Today the share of health care spending devoted to pharmaceuticals in China is more than three times that of most of the developed world.

Skewing incentives even further is the fact that, in order to make basic health care affordable to citizens, the Chinese government set the price of basic care lower than its service cost. That means that providers actually lose money when they do anything besides irradiating or medicating a patient. So not only is there an incentive to rely on high-tech services and prescription drugs, there’s actually a strong disincentive to do anything else.

With fewer Chinese insured and providers itching to undertake expensive care, it’s little wonder that out-of-pocket spending is so high in China: it accounts for a whopping 60 percent of the nation’s total health care bill. It also should come as no surprise that waste has helped China’s health care spending grow at an annual rate of 16 percent over the past twenty years, a good 7 percent faster than the growth of China’s GDP over the same period. Yes, that means that China’s world-wowing economic boom is actually happening at a slower rate than the growth of its health care system.

The moral I take from what happened in China is that healthcare is not a product, like an iPad, that is efficiently delivered by competition through supply and demand. Rather, it works best when it is centrally planned and funded for future outcomes, just as Social Security has proved an enormous boon for dealing with individuals’ reluctance to save for their retirement.

Ain't Cialis great?

Could what happened in China happen in America? With profit primary, I submit that it already has. Our system has too many pills, overuse of antibiotics, too many treatments for unlikely and vague afflictions, too many tests and scans, way too many medical errors, and a serious deficit of common-sense preventive care.

The Supreme Court’s conservative majority seems poised to scrap the ACA, and that alone will roll back efforts to improve preventive care and cover pre-existing conditions. If we do not change to something like the public option, things will get even worse when the GOP dumps the mess on the various states, a mess for which the states have inadequate budgets. And it will be the middle class and the poor who will bear the brunt of the problem. That sounds a lot like China redux to me.

About Jim Wheeler

U. S. Naval Academy, BS, Engineering, 1959; Naval line officer and submariner, 1959 -1981, Commander, USN; The George Washington U., MSA, Management Eng.; Aerospace Engineer, 1981-1999; Resident Gadfly, 1999 - present. Political affiliation: Democratic.
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1 Response to China Redux?

  1. ansonburlingame says:


    I would suggest you now read my TWO blogs on the subject of the decline of Western Civilization, based on the book I have now completed. The “China is a privately funded HC system” by and large was only one sentence in the book. But based above on the only 10% funding from the CCP for HC from your learned writer’s paper, it seems to be accurate.

    My blog shows very deep cultural reasons why that must might be acceptable to the people of China. I will not repeat myself herein on that account.

    After all the book was not at all about HC as such, it was about “tectonic” changes in geopolitics occurring right now, according to the author and with which I agree.

    In case your readers are interested the book is “No ONE’S World” by Charles A. Kupchan.



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