China’s healthcare reform one year later: What’s changed?

Wellingborough, U.K. (March 16, 2010)-In April 2009, the Chinese government announced guidelines for healthcare reform, with the core goal of providing universal healthcare services to the country’s 1.3 billion people. China will invest RMB850 billion ($124 billion) on healthcare from 2009 to 2011, further stimulating demand for medical devices, in what is already one of the world’s fastest growing markets for medical technology. One year later, a number of new regulations and guidelines are in place that are beginning to reshape the structure of the Chinese healthcare industry.

InMedica predicts that the main winners in the medical devices market will be suppliers of basic equipment, such as general-purpose ultrasound machines, analog x-ray equipment, and patient monitors, which are all funded by the healthcare reform. Chinese companies such as Mindray, Beijing Wandong, and Yuyue Medical will benefit the most, as local suppliers are preferred by the government due to the “Buy China” initiative.

While the government has not released details of how the investment in healthcare reform will be distributed, InMedica believes that around 50% will be used to expand the coverage of medical insurance, 30% will be used for the construction of rural healthcare systems, and the remaining 20% will be used to fund public hospitals. It is the first time that basic healthcare will be provided as a public service for all people in China, and the Chinese government aims to solve the problems that have caused strong complaints from the public about high medical costs. The overall aim is to provide basic medical services to the population by 2011, with the long-term goal of rolling out universal coverage by 2020. The healthcare reform relies on joint funding by central and local governments. The central government will contribute around 40% of the total investment.

Public nonprofit hospitals will remain the major provider of healthcare services, but more priority will be given to the development of grassroots-level hospitals and clinics. The central government will fund the construction of 2000 county-level hospitals and 29,000 township hospitals and the upgrading of 5000 township hospitals. Furthermore, about 3700 community health centers and 11,000 community health stations will be established or upgraded by 2011.

Since the reform was announced last April, a series of regulations and guidelines has been released. In June, the guideline on the construction of county hospitals, health centers, community health service centers, and village clinics was released; in October, the guideline on the price of essential drugs was released; and in January, a guideline on training and development of village physicians was released. Most recently, in February, the guideline on the reform of public hospitals in 16 pilot cities was released.

Public hospital reform was one of the key issues of the guideline. Currently, public hospital revenues are derived from drug sales, medical services, and government funds. In 2007, the total revenue of public hospitals in China was RMB375.4 billion, including RMB200 billion from sales of drugs. In the same year, funds from the government were RMB28.5 billion, which was only 7.6% of total revenues. Currently, public hospitals are permitted to make a 15% profit from drug sales. Whilst this market-oriented approach has greatly improved medical services in recent years, it has also resulted in soaring medical costs for the Chinese public.

According to the guideline, the 15% profit from drug sales will no longer be permitted. However, it is thought that government funding alone cannot fully meet the financial gap, especially in the western regions.

“With limited government funding available, it is unknown if the public hospitals can maintain standards of care without the revenues from drug sales,” said Owen Tang, market analyst at InMedica. “This is why the government has chosen 16 cities to pilot the reform. The cities, including six in central China, six in the east, and four in the west, were asked to start the reform from this year. The government will need time to evaluate the success of these early trials, and possibly conduct more trials with refined guidelines, before the healthcare reform can be rolled out on a national level. Despite the impressive headline investment figures, China’s healthcare reform is likely to be a lengthy process.”


About InMedica (a division of IMS Research)InMedica is the medical research division of IMS Research, a specialist supplier of market research and consultancy services on a wide range of global electronics markets. These topics and more are discussed in a new report from InMedica called “Analysis of the Chinese Healthcare Industry: A Guide for Medical Device Manufacturers.”