P4P and China’s Health Care Reform: Current State, Opportunities and Challenges Winnie Yip Reader in Health Policy and Economics University of Oxford “Incentives for Health Provider Performance Network” Conference, May 11, 2011

Context: Chinese Health System Reform April 2009: Additional government spending of USD 125 billion in the next three years:  Subsidies for insurance premium to enroll in public insurance schemes  Subsidies for a package of public health services  Government fully subsidizes the basic salary for township health center staff, but not hospital staff.  Major infrastructure building: county hospitals, township health centers and village clinics

Before 2009ConsequencesSince 2009 Tertiary and secondary health care: -- Urban: hospitals, medical centres -- Rural: county hospitals -- Government subsidy ~ 10% of operating revenues -- Distorted fee schedules: high profit margin for hi-tech diagnostic tests -- Mark up of 15% on drugs Primary health care: -- Urban: community health centres -- Rural: township health centres and village clinics -- same as above -- village clinics derive over 95% revenue from drug sale Public health: -- PHC facilities -- MCH -- Disease control and prevention -- Government subsidy ~ 30-60% of operating revenues

Financing for Public Health Care Facilities

An Incentive Structure That Leads to Inefficient Treatment Practices Hospitals have to earn about 90% of its revenue from fee-for- service payments Price schedule that under-pays basic services and over-pays high-tech procedures and diagnostic tests; allow drug mark up of 15-20% Payment method: Fee-for-service (inflationary) Incentives to get revenue from profits on drugs and high- technology tests, and from kick-backs. Physicians are employed by the hospitals, their compensation depends on profits from drugs and tests + under the table payments (most for specialists) + kick-backs from drug companies. Village doctors, the back-bone for health prevention and health care in rural regions, are in private practice, earn their income from profits when selling drugs and give injections.

Results from Distorted Prices and Incentives: Revenue in an average urban general public hospital 6 –Source: China Health Statistic Year Book 2010 –thousand –RMB

China: Health expenditure has been rising as share of GDP China Total Expenditure on Health as % of GDP Year % CTEH as % of GDP

Government’s share of health spending has been falling in China Composition of Total Health Spending, by source

Prescription pattern for common cold, 3 counties in Shandong Province, 2009

Before 2009ConsequencesSince 2009 Tertiary and secondary health care: -- Urban: hospitals, medical centres -- Rural: county hospitals -- Government subsidy ~ 10% of operating revenues -- Distorted fee schedules: high profit margin for hi-tech diagnostic tests -- Mark up of 15% on drugs -- rapid cost growth -- unaffordable health care -- high financial risk -- inappropriate drug prescription and tests/exams -- neglect of primary health care Not much change YET Primary health care: -- Urban: community health centres -- Rural: township health centres and village clinics -- same as above -- village clinics derive over 95% revenue from drug sale -- Government fully funds basic salaries of formal staff -- Zero drug profit policy Public health: -- PHC facilities -- MCH -- Disease control and prevention -- Government subsidy ~ 30-60% of operating revenues -- neglect of public health Government funds: a capita budget for a defined personal public health package

P4P—Who are the Purchasers? Ministry of Finance: – Increase government funding needs to tie with improved “performances” –~30% of public health budget, budget for PHC facilities’ salaries are with-held for performance assessment Publicly organized insurance schemes: –Urban: employees, residents –Rural: New Cooperative Medical Scheme –Gradual trends moving from FFS to prospective payment and perhaps with p4p

Design and Implementation Decentralized What are performances and how are they measured? Public health: Creating health records for residents; health education; health management for children (0-3 years); imm/vaccination; health exams for elderly; pre/post natal care; infectious disease reporting; chronic disease management (TB, hypertension, DB, hepatitis B and major mental health problems) Primary and secondary care, large focus on: –Cost control; quantity of services; antibiotic prescription/IV injection not exceeding a target rate (?)

An example

Effective? Results: scores Performance indicators not targeted

Immunization Rates: age 1-4(%) UrbanRural

Antenatal care coverage and rate delivery in hospital (%) in urban and rural Antenatal coverageHospital delivery

–Source ：中国卫生统计年鉴 2010 ， 表 7.1 Maternal Mortality

Infant Mortality –Source ：中国卫生统计年鉴 2010 ， 表 7.1

Effective? Results: scores Performance indicators not targeted Actual implementation: –Focus on quantity and less on quality/process –Can generate any result you want depending on how you calculate your statistics and what data you use –Rely on inspection/investigation –Rely on subjective assessment –Not external checks and balances

Looking to the future Management information system is essential, with some standardizations to allow comparisons Improved training in management: p4p is a means to an end External checks and balances Targets vs relative performance Reduce number of indicators, target at problem areas, revise periodically