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Physicians
Comparison of the practice of
medicine in China and in the US
In the
U.S., private and for-profit
hospitals account for 65.3%
and 13.7% of the total number of
hospitals, respectively.
Physicians can choose the
hospital in which to be
associated. In
China, most hospitals are
owned by the
government, therefore
physicians were previously
quasi-government employees and
enjoyed little freedom in the
choice of the hospital to work
with. In addition, decades of
planned economic policy
discouraged physicians from
opening their own clinics, and the
practice of medicine was generally
non-private.
While there are private clinics
in China, many of the owners of
those clinics do not have formal
medical
education. Most of these
private practitioners practice
traditional Chinese medicine They
learned medical skills and
inherited secret formulas from
their parents (mostly from their
fathers).
Physicians now are encouraged
to open private clinics or
hospitals, and those who have been
practicing medicine for five years
after they received national
physician licenses are can open
their own clinics.
Physician compensation
At government controlled
hospitals, physicians are salaried
employees. Salaries are based on
working experience and
professional level. Some hospitals
also pay a bonus to physicians
according to the hospital's
operating performances and the
physician's contributions.
Physicians’ salaries vary greatly.
For those working at busy and
well-known hospitals, their base
salaries can be a few times as
much as those of physicians
working at low-ranking hospitals.
Chinese hospitals are classified
as three general levels, with
level 3 at the top and level 1 at
the bottom. Each level has
sub-levels of A, B and C. Some
elite hospitals are 3A+s.
For many physicians, in
particular those at big hospitals,
specialty hospitals or hospitals
with large reputations, physician
incomes can be larger than regular
hospitals. Physicians, and in
particular, surgeons, can augment
their hospital salaries by
operating surgeries at hospitals
other than the one in which they
are employed. Many physicians also
receive commissions from
prescribing prescription drugs and
get “red envelopes” from patients
(patients give money or gifts to
their wanted patients for getting
treatment) or from sales
representatives of drug companies.
However, a new regulation issued
by the Health Ministry removes
physicians from the practice of
medicine if they are found to have
taken "red envelopes" from
patients, and a hotline has been
set up to monitor physicians.
Social status
In China, physicians are well
respected, but as a group they are
not at the top of the social
structure of the country because
their incomes fall in the middle
class.
According to a
Ph.D. candidate at a U.S.
Public Health School, who was a
physician at a well-known 3A
hospital in Beijing, like other
junior physicians, she seldom
received “red envelopes” from
patients, and only senior
physicians or physicians with fame
would have such opportunities. The
student said those senior
physicians had become members of
the high-income class. Like the
student, many physicians, went
abroad to study because they were
not satisfied with their status.
According to a
2002 statistics from Beijing
Physicians Association, over the
past two years (2000
and
2001), in
Beijing about 2300 physicians
resigned, and most of them went to
work as sales representatives of
drug companies. Some still
practice medicine but work with
privately owned hospitals rather
than public hospitals.
A junior physician, who was
evaluated as a top performer at a
2A Beijing hospital, said she left
her job because she made less than
$120 a month. At her new sales
representative job, her base
salary increased to $500 a month.
She also pointed out not all
physicians have such “grey
incomes” as commissions and “red
envelopes”.
Competitive pressure for
hospitals
Influenced by a
centrally-planned
economy, many hospitals were
managed as government agencies
rather than medical service
organizations. Hospitals did not
have competition pressures. The
management team usually did not
recognize the importance of
developing and retaining high
skilled physicians. Administrative
personnel were more powerful than
physicians at a hospital.
However, with the reform of the
medical sector, Chinese hospitals
are facing increasing competition
from privately owned and
foreign-investment-backed
hospitals. Physicians are expected
to enjoy higher legal income and
better social status.
Physician training
The Chinese medical education
system follows the
British system, but it reduced
the length from six years to five
years to shorten the educational
cycle. To become a physician, a
person usually needs to study for
five years at a medical school.
Some medical schools used to run,
and still offer three-year
programs, but hospitals tend to
recruit those attending five-year
programs, and big-name hospitals
only hire MDs, which take seven
years (including the five years in
undergraduate study) to complete,
or Ph.D.'s of medicine.
Upon graduation, a physician
starts as an assistant physician
at a hospital. After having
practiced medicine for three
years, the physician will be
eligible to take a national test
for physician certification and
become a professional physician
(licensed physician) upon passing
the test. A physician with a
master’s degree in medicine (seven
years including five years’
undergraduate study in medicine)
can take the national test after
one year’s practice of medicine.
Residency requirements have not
been implemented nationwide in
Chinese hospitals though almost
all hospitals require their
physicians to take turns working
on night shift, and physicians
will be called to work in an
emergency. The first residency
program was launched in 2003 at
Huaxi Hospital of
Sichuan University, where a
professor who had studied in U.S.
for two years proposed
establishing a residency
requirement for newly graduated
medical school students. These
students will complete their MD
study and have to pass the
national certification test during
the residency. The residency
requirement at Huaxi Hospital is
expected to change the traditional
physician training system in
China.
There are specialties in
general hospitals and specialty
hospitals. The most common
specialty hospitals or clinics
include those treating
hepatitis,
cancers,
sterility, dental diseases,
dermatitis,
nephritis, and
diabetes. A medical school
student rotates at several
departments of a hospital and then
is assigned to a specialty
department according to his or her
strengths and the hospital’s
needs. But there is not a system
of developing specialty physicians
in China. Some medical experts
have called for a standardized
training and testing system for
specialty physicians. The
classification of specialties at a
Chinese hospital is similar to
that at a U.S. hospital.
The medical schools are located
at Beijing, Shanghai, Tianjin,
Chongqing, provincial capital
cities, and some secondary
cities.There are around 130
Chinese medical schools, 120 of
which are recognized by the U.S.,
and those only offering 3-year
programs are not included. Top
schools include: 1) Peking
(Beijing) Union Medical College 2)
Beijing University Medical School.
3) Fudan University Medical
School,
Shanghai 4) Zhongshan
University Medical School,
Guangzhou 5) Sichuan
University Medical School,
Chengdu
Prescription drugs
According to BCG’s prediction
in 2002, China’s prescription drug
market is expected to reach $24
billion and become the fifth
largest market following
Japan. AstraZeneca now ranks
as the No. 1 foreign brand in
terms of prescription sales in the
Chinese market.
Physicians control the
distribution of prescription
drugs. Some hospitals and clinics
stipulate patients must buy
prescription drugs from the
hospitals or directly from the
physicians who make the
prescriptions. Such a restriction
aims to prevent the loss of sales
on prescription drugs to
retailers, but retailing drug
stores are unhappy with such a
restriction, and some of them have
tried all means to lure away
prescription drugs buyer from
hospitals. For instance, they
offer to pay drug buyers half a
dollar for each prescription the
buyers brought to the drug stores.
Normally a prescription is
effective on the day it is issued,
but it can be effective within
three days of prescription under
certain conditions.
Physicians use computers to
make prescriptions.
Hospitals
The relation between
physicians and hospitals
Physicians used to be hired as
full-time and life-time employees
at a government controlled
hospital. But with the reforming
of the medical service sector,
both physicians and hospitals have
more freedom in choosing each
other.
Young physicians usually have
an employment contract with the
hospital they work with, and a
person can quit at will. The
hospital can also lay off the
individual if it’s not satisfied
with the employees performance or
morality.
It’s not uncommon for
physicians to quit and take a
different job. The top three
reasons that lead many physicians
in Beijing to quit include:
doctors are not well paid;
hospitals are poorly managed; and
there are not enough personal
development opportunities.
Management of the hospitals
For a government-controlled
hospital, the hospital is still
operated and managed by a
management team under the
leadership of the president of the
hospital, who is usually nominated
and appointed by the
healthcare department of a
province, a
city or a
county. But for a private
hospital or a publicly traded
hospital, the ownership is the
same as that of a private company
or a public company. There are two
types of hospitals in China –
profit-oriented and
non-profiteering, depending on who
the owners are. The main
differences between the two are:
- Profit-oriented hospitals
may distribute their profit, but
non-profiteering hospitals will
turn earnings into additional
infrastructure or hand them back
to the respective government
authorities.
- They face different
regulatory treatment.
Non-profiteering hospitals enjoy
preferential tax treatment and
several government subsidies.
They also get low-cost financing
from the government for their
capital investment.
- The total number of
hospitals in China dropped
moderately by 0.6% during
1995-2001 as many small-scale
hospitals exited the industry.
During the period, hospitals
above the county level grew at
1% compounded annual growth rate
(CAGR) while smaller hospitals
fell by 0.8% CAGR.
Number of Hospitals
By the end of 2002, China has
306,000 healthcare and medical
organizations, 63,858 of which are
hospitals and clinics, 219,907 of
which are nursing homes and 22,270
fall into other categories. Among
them, only 1% are for profit, but
actually all non-profit hospitals
and clinics are for profit because
none of the hospitals or clinics
can sustain on the government
funding alone, and have to rely on
profits of selling drugs and
expensive diagnoses. Drug sales
from hospitals account for 85% of
total drug sales, with the
remaining 15% going to drug
stores.
Stripping out the government’s
subsidies, all
government-subsidized hospitals
would have been in red. This poor
operating performance can be
partially due to that non-profit
hospitals have little incentive to
control costs, given the
government’s subsidies.
Private Hospitals
Through the 1980s, hospitals
relied on government funds and
operational revenue to finance
these services. The government
covered hospital staff and capital
costs, including both buildings
and capital equipment, and set
prices for health services without
considering those costs. Prices of
diagnostic and other
non-pharmaceutical services were
thus set far below costs.
Governments and enterprises in
turn reimbursed hospitals on a
fee-for-service basis. Because of
these price-setting and
reimbursement policies, only
pharmaceutical services could
produce a profit, typically 15
percent of total sales. Hospitals
used government funds and
pharmaceutical sales revenue to
offset the losses incurred in the
provision of non-pharmaceutical
services.
In 2000, a reform started to
occur in the Chinese hospital
system. Government owned hospitals
are being restructured, some of
them being sold to individual
investors, and more and more
private hospitals are founded.
In 2004, Beijing Aikang Medical
Investment Company bought a
state-run-enterprise owned AAA
hospital (the highest standard),
and the acquisition was the first
of this kind in China. The
investment company plans to buy 10
hospitals in the next three to
five years. In Fuzhou, the capital
city of Fujian province, a strait
apart from Taiwan, four government
owned hospitals have been sold to
private investors.
Sources: News reports and China
Statistics Annals
Problems of Chinese hospitals:
- Despite strong demand for
better hospital services, the
utilization rate will stay low
because hospital charges are
beyond the affordability of
general public.
- Potential earnings
disruption after the separation
of medical consultation and drug
dispensing services.
Implantation of medical
insurance will boost traffic but
at the expense of margins.
- Additional financial burden
to upgrade equipment when
competing for medical insurance
participants.
The earnings outlook will be
adversely affected by the
regulatory changes. For instance,
separating medical consultation
and drug dispensing may slash the
turnover of a typical hospital by
45-58% because medicine charges
account for 45-58% of a patient’s
hospital bill. This explains why
this policy has met with a lot of
resistance from hospitals. The
implementation of medical
insurance system does not bode
well for hospital operators
either. While the introduction of
medical insurance system will
certainly lead to higher
utilization rate of hospitals,
margins are likely to come under
pressure as insurance providers
will request hospitals to offer
discounts in order to protect
their own margins. Given the
intense competition, hospitals
have little bargaining power.
Hospitals will need to upgrade
its infrastructure, equipment and
services in order to attract
medical insurance participants.
The result will be additional
financial burden for hospital
operators.
Nursing and support staff
Well-trained people with
nursing certifications are
eligible for this job, but support
staff is equivalent to low-skilled
hospital workers. Most hospitals
used to mainly rely on full-time
nursing and support staff, but
more and more hospitals are hiring
part-time support staff to reduce
costs.
Nurses are normally well
trained before being eligible for
working with a hospital, but
support workers are a problem.
Some hospitals hire skill-less
“underground” labors and after
giving them some simple training
use them as hospital support
workers. These workers, mostly
from rural areas to make a living
in cities, on the other hand, are
poorly paid by those hospitals and
live hard lives.
To secure the quality of
hospital services, Beijing
recently has passed a regulation
on training and hiring qualified
hospital support workers. In
Tianjin, China’s third largest
city, about 1,000 unemployed
people have been trained by local
authority and passed hospital
support work test. These people
returned to work as certified
support staff of a number of big
hospitals.
In contrast, nurses enjoy a
much better life than support
staff do. One needs to study at a
nursing school for around three
years before being eligible to
work as a nurse. Most nursing
schools enroll middle school
graduates (Grade 9) and senior
high school graduates (Grade 12),
and they run four-year and
three-year programs respectively.
A bachelor’s degree in nursing
has been available since late
1980s and early 1990s in China.
Many medical schools including the
School of Medicine of Beijing
University offer five-year
programs in nursing, and hundreds
of graduates have played important
roles in nursing departments at a
number of leading hospitals.
The advent of nursing
bachelors, some medical experts
say, are transforming the nursing
system in China and upgrading the
country’s hospital services.
Hospital location
Most hospitals are located at
downtown areas due to people’s
reliance on public transportation
in China. More than 80% of Chinese
medical resources are concentrated
in urban areas, and the rest in
rural areas.
Payers
Payment for healthcare
The government, employers, and
individuals pay for healthcare. In
December 1998, a national medical
insurance scheme was launched by
the State Council. By end of 2002,
most of the county or above level
cities had joined the scheme and
covered a population of about 100
million. Social Insurance Fund
Administration Centre, a
department of the Ministry of
Labor and Social Security,
oversees this insurance system.
Currently, this system only
focuses on employees of
enterprises at or above township
level. Those in remote or less
developed areas cannot enjoy the
benefits of this scheme, which is
considered a shortcoming of the
social medical insurance scheme.
The so called National Basic
Medical Insurance Scheme ensures
basic medical access by the public
under the social security system.
Individuals pay an affordable
annual insurance premium for their
basic medical treatment
entitlements. This scheme has
replaced the previous
government-funded labor insurance
medical system. Foreign-invested
enterprises are required to
provide health insurance benefits,
but are not required to
participate in the basic plan. For
example, for employees of foreign
enterprises in Beijing hired
through Foreign Enterprises
Service Corp. (FESCO), foreign
enterprises pay FESCO, and FESCO
then buys insurance policies for
these employees. The government
also allows commercial health
insurers to operate in China.
In 2004, 119.41 million people
had basic medical insurance.
Revenues of basic medical
insurance funds reached $91
billion, and payments were $74
billion.
Structure and Implementation
Premium sharing
Individual employees and their
respective employers share the
premium contribution. Premiums
equivalent to 8% of monthly
payroll will be credited to a
designated account. Employee
contributes 2% and employing
enterprise tops up another 6%.
Employee’s entire contribution
plus 30% of employer contribution
will be deposited into the
employee’s individual account. The
balance of employing enterprise’s
contribution will be kept at the
aggregate fund account for the
scheme.
Charges
Outpatient expenses will be
charged against the individual
account. Inpatient costs within a
pre-defined band can claim against
the scheme’s aggregate account.
Covered patients assume
hospitalization costs of up to 30%
of their annual salaries. The
medical insurance scheme bears the
balance but the amount is capped
at equivalent to 4 times that of
the insured patient’s annual
salary.
Drug price regulation
The qualified drug catalogue
under the basic medical scheme,
which aims to control expenses on
drugs, specifies drugs that are
covered by the scheme and eligible
for reimbursement. As the
government-driven drug price
regulation mechanism and the
centralized tendering drug
procurement program are only
applicable to the drugs covered by
the scheme, the scheme undoubtedly
plays a crucial role in the
development of the drug industry.
Impact
Drug Manufacturers
Those qualified manufacturers
with patent products or operating
in a less competitive product
segment will enjoy robust sales
growth. According to the
statistics from the Social
Insurance Fund Administration
Center, Ministry of Labor and
Social Security, gross revenue of
medical institutions qualified for
the insurance scheme rose by more
than 30% in 2002.
Drug manufacturers will be R&D
focused. Ability to imitate
off-patent products quickly is the
best way to protect margins.
Strong R&D capability also boosts
the company’s ability to shift its
product mix toward higher value
added products.
Drug Distributors
Drug distributors are among the
major losers in the price
regulation.
Hospitals/Medical Institutions
Under the insurance scheme,
patients are free to choose
hospitals for their medical
services. This will inevitably
place hospitals and medical
institutions under competition.
Those capable of providing high
quality services are poised to
benefit. On the other hand, weaker
players will be phased out
gradually.
Currently, there are 65,000
medical institutions in China, of
which around 40% of them do not
have sufficient patronage and thus
rely heavily on drug sales. More
consolidation and M&A in this
segment are expected.
Prescription drugs
The basic insurance plan does
not reimburse expenses for drugs
not on the basic medical insurance
drug list, the State Scheme Drug
List for Basic Medical Insurance,
which is based on clinical need,
safety and efficacy, reasonable
pricing, ease of use, and the
desire to maintain a balance
between Western and TCM products.
The basic medical insurance and
at-work injury insurance of 2004
cover 832 traditional Chinese
medicines, up from 415 of 2000;
the number of chemical medicines
covered by the insurance systems
increase from 725 to 1031 from
year 2000 to 2004, some of which
are patent-protected new drugs of
Western companies.
Some prescription drugs are
paid for by the government (70%
reimbursement), employers’ medical
funds, or insurance companies. For
those prescription drugs not
covered by the government’s basic
medical insurance plan, patients
have to pay themselves. But people
can buy medical insurance that
covers such drugs.
Sino-Generali Life Insurance, a
joint venture between China and
Italy companies, offers a
commercial medical insurance that
reimburses 80% of prescription
drugs, with an annual maximum
reimbursement of $1000 per policy.
Changes
Before the reform of healthcare
system, roughly 140 million
workers and 60 million family
members were covered under the
State-owned enterprise (SOE) and
collective insurance. This system
has reimbursed 100 percent of
employees' medical costs, and 50
percent of family members' costs.
The system has been funded, in
name at least, by the enterprises.
Hoping to reduce enterprise
subsidies of all types, the State
Council launched pilot reforms in
1994 of the two health insurance
systems under its control. Begun
in two midsize cities, Jiujiang,
Jiangxi Province, and Zhenjiang,
Jiangsu Province, and expanded to
over 60 cities in 1997, this
experiment has become national
policy, applicable to domestic and
foreign-invested firms. The two
State health insurance systems
would later be consolidated to be
the Basic Medical Insurance
System.
The true market for Western
drugs in China was never 1.3
billion people strong. Only about
120 million to 180 million workers
have some form of healthcare
coverage that will pay for Western
pharmaceuticals, according to
industry analysts. Farmers, who
make up the vast majority of
Chinese, have no real coverage at
all.
The role of government
The Chinese government used to
cover up to 100% of medical fees
for employees working with
government agencies, state-owned
enterprises, or educational
organizations, but peasants didn’t
enjoy the policy.
Starting from 2001, a new
medical coverage plan took effect,
marking the government’s
withdrawal from shouldering whole
medical insurance burden. Under
the policy, urban residents must
join a government managed basic
insurance coverage plan for urban
residents and pay a certain amount
of monthly fees based on their
income levels, and up to 70% of
their medical expenses can be
reimbursed. So far around 100
million urban residents are
covered by the plan.
Private payers and insurance
companies
According to a news report,
44.8% of urban residents and 79.1%
of rural residents have no medical
insurance. Many of people are
private payers. They either cannot
afford to buy medical insurance,
or do not understand the value of
medical insurance. It’s not
uncommon to find a news report
about some patient committed
suicide after being unable to pay
for large of medical fees.
In contrast to rural residents,
urban residents have much better
situation. Many employers have
bought for their employees group
or supplementary medical
insurance, and employers deduct
from employees’ payrolls a small
percentage of their monthly
incomes. For some high-income
residents, commercial medical
insurance offered by Chinese and
western companies have become
their top choice. China Life
Insurance, Ping An Insurance, AIG
and other big insurance companies
are fiercely competing for the
market share of commercial medical
insurance.
Some employers buy
supplementary insurance or group
insurance for their employees, and
employees pay a small part of
their salaries for the insurance.
Physicians, hospitals, and clinics
get paid directly. Patients are
reimbursed later from the social
security department, their
employers or insurance companies.
