I. During the planned economy period, China’s health system had made great achievements and there were much experience to learn

II. China’s health system has changed greatly and made great progress since the reform and opening up, but the problems are also serious. Overall speaking, the reform was unsuccessful

III. Difficulty in breaking through former popular reform thoughts

IV. Principal issues to be firstly settled in the future reform

V. A conceptual framework for China’s future health system

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I. During the planned economy period, China’s health system had made great achievements and there were much experience to learn

• China’s health system had made great achievements during the planned economy period.

During the planned economy period, despite of the overall low economic development level, health input of about 3% of GDP of China basically met the basic health service needs of almost all the social members through effective Institutional arrangements. Good national health result had thus been realized. Many comprehensive national health indexes reached the level of the medium-income countries. In this aspect, China had got great achievement and was assessed as the example to solve the national health problems among the developing countries by some international organization.

• One of the basic experiences of the great achievements of the health system during planned economy period is the rapid development of health service and its reasonable structure and service objectives.

During the planned economic period, China’s health service has undergone rapid development. Through over 20-year of development after the founding of the People’s Republic of China, relatively complete health service including medical treatment, prevention, healthcare, recovery, teaching and  research had been into formation . Not only the number of services rapidly increased, but also at the structuring of the service layout, the priority is the building of the basic-level medical service organs. At the locality layout, the priority is to build rural medical service system. In urban areas, a three-tiered medical service system of city, district-level hospital and street outpatient service and related epidemic prevention had been into formation. In rural areas, a three-tiered hospital prevention and healthcare network integrating prevention, medical treatment and healthcare had been into formation with county-level hospital as the main units, township health centers as the core units and village clinics as the foundation units. The accessibility of health service had greatly increased.

During the planned economy period, the objectives of different levels and kinds of medical service organs are set clearly----pursue public welfare and improve general public health. Profit-oriented service didn’t exist. Reason why this objective can be set is due to the specific organization and management at that time. Almost all medical service organs are of public ownership, some of which were run directly by the government department and some are collective ownership subject to urban and rural economic collective. Management was mainly by planning. The government and the organization that governed medical service organs ensure the funding input. Health service income has no connection to the economic profit of the practitioners.

•  The second basic experience of the great achievement of the health system during the planned economy period is reasonable selection of health intervention.

The experience put “prevention” first and attach importance to the development of public health undertaking. Among the whole medical health input, input to public health undertaking is always at the first priority. In system building, a basic complete public health organ system including health and epidemic prevention, maternal and child healthcare, control of endemic diseases and border health inspection and quarantine has been established. Good coordination relationship has also been built between public health systems and between public health organs and medical service organs. In addition, mass patriotic health campaign also played a positive role. The effect of valuing public health system was very obvious. Various virulent contagious diseases were basically or completely eliminated. Various contagious diseases and verminosis were effectively controlled. The officially reported morbidity rate of contagious diseases was rapidly decreased and the morbidity rate of endemics was greatly reduced.

On the other hand, in the general medical field, behaviors of the hospitals and patients were well controlled and standardized through setting public welfare objectives of the related medical service organs, controlling medical service provision capacity and other related institutional arrangements to enable the emphasis of the medical intervention on the treatment of common diseases and frequently-occurring diseases with good cost-effectiveness. Meanwhile, selection in technology also emphasize on using appropriate technologies.  

Reasonable selection of health intervention realized the low input and high output of the health resources. Meanwhile, more justified distribution of medical health resources was realized in different areas and between different groups. 

•  The third basic experience of the great achievement of the health system during the planned economy period is a widely-covered social medical security system had been established.

First, medical security system was well developed. In urban areas, public medical treatment and labor medical security system almost cover all the urban laborers. Meanwhile, according to the relevant institutional arrangements at that time, many family members of staff can be partially secured by the public medical system or labor medical security system when committed diseases. In rural areas, cooperative medical system developed gradually r, covering about 90% of the total rural population in the best period. Through the three security systems, overwhelming most of population can have expenses security to different degrees when diseases risks happened.  

On the other hand, public welfare-oriented health system during planned economy period had very strong medical expenses security and transfer payment functions. The salaries of personnel, infrastructure and medical equipment of various medical service organs mainly depend funding from government and various economic collectives. Medicine prices were strictly controlled by the government, even some of them are hidden subsidies from government. This facilitated medical service system’s functions not only to provide health service but also redistribute and transfer payment. Residents actually have obtained many public subsidies even they didn’t participate in any kind of medical security system. Functions of medical expense security and transfer payment in the public welfare health service even surpass the function related to rural cooperative medical system.  

Effective expense security mechanism guarantees most residents, especially the poor groups, affordable to see a doctor. And to a large extent, this has realized the transfer payment of medical health resources and greatly increases the impartiality of the health system.

•  There are some problems, but not serious, in the course of development of health system during the planned economy period.

There are also some problems in the course of development of health system during the planned economy period. Too strict government plan management, to certain degree, affected the initiatives and creativity of the medical service organs and medical staff. Rapid expansion of medical service system but relatively insufficient overall input, plus backward education of expertise results in overall low technical level of the health service. Imbalance of the economic and social development results in the imbalance of development level of medical service system between different regions and urban and rural areas. There is a great gap of the security level between rural and urban medical security system. In addition, urban public medical treatment and labor medical security system always had the problems of insufficient constraints on patients and more of less waste of resources. While the rural cooperative medical system was insufficient pooling function.  

Although these problems can’t be denied, the defects cannot obscure the virtues. China has made great achievement in health system during the planned economy period and had attracted eyes worldwide.

• The decisive factor for the success in the health system during the planned economy period is that government plays the dominant role.

During planned economy period, government played decisive role in China’s achievements in the building of medical service system, selection of intervention emphasis and development of expense security system. Funding to health mainly depended on the government. Government uniformly planned in how to distribute medical health resources among different health field and different groups. Government also strictly implemented the organization and management of specific service. In general economic activities, the disadvantages of letting government played the dominant role in planned economy system are serious. However, in health sector, due to its characteristics, the dominant role of the government is absolutely necessary. The selection of China at that time conformed to the basic requirements and rule of the development of health system.

II. China’s health system has changed greatly and made great progress since the reform and opening up, but the problems are also serious. Overall speaking, the reform was unsuccessful.

• China’s health system has changed greatly since the reform and opening up.

In the health service medical service system, the ownership structure of the medical service organs evolved from single ownership to multiple-ownership. The organization and operation of the public organs changed greatly. The autonomy of deciding list of service, arrangement of business activities, staffing and distribution as well as financial management was increasingly expanded. Relationship between different medical service organs changed from coordination of division of labor to overall competition. Service items of public health organs and medical organs were further separated. Service objective generally becomes pursuit of economic goal from public welfare. so do both non-public medical organs and public medical service organs and even public health service organs.  

In medical security system, with collapse of People’s Community system in rural areas, cooperative medical system rapidly collapsed in most areas in the early 1980’s. Although different levels of government and social circles all tried to restore the cooperative medical system, the attempt has not got obvious result because the system foundation for the traditional cooperative medical system does not exist any more. Recently, Central government decided to build new rural cooperative medical system and is pushing the progress now. In urban areas, due to SOE reform and other system reforms, traditional labor medical security system and public medical system also encounter many problems. After years of reform effort, the medical security (insurance) system combining social pooling and individual account is finally built.  

Besides the reform of medical service system and medical security system, government also conducts reform in administration of the health system, drug production and circulation. In medical health administration and funding, the uniform coordination function of the central government gradually weakened. Local governments undertake more and more responsibilities. Drug production and circulation is gradually decided by the market supply and demand.

• Basic trend of the system reform is commercialization and market-oriented.

Reform has made service basically provided through commercialized and market-oriented mode. Various capitals can enter medical service field and there is no market entry barrier or exit restriction. Structure of new organization and service objective positioning are mainly decided by market demand. All the medical service organs, including public medical service organs and even public health organs have all become independent entities actively pursuing profit. Micro organization and management of the health service organizations are gradually changing to corporate management mode. Relationship of different organs, including different ownership organs is the overall competitive one. Price system of the medical service is also gradually determined by market supply and demand.  

In the aspect of demand, health service demand has increasingly evolved as private consumption. By so far, total of about 100 million population in urban areas are covered by the medical security system, accounting for one-fourth of the urban population, less than half of all the urban employed people. However, only about 10% of the total population in rural areas is covered by the system. In addition, the medical security system itself in fact has no enforceability. Rural cooperative medical system has been following the voluntary principle since reform; therefore, new rural cooperative system is also designed under the same principle. Although urban medical insurance system focuses on enforceability, in practice, because of pursuit of income and expenses balance, only after premium is paid can have relevant security treatment. For most social members, when in need of health service, whether the service demands can be met or to what degree can be met completely depends on the financial capacity of individuals and their families . This not only happened in general medical field but also in need of some public health services.

•  Achievements in health system reform

The achievement of commercialization and market-oriented system reform is mainly reflected in the following areas. Service provision capability is overall improved through competition and large involvement of non-government economic force in medical service field. Number of medical service organs, doctors and beds is greatly increased compared with that of the planned economy period. Contents of health service are gradually expanded. Technical equipment is improved on an overall basis. Diagnosis and treatment items are greatly increased. In addition, changes of ownership of the medical service organs, management system reform and multiple-level competition clearly improved the initiatives of the medical service organs and related personnel, causing great improvement in their internal operation.

• The consequences of the system reform are much more noticeable, mainly reflected in low impartiality and low efficiency, which seriously affect economic and social development.

As for the impartiality, the degree of meeting the demands of different social members for health is seriously polarized. The l health demands of some social members can be fully met and that of some other social members (including many rural population and some urban residents) and even the most basic service demand can’t be met. According to the evaluation of WHO on the fund-raising and impartiality of the health systems, to our shame, China is the No.4 backwards among the 191 member countries.

In the aspect of macro- performance of the health input, the input of the whole society in health has greatly increased since the reform and opening up. In 2002, the proportion of the total health expenses in GDP is greatly increased to 5.42%, but many health indexes of the residents has not been obviously improved and some health indexes even become worse in some fields, especially in the public health field. Some contagious diseases and endemics that have been controlled in the planned economy period began to revive. New health problems emerged one after another. According to evaluation of the overall health achievement of 191 member countries by WHO in 2000, China unsatisfactorily ranked No. 144.  

Low level of impartiality and efficiency further brought serious economic and social consequences, for example, negative influence on the national people’s health, series of social problems as poverty, increasing of dissatisfaction from general masses and imbalance of relationship between different groups. These directly affect the social stability and the public support on the reform. In economic development, the consequences led to restraint of residents’ consumption, thus further restrict economic growth. Some problems have already happened in some areas at present.

•  The cause of the problems roots in that the commercialized and market-oriented development violated the basic requirements and basic rule of the development of health system.

1) One of the problems is contradiction of the nature of public product of health service and the commercialized and market-oriented service mode. Different from the general consumptions, quite a lot of health services have the nature of public goods or quasi-public goods. The profitable market principle body can’t do, can’t do well and is unwilling to do the service with nature of public products, and also beyond the control of individuals. For this kind of service, government must and only government plays the dominant role. Otherwise, there must be something wrong. The public health crises exposed by SARS and emergence of other problems has fully shown the seriousness of the problems.  

2) The second problem is the contradiction between the availability of healthcare and the commercialized and commercialized service mode. In the area of general medical service, no one can avoid the demand for the medical service. Therefore, it is an important foundation for the healthy development of health system to build a public-needed, multiple level and reasonably- structured health service to ensure the availability of the medical service as much as possible. The commercialized and market-oriented health service can’t on its own realize this objective, because the difference of purchasing power between different groups and different areas will surely result in the concentration of medical service resources on the higher purchasing power areas and higher level. From the practice of China, the excessive commercialization and market-oriented of the health service results in decreasing of availability of the health service.  

3) The third problem is the contradiction between macro-objectives of health care and commercialized service mode. For a society, the reasonable objective of the development of health system is to realize as high as possible national health result with as low as possible medical health input. To realize the objective, it is very important to select health intervention emphasis with low cost and good health effectiveness and appropriate technology, especially for the developing countries with insufficient economic power like China. In selecting what to intervene and what type of applicable technology, since there are many factors such as information asymmetry, behaviors of health service organ and medical staff has played the decisive role Therefore, reasonable system should be arranged to make medical health organ and medical staff to select on the principle of pursuit of low cost and higher health effectiveness. Obviously, the commercialized and market-oriented health service system can’t on its own realize the objective. Under the commercialized and market-oriented service system, there is obvious contradiction between the above objectives and medical service organs and medical staff pursuing for their own economic profit. As long as medical service organ and medical staff pursuing for their own economic profit, it surely results in deviation of their behavior. The problems get very serious in the reality of China. Because the whole health service industry pursues economic profit, health intervention shows the trend of despising prevention and valuing treatment, despising common diseases and frequently-occurring diseases, valuing serious diseases and despising appropriate technology and valuing high and new technology. Although valuing prevention and treatment of common diseases and use of appropriate technology can get better health benefit, it fails in bringing high profit to the health service organs and medical staff. It is worth noting that some health service organs provide excessive service to pursue private interests, even scarifying the health of the sufferers. This is the key factor why medical service price and total social health input has increased but the health is not improved accordingly since China’s reform.  

4) The fourth problem is the contradiction between the diseases risks and financial capacity of individuals. Different social members may encounter different diseases risks and different related medical service demand, and individuals and their families have different financial capability. Therefore, if the medical service demand is private consumption relying only on the financial capacity of individuals and their families, the demands of quite a lot of social members must not be met. The basic health right can’t be guaranteed which seriously affects the social impartiality and also brings other series of economic and social consequences. Thus, it is very important to build a wide coverage medical security system and realize mutual relief of risk share. From the China’s reality, because of series of problems in the development of urban and rural medical security system, the medical service demand gradually involves into private consumable and the problems and consequences causes are very serious.  

That commercialized and market-oriented approach does not accommodate the rules and requirements of development of health system is a fact proven theoretically and by the practically throughout the world. The problems of China since the reform and opening up are walking on the way that has been proven wrong already.

•  There are many reasons for the deviation of health system reform.

1) The first reason lies in attaching too much importance to the economic growth in the selection of reform and development mode, while development of social system including health system has not received due importance. After economic system reform, because of the change of system foundation, the traditional health system, especially medical security system, has undergone severe impact. Scope of security is rapidly shrunk. Facing with the reality, no clear system adjustment and development thought was formed in a quite long period and the reality is passively accepted. After the reform of health system reform is listed in the agenda, the objective of reform is obviously deviated which tend to serve the need of other system reform more. Reform of health system is only regarded as a policy tool. The basic objective of valuing and protecting the basic public health rights should be emphasized is ignored.  

2) The second reason is lack of clear knowledge on the characteristics of health system and believing too much in the market. In many reforms, the market route is wrongly and excessively taken and the required government function fails to play its role. The most obvious problems are reflected in reform of health service system and reform of medicine system.  

3) The third reason is problems of other system have too much influence on the development of health system, especially the financial system. Responsibility for development of health system, especially government funding responsibility, was mainly taken by local governments. The inter-regional difference of the economic development results in great difference of local financial ability. However, higher-level government didn’t form effective transfer payment system leading to many areas lacked the basic ability to develop health system so that some wrong reform and development modes had to be taken. In addition, segmentation of management system of health system since the reform and opening up and the uncoordinated and un-unified reform direction and objectives resulted from also posed many questions  

4) The fourth reason is the influence of the vested benefit groups. While the development of health system plunges in the plight of partiality and lack of efficiency, the vested benefit groups are naturally formed. According to the China’s current real situation, the vested benefit groups are mainly some medical service organs, practitioners and some members enjoying higher level of security. The further system reform is to readjust the benefit relationships. However, in practice, the vested benefit groups have very obvious influence on the reform direction. The difference of negotiation ability and imperfect policy-making system directly affects the rationalization of the reform direction, or the information asymmetry and defect of other systems stop the implementation of reform, all of these may contribute to the development of health system deviates from the reasonable direction gradually.  

III. Difficulty in breaking through former popular reform thoughts

• Further reform is going but some of the practices are worthy of analyzing.

The problems and consequences of the Chinese health system have aroused attentions from the society. Overall progress of health system reform is highly recognized by all the circles of the society. Reforms in various other fields began further. The practice of facing problems, and looking squarely at reality to push the reform is worth affirming, but it is another question whether the reform can achieve progress and good effect. As a whole, the present reform thinking and practice is worth of studying and analysis.

• Failure to focusing on the emphasis in the reform of public health.

In the field of public health, different levels of governments began to attach great importance to strengthening building of public health system after SARS. The present policy mainly focuses on two aspects, one is increasing government funding and the other is stressing the building of emergency system. The reform and development idea is somehow incorrect.  

Insufficient government funding is the important factor causing the problems in the public health undertaking, but only the only one. Besides insufficient funding, the following problems such as separation of the medical service system and public health system, segmentation of public health organizing system, defects of the organization and management system of public health organs and the resulted behavior deviation are very serious. If there is no comprehensive reform, simply increasing funding will surely fails to ensure stable development of public health undertaking. Moreover, funding should also be based on the improvement of systems, especially on the standard responsibility sharing and fund-raising mechanism between different levels of government. However some reform doesn’t touch the problem.  

Many people highly praise to strengthen the building of an emergency system in public health, but the idea is also incorrect. The key to develop public health undertaking is to form an effective regular system. What SARS and other public health problems exposed is the ineffectiveness of regular systems. It is unreasonable to build an emergency system due to emergence of a specific problem without due attention to the regular system.  

Another point to be noted is, because of breaking out of SARS, people view that in public health, it should focus on the prevention and treatment of contagious diseases includes control of endemics, control of occupational diseases, health education, maternal and child healthcare and environmental and health control. From China’s reality, we find that besides contagious diseases, there are also serious problems in other public health areas needing comprehensive treatment. It is far from enough to care only few public health problems.

• There are very serious commercialization and market-oriented trend in the reform of medical service system. It is quite wrong to have the reform idea of grasping the larger and letting it go the smaller ones (抓大放小).

Although commercialized and marking health service system reform has caused extremely serious consequences, many people still lack of clear and conscious knowledge, and public opinion still voice for commercialization and market-oriented. Many actual reforms, especially the reforms implemented by many local governments, still select further commercialization and market-oriented. Besides further pushing competition, local government relax price and further introduce enterprise management into public medical health organs. Quite a few local government began to use indiscriminately the practice of enterprise reform and privatize public medial organs by such means as stock restructuring, integrated selling and licensed operation. Definitely, the consequences will be too serious to think if this kind of reform is carried out.  

The reason for tidal wave of commercialization and market-oriented of the medical service organs is, to great degree, the seemingly allured analysis thought that the running efficiency of the medical service organs can be improved and service price can be reduced by pushing the health service organs into the market and enabling them to compete. Government public health service and basic medical security responsibility can be settled by subsidy and government purchase of service. The thought seems reasonable but doesn’t work actually. As long as medial service organ goes on commercialization and market-oriented, deviation of layout and service objectives of health service can’t be avoided. That competition can’t guarantee the reduction of medical service price has been proven early by practice. Government purchase no doubt can lead the layout, service emphasis and service direction of the medical service system to certain degree, but the role is very limited. In consideration of the Chinese situation, if subsidize the needed and purchase the service are adopted, only part of services can be purchased because of limited financial power. This even more can’t guarantee the healthy development of health service system.  

Somehow different from actual practices of some local governments, policies issued recently by the departments of the Central Government don’t allege the overall commercialization and market-oriented of medical service system reform, but stress reform by category. The main point of the policies is to classify the medical service organs into two kinds. One kind is free from restriction and is positioned as profitable organs, organized and managed just like enterprise. The other is non-profitable organs, mainly pursuing welfare objective that government continues to give support. In consideration of national situation of China (the national input ability) and the international common practice, it is the reasonable selection to reform medical service organs by category and form multiple service providing bodies. As for what should be focused and what should be relaxed, the basic direction of the related reform policies is focusing on major and relaxing the minor, which is rather wrong. In the building of medical service system, we need to give priority to develop and ensure the primary health service system, but not the secondary and third-level medical service system. This is to fully ensure the availability of health service and really improve the macro efficiency of health input. Therefore, the reasonable reform thought should be focusing on minor and relaxing major, not focusing on major and relaxing minor. Another question to be studied and analyzed is the organization and management mode of the non-profitable organs which is highly approved among the existing reform thoughts. However, China has no tradition and experience of developing non-profitable organs and the related laws and regulations are almost blank on this. In addition, non-profitable organizations have their own disadvantages. It is doubted whether the non-profitable organizations can undertake the main body of the social welfare objectives.

• Urban medical insurance system has obvious defects on its own and its prospect is not optimistic.

No new reform plan is carried out in the building of urban medical security system. The emphasis of the system building is to push the implementation of medical insurance system of ‘combination of social pooling and individual accounts’. The problem is the ongoing urban medical insurance system itself has obvious defects and its prospect is not optimistic. 

1) One of the problems is that introducing accumulative individual accounts in the medical insurance system doesn’t conform to the basic principle of medical insurance system design. On one hand, medical insurance principle that mostly needed to be emphasized is mutually relief. Setting individual account clearly reduces the mutual relief function of insurance. On the other hand, people’s demands for health service exist at any time, it is impossible to accumulate first and consume later. Introducing accumulative system obviously disobey the law of medical demand. According to the international experiences, no country in the world except Singapore introduces individual account in the medical insurance (security) system. Moreover, the function of the individual account in Singapore is far different from the function designed by the Chinese system. The accumulated funds in the individual account in Singapore are mainly used for the self-paid expenses in the hospitalization. However, in the Chinese system design, the outpatient expenses are also required to pay from the individual account. In essence, the system requires individuals to solve the basic medical problems. The problems caused by the system design are complex and outstanding.  

2) The second question is the target groups of the existing system design are the employment personnel and qualified retirees and most children, quite a lot of elder and other people out of employment can’t enter the security system. Two problems are caused, one is medical demands of quite a part of population are difficult to get the system security and the risks of individuals and families are hard to dissolve, causing other economic and social consequences. The other question is some people have medical security and other don’t. People out of the security system will definitely try to erode medical resources in the system by all means.  

3) The third question is the existing medical system design and related measures don’t solve the behavior restraint of medical service providers, resulting in out-of-control of the medical prices. In this case, how to maintain the fund balance becomes the priority problem. In the practice, one of the main practices is to emphasize the close link of payment and treatment. The security can’t be enjoyed without payment or without timely payment. In fact, medical insurance has finally evolved into a wealthy club voluntarily participated by the economic rich people who can pay. The second of the main practices is to strengthen the control of the patients by minimum payment, ceiling payment and other kinds of individual payment, so that those who can enter the system to participate in the security also can’t get satisfactory security.  

In addition, the pooling level of existing medical insurance is too low to realize risk sharing in a wider scope. Among the different types of groups participating in the medical insurance, the security standards are different, affecting the system impartiality.  

From the result of the practice, we know that the existence of multiple problems produce great influence on the progress and operation of the urban medical insurance system and its continuance is doubtful.  

• Obvious defects exist in the design of new rural cooperative medical system

Because of sharp deterioration of the rural health system and failure in attempt to restore the traditional cooperative medical system, since 2003, the related departments of the central government put forward the reform thought of new rural cooperative medical system and expressly highlight the government input responsibility. It should be said that the initiative is worthy of fully affirming. The question lies in the obvious defects in the system design and whether it can play the role of the basic medical security for vast rural residents.  

1) One of the problems is that the new system design principle is farmers’ voluntary participation and paying the premium annually. This in fact sets an expense threshold, which the poorest residents, usually the mostly needed help people surely can’t secured because of lack of paying ability. This is obviously contrary against the general principle that reasonable medical security system should highlight protection of the economically weak group. In addition, voluntary participation system must constitute the difference inside and outside the system. It is difficult to avoid the people outside the system eroding the resources inside the system.  

2) The second problem is the combination of government subsidiary and voluntary participation. Voluntary participation will definitely exclude the economically difficult groups; those who can participate in the insurance are the relatively rich groups. Under the situations, that government provides subsidiary to those who participate in the insurance with general tax will definitely result in converse transfer payment which intensify the inequality and violates the principle that social security system is designed to highlight the transfer payment to the poor ones to alleviate the inequality.  

3) The third problem is the security target is set as serious diseases. The reality of rural areas shows that not the serious diseases but common ones and frequently-occurring ones really affect the health of rural residents. The effectiveness of the medical health input shows that intervention on common diseases and frequently-occurring diseases can achieve better health effect than that on serious diseases. Setting the security target as serious diseases in fact gives up the security responsibilities of the basic needs of most people and can’t get better input effectiveness.  

4) The fourth problem is new rural cooperative medical system design. Similar to urban medical security system design, new rural cooperative medical system has no reasonable medical service system reform simultaneously taking place to support. Thus the design has to emphasize on making restraints on the patients. The related system design refers to many practices of urban staff medical insurance system and introduces minimum payment, ceiling payment and reimbursement on pro-rata basis. These practices are favorable to maintain the fund balance, but too strict restraint on the patients, especially the too high self-paying proportion must result in reduction of the initiatives of the participation in insurance.  

5) The fifth problem is the organization and management mode. The new rural cooperative medical system specifies organization county by county and centralized audit and reimbursement after expenses occur. The pooling level seems to be low. But in China’s reality, it shows that most counties has over hundreds of thousand population with rural residents scattered. We doubt whether the counties have enough management ability.

• The practice of some other reforms is worth of doubt.

In recent years, the reform of health system touched other contents and some practice and thought of the reform is worth of doubt.  

One is the reform of medicine system. Different from general consumptions, general consumers have little knowledge to choose the medicines and they must depend on doctors. It is the key to standardize and limit the behavior of hospitals and doctors to guarantee the reasonable medicine use and reasonable price. The international experience shows that the basic emphasis should be focused on two aspects. One is to strictly control the production license, quality standards, scope of use and price of the medicines through government intervention; the other is to completely separate the link between income of hospitals and doctor and medicine consumption income. The reform of the China’s medicine system is basically carried out in reverse. The government gradually loosens the control of medicine production license, quality standard, scope of use. Price and medicine production and circulation are excessively in competition. At the same time, the link between the hospital and doctors’ income and the medicine consumption income is gradually strengthened. The final result is that hospitals and doctors choose and use medicines in terms of maximizing their own profit. Problems such as control of medicine market, out-of-control medicine price, bad medicines replacing good medicines and abuse of medicines come more often and more serious. Facing the related problems, a clear reform measures in recent years is to implement centralized bidding of medicines to cut the trading relationship between the doctors and druggist. The problem of taking this as the policy emphasis is that medicine circulation is only one aspect of the problem. It is impossible to solve the overall confusion of the medicine use and price simply through reform of circulation system. A problem to be criticized is that the related policies set the hospital as the entity of the bidding purchase. As the common profit entity for entity and doctors, hospitals will still definitely make selection to reach their maximized economic profit. The related problems and contradictions can’t be solved. The reform practice has proven the problem of this thought.  

The other is the problem of building medical assistance system. In recent years, the medical problem of the economically difficult groups arouses increasing attention. Some department began to explore to build the medial assistance system target for the economically difficult groups. From the point of view of objectives, the initiative of the policy is worth affirming. However, the problem mainly lies in that the medical assistance for the economically difficult groups must be promoted concurrently with the building of overall medical security system. Otherwise, it is difficult to get good effect to simply push medical assistance system. One of the reasons for it is that when most population in a society doesn’t enjoy the systematized medical security, providing medical assistance to only some economically difficult groups can’t avoid erosion of resources. The second reason for it is the unavoidable poverty pitfall and contradictions between groups. After providing medical assistance to the poorest people, families and individuals close to the poverty line may fall into the poorest because of diseases and want to be assisted, so that the security scope has to gradually expand until the system fails to bear. Otherwise, the contradiction and conflict must occur.

IV. Principal issues to be firstly settled in the future reform

•  The basic system objective must be clearly set for the reform of the health system.

During the development of health system, especially in the developing countries like China, a basic contradiction that can’t be avoided is unlimited demand of social members for medical health, while the medical health resources the society can provide are limited. Based on the basic contradiction, a basic principle problem to be considered is how are the limited medical health resources distributed among the social members and different medical needs? In other words, it must be considered who is insured and what is insured.

 There are three selection modes to the above questions:

 Firstly, to meet all or most medical health need of some social members. Secondly, according to the actual needs, provides all the social members with equal and limited insurance. Thirdly, to insure the basic medical needs of all people. Based on this, to satisfy more medical needs of more social members.

The advantage of the first selection is easy operation. Regarding medical health demands as private consumable, purchase and service is conducted in commercial mode. The problem of this selection is that serious partiality will result. The macro effectiveness of the whole health input must be very low. The practice and consequences of the reform in these years have fully proven this. So this selection should be completely given up.  

The advantage of the second selection is ensuring impartiality of the health system and guaranteeing the effectiveness of the medical health input. The main problem is difficult management and operation. So the selection is not practical because of the real situation of China.  

By comparison, it is the reasonable selection to firstly meet the basic medical demands of all the people and then meet more medical demands of more social members. Although the selection has its shortage also, it, to great degree, realizes the protection of people’s health rights, greatly improve the impartiality of the health service, can play positive role in social stability and enhancing the economic growth and is easy to operate. In a whole, there is no choice but this one.   

The setting and selection of the basic objective of the medial health undertaking not only touches social impartiality and social stability, but also has great influence on the economic growth in fact. While a bad health system affects the social stability and social development, it will definitely restrict economic growth. The reality of China in these years has fully shown the seriousness of the problem. On the contrary, a good health system can push economic growth. For example, if China can build a wide coverage medical security system ensuring the basic health of common people as soon as possible, many good results can be achieved. One result is to enhance the social impartiality and social stability and the improvement of social environment will all benefit economic growth. The second is that effective protection of national basic health will definitely ease the disease burden and reduce economic loss caused by the diseases. Moreover, it benefits the improvement of quality of population and strengthening State competitiveness. The third result is that it greatly improves the life expectation of the residents, stimulate consumption growth and drive the macro economic growth.

• Must reasonably define the focuses and methods of health intervention 

Because of the existence of contradiction between the limited health resources and unlimited health demands, a principle problem must be solved, i.e.  The focuses and methods of health intervention must be reasonably defined. The problem not only directly relates to the total effectiveness of the medical health input but also relates to the impartiality. The only objective of definition is to achieve as high as possible national health result with the existing medical health input. The definition should be done by the comparison of different health intervention objectives, means, cost and (health) effectiveness.  

Intervention in different medical health links produce big and even huge differences in cost and effectiveness when involving in treatment of different kinds of diseases, different populations suffering the same diseases and different treatment means of the same diseases. Because the medical health resource of China is very limited, China must highlight the intervention emphasis and intervention means with good cost-effectiveness. Firstly, highlight public health service. Secondly, centralized the medical resources on the basic clinical service with low cost and good effectiveness in the treatment of diseases. Thirdly, the clinical service with better treatment effect achieved with the existing technology but with very high cost is not advocated at the current stage. Fourthly, thoroughly abandon the clinical medical service with very bad cost-effectiveness. Fifthly, be careful to choose more appropriate technical route.  

At present, many people think the development of health system, especial the design of medical security system should focus on serious diseases. Both the design of urban medical security system and the design of new rural cooperative medical system reflect this thought. Other people think that expenses for serious diseases can be solved by the medial security system and minor diseases can be solved by individuals and families themselves because of low cost. The thought seems reasonable, but not feasible at all. If the thought is feasible, it means that all the medical service demands of all the social members can be met through public fund-raising and personal fund-raising, which obviously disobey the basic reality of China. If the system is designed according to this, the basic result is to meet the serious diseases security demands of some social members but sacrifice the basic medical needs of large number of people. The impartiality of the health system can’t be realized. In addition, the theory and practice of medial health has already proven that many diseases, especially some serious diseases, cannot resist the natural law and the treatment and control of the serious diseases needs high cost but achieve low effectiveness. Setting the security target at serious diseases doesn’t meet the effectiveness principle. 

Putting the health intervention emphasis on the public health and treatment and control of common diseases and frequently-occurring diseases is the definite selection. However, several problems should be stressed. Firstly, the selection mainly addresses the government responsibilities. If some social members have special needs and the individuals and families or other fund-raising means (such as purchase of commercial insurance.) can bear the related expenses, the special needs should be met. Secondly, the common diseases and frequently-occurring disease cannot be distinguished simply by the treatment cost but comprehensive consideration of cost and effectiveness. Thirdly, it is obviously inhuman to give up treatment and attention to the serious diseases with high treatment cost but low treatment effectiveness and even unable to cure. Reasonable selection is to conduct low-cost protective treatment, try to reduce the pain of the sufferers and fully emphasize care and love.  

In the definition of health intervention focuses, besides ensuring the rationale of the selection through effective system design, rational thought should be promoted in the whole society. Occurrence and evolution of some diseases are of the natural law and are irresistible. Even if resources are not limited, it is lack of rationality to fight against the natural law with high input. 

As for the situations of China, although the contradiction between the health resources and demands are very serious, compared with that in the planned economy period, the whole national economic capacity and health input capacity both greatly improved. If better define the health intervention focuses, fully play the effect of resources input and get better national health results, it is very easy to get greater improvement than that in the planned economy period at least.

•  The key question is to strengthen government responsibility

Because of the characteristics of the basic medial health undertaking, neither the selection of basic security objectives nor the selection of health intervention emphasis can realized on its own by simple depending on the market. The only solution is to strengthen government function. This is also the decisive factor to get great achievement in the medial health undertaking in the China’s planned economy period. The government responsibility should be mainly reflected in two aspects: one is to strengthen the government fund-raising and distribution function and the other is to intervene the building and development of health service system.

In the aspect of fund-raising, first to ensure the government input in public health. Public health is a typical public good. Providing public health service is government’s basic responsibility, which should be provided in any cases. Ensuring input is one of the core means to ensure the effective providing of public health service. Besides the input in public health service, the government must take the funds raising and distribution responsibility in the general medical field because of the uncertainty of the personal diseases risks and difference of the personal economic ability. This is the precondition for realization of social mutual relief and risk sharing. Moreover, this is one of the basic conditions to realize the reasonable intervention target.  

Another question to be discussed is how to play the government role in fund raising and distribution in the general medical field. The international experience provides two main ways. One is to provide medical security to national people directly through government general revenue. The other is to provide medical security to national people by government organizing and implementing social medical insurance. The two kinds of fund raising and security have their own advantages and disadvantages respectively. With consideration of the national situations of China, especially the underdeveloped second and third industries of China, and low proportion of the salary-earning laborers among the whole social laborers, the insurance way is not the ideal selection. By contrast, the government direct input better facilitates the organization and management.  

Overall intervention in building and development of health service system is another government function to be highlighted.

1) Intervene the area distribution of the medical resources to prevent the centralization in a certain area of the medical resources to ensure the availability of the service;

2) Intervene the level structure of medial health service, highlight the development of public health and development of primary health service system and avoid concentration of the medical health resources on the high end. This is one of the basic conditions to realize the reasonable selection of intervention emphasis.

3) Intervene the service objective of the health service and highlights the welfare nature. Based on this, play the positive role of the medical service organs and medical workers in the selection of health intervention emphasis.

4) Intervene the service quality and service price to ensure the public to get high-quality service

V. A conceptual framework for China’s future health system

• Break the urban and rural boundary and the ownership boundary and build up an integrated health system covering both the rural and urban residents.

In the past quite long period, the building of the China’s health system, especially the building of the medical insurance system, was carried out separately according to rural-urban divide, ownerships and even employment state. The consequences of this system building are very serious. Therefore, in future reform, it must build an integrated health system covering all the citizens, which not only better achieves the social equity and safeguard the basic health rights of all the citizens, but also avoid the interest group separation caused by system segmentation and the contradiction and conflict arisen from it. Moreover, it can essentially clear away the obstacles of the traditional medical system to SOE reform, joint development of various economic entities and free labor flow. Another outstanding significance lies in more effective protection of farmers’ interest through integrated rural and urban health system building. In addition, under the system, the system erosion problem that is difficult to solve by the security system only addressing fewer groups naturally disappear.

• Classify different levels and scopes of the medical service needs and adopt different financing arrangements.

Classify the medical service needs into three levels as public health, basic medical services and non-basic medical services. 

Public health service including typical public goods as planned immunity, control of contagious diseases, maternal and child healthcare, occupational health, environmental health and health education should be provided by the government to all the social members for free.   

In the basic medical service, one alternative is to provide basic medicine and treatment security to all the citizens. Government input can be taken as the main source to provide a basic medicine and treatment technology including control of the most common diseases and frequently-occurring diseases to ensure the basic health of all the citizens. The specific implementation is that government determines the catalog of the medicines and diagnosis and treatment items guaranteeing the basic health of the general public and purchasing them in integration at a price lowest possible to provide them to all the people needing them. Most of expenses occurred are borne by the government finance but individuals need to pay small part of them. In order to control waste, individual patients have to pay a little amount. For those who have real difficulty to pay, portion that need to be self-paid can be waived or reduced. 

As for the needs that are failed to meet by the basic medical service package, government doesn’t provide uniform security and residents themselves undertake the responsibility. To reduce personal risks, it will encourage commercial medical insurance and enhancing ‘mutual guarantee’ among the social members. Individuals are encouraged to voluntarily participate in the commercial medical insurance. Enterprises are encouraged to purchase commercial medical insurance for workers by means of supplementary insurance based on the principle of volunteer and independence. Also encourage capable collectivity in rural areas to participate in insurance. To enhance the development of commercial insurance, government can provide preferential policies as tax reduction and exemption. 

The distinguishing of the boundary between different levels of medical service, especially the determination of basic medical service scope (including medicines, diagnosis and treatment items) can be completed by an expert system according to the diagnosis and treatment experience of various common diseases and frequently-occurring diseases in the medical service fields and combining the security capacity of the government and society.

 At the beginning of system building, the service package can include relatively less contents and gradually increase them with the economic growth and increasing of government input.

• Build an effective health service system to achieve the objectives of the health system.

Because the government should undertake full responsibility for public health, the related service should also be undertaken by the public departments directly under the government for unified organization and coordination. From the current state of China, we suggest that the public health service and basic medical service are undertaken by public organs and should be an integrated system, because the public health undertaking and basic medical service is closed linked. That is, to build the public medical service system undertaking public health service and basic medical service. On one hand, this will better conform to the rule of health system and can better highlight the combination of prevention and treatment while prevention is the first. Meanwhile, it can avoid the resources waste brought by co-existence of the multiple service systems. 

The non-basic medical needs belong to individual consumptions, so do in the current stage at least. Therefore, service should be mainly provided by market but not by government. Therefore, in the area of non-basic medical service, we should encourage the development of profitable organs and sufficiently introduce competition. Because of the characteristics of the medical service, it is obviously not correct to turn all the non-basic medical service to the profitable organs. Therefore, it is necessary to build some public organs pursuing public welfare objective in the non-basic medical field. Their roles roughly include three aspects: guidance in the service price; guidance in the technical route selection and undertaking some government function related to this, such as technology spreading and dissemination, emergency medical service and medical service in special period. Besides public organs and profitable organs, we should refer to the international experience to actively create conditions for developing non-profitable medical service organs to undertake non-basic medical service with profitable organs and public organs. 

Public organs are directly set up by the government and their basic function is to provide public health service, basic medical service and some non-basic medical service. The organs must not profit oriented, its behavior and income and expenses should be strictly separated. Government should ensure the input to the organs is undertaking the public health and basic medical service. The public medical service organs in the non-basic medical service field can have profit, but the profit must be counted in the state budget income and used to advance the redevelopment of the health system. The related personnel in the organs should be public officers, but they must be employed through contractual agreement and subject to motivation and restraint mechanism. The distribution of the public medical organs should be planned by the government uniformly. The organs undertaking public health and basic medical service can refer to the management mode of the public servant organs. The public medical organs in the non-basic medical service field can be more independent when ensuring to realize the basic will of the government.   

The profitable organs can be operated in the same way as enterprises and fully compete with each other. Government must conduct overall supervision and management in terms of qualification conditions, service price and service quality. 

Non-profitable medical service organs can be operated as general non-profitable organs. The organs don’t aim at profit can have profit, but the profit can only be used for redevelopment of the undertaking. Government gives preferential policies in the area of taxes and credit as well as supervision and management. 

According to the  system design, the combination of prescription and dispersion （医药不分）, medical services supported by selling medicines（以药养医） in the basic medical field can be completely stopped. So the point to solve the problem lies in the non-basic medical field and the focus should be the profitable medical service organs. Main means is to strictly limit income proportion of hospitals after adjusting the medical service price and to enhance the separation of hospitals and medicines. On the other hand, aided with the strict price supervision and management and related punishment means to control of the plot of hospitals and medicines to the maximum degree.

• Build and gradually improve fund-raising and corporate governance system

The basic policy framework, service items and standards should be determined by the central government. The whole country should maintain a roughly equal level in the areas of public health service and basic medical security. Because public health and basic medical service involves millions of families, therefore, specific organization responsibility should rely on local government. According to the current situations of China, it is the more appropriate choice to make county-level government be the principal of the organization responsibility. 

The responsibility of fund-raising mainly lies in central government and is shared reasonably by different levels of government. Following means can be considered. The compensation of medical workers, basic medicines and the expenses for purchase of diagnosis and treatment means can be borne by the central government. Other expenses as basic constructions mainly depend on the local government. The difference in financial capability among different areas can be solved by strengthening the general financial transfer payment. 

As for fund-raising, multiple fund-raising modes can be taken first. For example, adjusting the financial expenses structure of the central government and increase the related input. Adjust the income proportion between central and provincial government and use the increased central financial income especially for medial health expenses. From the long-term point of view, special taxes should be formed and is used in the health system. In term of expenses, check the basic needs among all places in China according to the per capita expenses standards calculated by the security objective and the population in different areas. Then the central government directly allocates funds to county-level organization and management organs through the provincial finance for their use.  

To ensure the stability of public health and basic medical service, it must carry out separate budget management on related expenses. At the central level, build a special public health and basic medical service fund and carry out separate budget management. At the county level, must completely separate the income and expenses of medial health funds from other financial income and expenses. Strictly prohibit mutual appropriation by any means.

• Transitional arrangements

One is the transitional arrangements between the existing medical security systems with the target system. The key question is how to prevent the benefits of current privileged groups getting worse. For these people we can provide them with supplementary insurance. For example, for the government public officers and other middle or senior workers in the state-owned economic department obtaining medical security commitment, government can uniformly provide some supplementary commercial medical insurance. For the employees in the enterprises, the government can encourage the enterprises to participate in commercial medical insurance for the serious diseases through tax preferential policies.  

The other is the reform of the current medical service organs by category. The reform of the current medical service system can no doubt be the one ‘valuing the minor and overlooking the major’. The public organs undertaking the public health and basic medical service can be formed through reform and regulation of the current public health organs, current basic medial service organs with rural township health centers and urban community hospitals as the main body. The current large professional hospitals should be reformed by category. Some of them will be changed into profitable organs, some of them remain as public organs and others are tried to change into non-profitable organs.

• Simple demonstration on the feasibility of the proposed reform plan.

As for the proposed reform plan, people may concern with the financing capacity. We think financing is no problem.  

The economic capacity of the country is sufficient. The simplest logic is that during the planned economy period, despite of the lower economic development level, the basic health and medical insurance of most rural and urban residents are basically solved through system building. Since the reform and opening up of China, the economic level is greatly growing, so China is capable of realizing the basic medial insurance of all the citizens.  

Seeing from the data, the proportion of total health expenses in China has approached 6% of GDP. The input level is relatively high among the developing countries. The overall input level is enough to guarantee the basic health of all the residents. The reform essentially adjusts the way of fund-raising, distribution and direction of resources input. This is on earth a matter of political policy-making and system design.  

As shown by numerous facts, the medical resources are not fairly distributed, and medical resources are wasted, lost and inefficiently input. If these problems cam be solved through system reform, lower input also can solve the basic health guarantee of the public. 

[Unofficial Translation - For Reference only]