Nowhere in the world is the dual healthcare
challenge of price control and expanded coverage more clear than in China.
The
human need for expanded coverage is acute; yet, finding policies that will
empower industry to meet these challenges many times run at cross-purposes with
the short-term cost containment objectives of government planners. Some western multinationals are already becoming
cynical about the balancing act between these two sets of priorities. It is worth pointing out that for all the
suspicion over whether China can find a way to both expand coverage and
incentivize industry, the country has managed to avoid some of the more
draconian options like those India has put forward in the pharmaceutical sector
(thus far that is).
For
those unfamiliar with India’s approach (which has, to the country’s credit
changed since the 2005 patent reforms), the Indian Patent Act of 1970
recognized only process patents. In
addition, what protection was provided to pharma companies was paltry by
comparison to what most of the world provided (India provided 7 years of
process patents versus the developed world’s standard of 15 years). The resulting burgeoning of generic drug
production in India was largely a reflection of thirty years of reverse
engineering by Indian companies who could see into previously protected
processes. This policy stance by the
Indian government was successful in expanding access to drugs for the average
Indian consumer (it was also – and perhaps most importantly – successful
planting the seeds for India to become a global superpower in the production of
generic drugs). Can China avoid
something similar that would be good for it in the short term, yet
disadvantageous for industry in the long term?
Perhaps, although the emphasis being placed on the Anhui Model and the
widely growing fear that it will spread into medical devices and diagnostics
are not encouraging signs.
On this
point, it is also worth mentioning that thus far at least the sorts of forced
technology transfer the Clean-Tech and advanced manufacturing industries from
North American and European companies seeking to enter China have had to deal
with have largely been avoided by healthcare companies with similar market
entry objectives. Whether this continues
to be the case is, in my mind, very much an open question. Traditionally, the more a particular
industry, strategic economic sector, or policy stance comes into focus by the
Central Government, the more difficult it is to wall off these matters. Regardless, as the 12th 5 Year Plan makes
extremely clear, the Chinese government understands it must do a foundationally
better job expanding health care coverage to the masses if it is to encourage
the evolution of the Chinese economy and promote social stability. Reforming the existing healthcare system, and
creating new mechanisms for delivering care (in particular for the rural
population) are high priorities for Beijing.
With
this in mind, I recently spoke with Christina Ho, J.D., M.P.P.. Christina is an Assistant Professor of Law at
Rutgers, and former a Fellow and Project Director of the China Health Law
Initiative at the O’Neill Institute for National and Global Health Law at
Georgetown University Law Center. Christina
is one of the world’s leading experts on China’s healthcare reform
process. I had first encountered her
work in the superb report “Implementing Health Care Reform Policies in
China: Challenges and Opportunities”
published by the Center for Strategic and International Studies (CSIS). She has also written a very good article for
China: an International Journal titled
“Health Reform and De Facto Federalism in China.”
In the
CSIS report, Christina provided what I think is one of the best summaries of
China’s approach to healthcare reform:
“China’s health system has spanned the antipodes of potential health
system models, ranging from a pure government delivery model to one radically
driven by profit incentives, and now China is seeking a hybrid to suit its
hybrid economy. After an extensive and
remarkably public debate that featured clashes between ‘government approach
faction’ and ‘market approach faction,’ China has settled on a mixed vision
that guarantees a level of basic universal health security while permitting
market space to meet additional demands.”
To me, successful entrepreneurs, businesses and investors who want to
find a way to access China’s healthcare market will keep what Christine calls
this “mixed vision” in mind. For those
reading this who are curious to learn more about the policies that embody this
mixed vision, I highly recommend Christina’s “Health Reform and De Facto
Federalism in China” article as it captures the tension between not only the
public-private features of this matter, but also the uniquely Chinese federalist
issues that undergird much of this.
For
those unfamiliar with Yanzhong Huang at the Council of Foreign Relations, who
has put forward the provocative conclusion that healthcare under Mao was
actually better than what the average Chinese (and in particular the rural
Chinese) have access to today, Christina’s CSIS analysis adds some much needed
context. There she writes, “… with
economic reform, health care began to be treated much like any other economic
sector; the guarantee of central support dried up, and local governments
treated care providers like enterprises that are responsible for generating
revenues to achieve solvency. The
overutilization of higher-priced drugs and tests, the denial of care to those
without means, and other cost, quality, efficient, and equity problems that
emerged stemmed from these ‘profit’-driven incentives.”
The
role of profit-generation is likely to remain problematic as China’s reform
process advances. Christina shared with
me that China “might not have thought through a comprehensive enough framework
that allows for the various public and private actors to pursue their own
interests without compromising the public good.” For pharma, the Anhui Model is a good example
of this; however, I am coming to believe that China’s approach to incentivizing
direct investment in hospitals is likely to be another. China has on two occasions tried to encourage
private investment in public hospitals.
The first round was poorly received because the facilities operated were
dogs (some were actually offered at no cost to try and get foreign operators
interested), and because an outsider could make very few changes to the
compensation schemes for public employees.
When in late 2011 China announced you could make an investment in hospitals
it rectified one of these errors by not limiting those hospitals where the
investment could be made; however, thus far at least foreign investors have to
keep the compensation schemes the same, have significant limitations on how
they can extract profits from the entity, and cannot access the yibao
reimbursement scheme.
For
China, the tension between the role of the government as a payer and that of
private industry is one that has to be carefully resolved. Christina fears that China might make some of
the same mistakes Russia made when faced with similar challenges. In the CSIS report, she shares “When Russia
attempted to institute a system of managed competition in its health system,
direct supply-side subsidies continued to represent such a large portion of
providers of overall revenue that demand-side insurance purchasing never
achieved enough leverage to exert a transformative force.” During our conversation, Christina added that
what Russia illustrated was “as you transition away from a single channel
pricing mechanism you need to make sure money is flowing through payers …
business, insurance companies, or ministries empowered to act as the insurer …
now, the Ministry of Health hopes to hang onto as much of this turf as is
possible; they jealously guard this where we want to see China allow additional
payers exert more influence on the healthcare system by encouraging pay for
performance.”
One
question I wanted to pursue with Christina was whether she was on the whole
skeptical or hopeful about the trajectory of China’s healthcare reforms. She shared that on the whole “the framework
is pretty good … a betting person would say it will be good enough .. the
ongoing interactions and adjustments I see happening over time will likely work
out the kinks – on the payment side in particular – the Chinese government has
such a vested interest in seeing this work; their commitment to reform is so
explicit … they have to use every tool at their disposal to make this a
success.”
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