Establishing Appropriate Agency Relationships for Providers in China

Liu, Yu; Saltman, Richard B.

Chinese health system development and economic reforms in the past 70 years have nurtured the current unique physician agency relations in China. Between 1949 and 1978, the Chinese health care system was designed with the objective to provide "equal access for all regardless of ability to pay," an ideology championed by the Chinese Communist Party under Mao Zedong. 1 To achieve this goal, the Chinese government INQUIRY assumed control of all aspects of health care and delivery-it provided funding for the construction of hospitals and clinics, paid health workers a fixed salary, and set the prices for medicines and services. 2 At that time, all physicians became employees of public hospitals, establishing the foundation of the current dominating role of public hospitals, especially tertiary-level public hospitals in China. 3 While the post-1978 economic reforms and the marketoriented approach have helped develop the Chinese health care system (eg, the number of hospitals in China has increased from 9902 to 20 918 between 1980 and 2010), 4 new challenges have also emerged. First, governmental subsidies to public health care facilities declined dramatically after 1978. The government's subsidies to public hospitals fell to merely 10% of their total expenditures by the 1990s, 5 and 90% or more of Chinese public hospitals' revenue continued to depend on drug sales and services in 2010. 6 While Chinese public hospitals continued to have a bureaucratic and complex government-run regulation and management system, 3 they also were expected to behave like for-profit entities to earn profit to survive and to continue being competitive in the health care market. 7 Second, because laborrelated medical services remained underpriced, 8 the Chinese government set a higher margin rate for high-technology procedures and diagnostic tests, and hospitals are allowed to charge a 15% to 25% mark-up on drug sales (15% for Western medicine and 25% for Traditional Chinese Medicine). 9 Such policies provided financial incentives for hospitals to begin a "medical arms race" to scale up their provision of high-technology diagnostics and interventions, as well as to overprescribe drugs. [10] [11] [12] Third, most of senior physicians' income from hospitals is still a combination of basic salary and bonus, 13 with the bonus coming from hospitals' financial profit. 14 To increase their hospital's profit, hospital management tied the physicians' bonus to their contribution to hospital profits, which has intensified the overprescription of drugs and overuse of diagnostic tests. 5, 7, 8, [10] [11] [12] [15] [16] [17] Such an extrinsic bonus incentive method may also "crowd-out" physicians' intrinsic concerns for other important aspects of health care, for example, the health care quality and population health. 18 Some scholars have commented that these financial incentives even may have directly eroded physicians' ethics. 17, 19 Because of this strong alignment of financial incentives, senior physicians in effect can become more the agents for public hospitals rather than for their patients.