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Correcting Past Health Policy Mistakes

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Correcting Past Health Policy Mistakes Correcting Past Health Policy Mistakes William C. Hsiao Abstract: China’s health policy in the 1980s followed its economic policy of marketization. China shifted health ½nancing from public to private and commercialized the country’s public health services. Unwit- tingly, the Chinese government did not grasp the serious market failures in health care, which resulted in a pro½t-driven public health service in which patients pay directly for services. China’s health policy created three major unintended consequences: disparity between rural and urban residents, poor quality of health Downloaded from http://direct.mit.edu/daed/article-pdf/143/2/53/1830390/daed_a_00272.pdf by guest on 30 September 2021 care, and rapid inflation in health expenditures. Since 2003, China has tried to correct its policy mistakes through public ½nancing and by establishing social health insurance. However, strong pro½t motives have become embedded within the culture of medical professionals and have eroded the professional ethics that prioritize medical practices for patients’ bene½ts. Restoring medical ethics is a formidable challenge. This paper analyzes the transformation of the Chinese health system and its ongoing challenges. Alongside the shiny marble-walled shopping cen - ters, lined with Gucci, Louis Vuitton, and Prada stores, and nestled among soaring glass skyscrapers, glittering modern hospitals now dot all major Chi- nese cities. These state-of-the-art facilities, full of expensive high-technology chromatic machines and white-coated staff, stand in stark contrast to the mud-brick, single-room health stations found in the Chinese countryside. Although more and more of China’s 1.3 billion people are moving to metrop- WILLIAM C. HSIAO is the K. T. Li olises, the majority of its rural population, which Professor of Economics at the Har - still numbers some seven hundred million, remains vard School of Public Health. He in desperate need of well-trained village doctors currently serves as an advisor to the Chinese State Council on health and basic essential drugs. The disparity in access to sector reform. Hsiao has published quality health care between rural and urban areas more than 180 papers on health has in essence created a two-tiered system. Although systems and health care ½nancing. the top level is similar to health care available in His books include Getting Health ½rst-world nations, the lower tier of the Chinese Reform Right (with Marc Roberts, health care system is more typical of that found in Peter Berman, and Michael Reich, the third world. 2003), Social Insurance for Developing Nations (with R. Paul Shaw, 2007), After a century of being derided as the “sick man and What Macroeconomists Should of Asia,” China has now become the second largest Know about Health Care Policy (with economy in the world. As explained in Barry Peter S. Heller, 2007). Naughton’s essay in this volume, the economic © 2014 by the American Academy of Arts & Sciences doi:10.1162/DAED_a_00272 53 Correcting reforms that began in 1978 have trans- has been the transformation of its health Past Health formed the economic and social land- care system. The country’s previous so - Policy 1 gdp Mistakes scape. As a result, per capita average cialistic health care system largely im - rose from $300 to $5,450, and six hundred ploded, in part because China adopted a million Chinese were lifted out of extreme market strategy, relying on private sources poverty.2 Compared to the historical eco- to ½nance health care and commercialize nomic development of England, China col - the provision of health services. Ironically, lapsed about two hundred years of devel- bastions of free-market capitalism such as opment into a thirty-year period.3 the United States and Singapore long ago Until a decade ago, China’s leaders fa - learned that the marketization of health vored the cities in terms of policy and care–with its severe market failures– investment, leaving the rural areas to lan- would create havoc and yield profound Downloaded from http://direct.mit.edu/daed/article-pdf/143/2/53/1830390/daed_a_00272.pdf by guest on 30 September 2021 guish. Meanwhile, the Chinese hukou sys- inequities in health. Nonetheless, in 1980, tem (household registration) has restricted China adopted a market approach to the migration of people from one area to health care, following the general policy another, particularly rural residents want - of the economic sector. ing to move to urban areas on a permanent The reliance on private sources to ½ - basis. The economic boom did transform nance health care and commercialize some rural areas to cities, converting about health care delivery has left behind three four hundred million rural residents to deep and enduring wounds for current and urban; but that number includes three future Chinese leaders to address. First, hundred million so-called migrant work- private ½nancing resulted in disparities ers who work in big industrial centers in in access to quality health care, leading to Shanghai, Shenzhen, and Guangzhou.4 health status differences between urban And when rural residents become migrant and rural residents. China has worked to workers in cities, they are often prohibited address this issue during the past decade from bringing their families, and they have by increasing public ½nancing for the poor, no rights to urban social services such as establishing universal health insurance, education, housing, health insurance, and and investing in health facilities in poor social welfare support. The result of these areas. However, China has not been able changes has been huge and growing dis- to close the gap to any signi½cant degree. parities in the well-being of urban and More important, effective health care rural residents, including migrant workers. relies on well-trained, quali½ed practi- The average disposable income per person tioners, and China has not been able to for urban residents is 3.5 times that of rural close the gap in human resources be - residents,5 and the Gini coef½cient, which tween cities and the countryside, nor be - measures the inequality of income distri- tween poor and rich provinces. bution, has doubled from 0.21 in the 1980s Second, the free market strategy en - to 0.47 in 2012.6 As Martin Whyte dis- couraged hospitals and physicians to pur- cusses in his essay in this issue, China now sue pro½ts with distorted prices. Pro½t- seems to consist of two separate societies: driven medicine has become the norm, urban and rural.7 And the disparity be - resulting in poor quality of health care, tween the two has caused increasing social incorrect diagnoses, inappropriate treat- strife.8 ments, and perhaps even the delivery of Beyond economic growth, one of the harmful health care. As a result, patients most startling aspects of China’s rapid have lost respect for and trust in physicians development over the past thirty years and other health professionals; there 54 Dædalus, the Journal ofthe American Academy of Arts & Sciences have even been cases of patients and their production and provided social services, William C. families resorting to violence, physically including health care, which was provided Hsiao assaulting physicians when they did not through the Cooperative Medical System recover from their illnesses.9 (cms). The cms operated health posts in Lastly, pro½t-driven medicine has cre- villages and township health centers that ated deeply embedded waste and corrup- were staffed mostly by so-called barefoot tion in Chinese medical practices, leading doctors. to high inflation in health expenditures. From 1952 to 1982, the Chinese health While China’s economy grew at a phe- care system made enormous improve- nomenal rate, health expenditures grew ments in health and health care by empha - even faster, due in part to the pro½t-seeking sizing prevention and primary care pro- behavior of hospitals and physicians. This vided by modestly trained practitioners. Downloaded from http://direct.mit.edu/daed/article-pdf/143/2/53/1830390/daed_a_00272.pdf by guest on 30 September 2021 rapid increase raises the critical question Infant mortality fell from 200 to 34 per of whether China’s current health care 1,000 live births, and life expectancy in - system is sustainable when a rapidly grow- creased from about 35 to 68 years. The Chi - ing share of government and household nese public health apparatus also achieved budgets is being diverted to health with- major gains in controlling infectious dis- out commensurate bene½ts to patients. ease through immunization, improved The Chinese government has conducted sanitation, and the control of disease vec- in-depth investigations (including by en - tors, such as mosquitoes for malaria and gaging international organizations and snails for schistosomiasis.10 scholars), gathered extensive evidence, and When China embarked on its economic analyzed the major health problems out- reform in 1978, it overhauled four major lined above. Top of½cials, as well as the health policies: it shifted public ½nancing general public, have a comprehensive to private sources; it turned public hospi- and accurate understanding of the issues, tals and clinics into commercial enterpris- and the causes have been largely identi½ed. es; it decentralized its health system; and it However, some of these causes are rooted altered the price structure for public facili- in the unethical behavior of health pro- ties, thereby enabling them to earn pro½ts. fessionals, as well as in government As China’s centrally planned socialist structure, both of which are dif½cult to economy was transformed to a market correct. econ omy centered on private enterprise, the Chinese government experienced a After the Chinese Communist Party drastic reduction in revenue and had to (ccp) took control of China in 1949, it completely rebuild its ½scal system. Con- created a health care system typical of sequently, the government lacked the Communist countries.
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