June 2008 O Volume 2 O Issue 3

PARDEE RAND GRADUATE SCHOOL Policy Insight

Caring for a Third of the World’s Population Challenges for the Health Systems of and India

hina and India together have more than 2 ularly in improving birth outcomes and preventing C billion residents, accounting for nearly 40 communicable diseases. percent of the total world population. Over Overall, people in China live longer, healthier the past 50 years, both of these countries have made lives than people in India. The difference between substantial gains in health, including increases in women is larger than that for men, resulting in life expectancy, reductions in infant mortality, and part from the 10-fold greater maternal death rate Sai Ma, Ph.D. PRGS Alumna the eradication of several diseases. Yet China and for Indian compared with Chinese women.1 Assistant Scientist, Johns Hopkins University India still lag behind many countries on key mea- Significant differences exist in causes of death sures of health, and the health gains achieved have as well. In China, noncommunicable diseases, been uneven across subpopulations. particularly chronic obstructive pulmonary dis- Comparing the health systems in China and ease and cancer, account for 77 percent of all India illuminates the health challenges common to deaths. In India, however, more than 40 percent both nations as well as those that are distinct to of all deaths are due to communicable diseases— each of them. Such a comparison is also timely, as including HIV/AIDS, diarrhoeal diseases, respira- health care reform is high on the political agenda tory infections, and perinatal conditions (Liu, Rao, Neeraj Sood, Ph.D. Economist, of both countries. and Hsiao, 2003)—which can be addressed by RAND Corporation Health systems include not just health care but more-effective health policies. also many other factors that affect health, such as 2. Ineffective Financial Risk Protection in Both poverty, education, nutrition, and sanitation. In Countries. Poor health can increase poverty and this Policy Insight, we focus our comparison along reduce material well-being through a number of two essential dimensions: health system goals pathways, including excessive medical expense, and the policy levers that are used to accomplish impaired labor market participation, and loss these goals. of productivity (Liu, Rao, and Hsiao, 2003). Unfortunately, the health systems in China and Goals India provide little protection from financial risk. The World Health Organization’s (WHO’s) 2000 In China, medical expenditures have become an report, Health Systems: Improving Performance, important cause of poverty, increasing the num- The Pardee RAND Graduate states that a health system should have three fun- ber of rural households below the poverty line School is a recognized damental objectives: (1) improving the health of leader in doctoral education by 44 percent (Liu and Rao, 2006). Similarly, in in policy analysis. Using a the population it serves, (2) providing financial multidisciplinary approach, India, up to a third of hospitalized patients are protection against the costs of poor health, and students and faculty examine impoverished by medical costs (Krishna, 2004, a wide range of policy issues, (3) responding to people’s expectations. How do including health, education, and Peters et al., 2002). energy, public safety, and national China and India fare in achieving these goals? and international security. The heavy burden of health costs in China Graduates pursue careers in 1. China Has Achieved More Gains in Health. universities, think tanks, public and India is not surprising, given the lack of service, government, and the While China and India face very different demo- well-developed health insurance schemes in both private sector. PRGS currently enrolls approximately 90 students, graphic and health challenges, both countries have countries. This situation is exacerbated by two drawn from more than 20 achieved substantial gains in life expectancy and countries around the world. the prevention of certain diseases since the 1940s. These improvements are reflected in the key health 1 Maternal death rates are correlated with rates of childbirth. Therefore, the indicators for each country shown in Table 1. The large difference in maternal death in the two countries is attributable to both better health care and Chinese women’s low fertility rate, a result of China’s gains in China have been more substantial, partic- “one-family-one child” policy. Table 1. Key Health Indicators Maternal Low-Birthweight Life Expectancy Probability of Dying (per 1,000) Death Rate Rate 0–1 Years Under 5 years old 15–60 Years Old (per 100,000) (%) Old Both Both Both Male Female Male Female Male Female 2000 1999 sexes Sexes sexes China 72 70 74 27 31 27 36 158 99 56 6 India 62 61 63 58 85 81 89 275 202 540 30

SOURCE: World Health Organization, The World Health Report 2006: Working Together for Health, 2006, and other WHO statistics.

key factors. First, the lack of access to affordable in China has been on social or public insurance; care means that people defer preventive and other in contrast, India is betting on the emergence of necessary care; consequently, when they do seek private micro–health insurance. care, they typically have a more serious and costly 2. Payment. The fee-for-service (FFS) payment medical condition. Second, for those who seek care, method, in which health service providers are reim- physician-induced overutilization of care further bursed a fee for each service provided, dominates increases the financial burden of care. in both China and India. FFS creates incentives for 3. Consumer Satisfaction Understudied in the overuse of health care services, further increas- Both Countries. Consumer satisfaction has not ing the burden on consumers. In China, these been widely studied in either country, suggesting problems are exacerbated by the use of government- that perhaps neither country has yet employed administered price-setting rather than bilateral patient satisfaction as an important measure of negotiation between the government and providers. quality of care. In contrast, India’s government and professional associations have little influence on price-setting. Five Policy Levers for Improving Both countries face the challenge of reforming the Health Systems payment system to reduce overuse and to increase As William C. Hsiao (2003) argues, financing, pay- use of more cost-effective health care technologies. ment, organization of health care delivery, regula- Savings from such reforms could be passed on to tion, and behavior are the five essential policy levers consumers, reducing their health care expenses. in a health system, since they are the key forces for 3. Organization. influencing the ultimate performance of a health Starting in the late 1940s, both system and can also be affected by policy. Below, countries worked to develop public health care we compare China’s and India’s performance with systems that provided basic medical care, disease respect to each of the five policy levers. A summary prevention, and health education. Government of these comparisons is shown in Table 2. provision of health care was largely successful in China but less so in India. As a result, China expe- 1. Financing. Financing refers to the mechanisms rienced much larger gains in health through to the by which resources are mobilized to fund health- 1980s. In the 1980s, both countries faced pressure sector activities. Financing has the most important to increase the role of the private sector in providing and direct effect on the performance of a health health care services. India was more successful than system (Roberts et al., 2003). China in this, in large part because India’s private As Table 2 indicates, in both countries, the main sector was much more mature than China’s. mechanism for financing health care is individual However, the privatization of health care has had out-of-pocket spending, followed by general gov- negative effects in both cases. Citizens of both coun- ernment expenditures. Since out-of-pocket pay- tries now bear greater burdens and risks in financ- ment does not pool the financial risks associated ing their health care needs. In addition, the private with health care, it places heavy financial burdens sector has a greater incentive to provide curative on the poor and the sick and often bankrupts rather than preventive treatments. This reduction in patients and their families. In recent years, the attention to public health, especially on the preven- function of health insurance, either private or tion of communicable diseases and the promotion of social, as a way to pool risk has drawn policy- healthy lifestyles, may be one of the most important makers’ attention in both countries. The focus health issues emerging in each country. 2 Table 2. China and India: Policy Levers Used in Health Systems Policy Lever Indicator China India Total expenditure on health $61 $27 per capitaa (2003) % of GDP (2003) 5.6% 4.8% Out-of-pocket as a % of total 56% 73% Financing medical spending (2003) General government input as a % 36% 25% of total medical spending (2003) Health insurance Reliance on public insurance Emerging private micro-insurance Payment FFS Dominant; governments set price Dominant; providers set own price Public providers 96% 30% Organization Public providers 4% 70% Enforcement Many regulations, little enforcement Fewer regulations, little enforcement Regulation Regulatory structure Diffuse Very diffuse Behavior Education and promotion campaigns Somewhat effective Limited by illiteracy aPer capita total expenditure in U.S. dollars at average exchange rates.

4. Regulation. Regulation refers to the govern- from out-of-pocket to prepayment mechanisms ment’s use of coercive power to impose a full range is the key to reducing financial catastrophe.” of legal constraints on organizations and indi- This can be accomplished by providing nation- viduals (Roberts et al., 2003). Both countries lack alized or social insurance, as is common in a coherent regulatory framework for their health Europe, or encouraging private insurance, as is systems. The Chinese government has many health common in the United States. China is leaning regulations but lacks the capacity to enforce them; toward the former, whereas India seems to be noncompliance in the public health system has favoring the latter. We recommend that both been exacerbated by structural deficiencies and lack public and private insurance models and their of communication between different government adapted versions should be considered in both branches. India has less-stringent regulation of the countries in order to meet a diversity of needs. private sector and also less enforcement of laws in Also, both countries should consider a health both the private and public sectors. maintenance organization (HMO) model with vertically integrated provision of health insur- 5. Behavior. In addition to formal regulations, gov- [A key challenge ance and health care to contain costs. ernments and the private sectors can achieve their for both countries O Reform the reimbursement mechanism. Reduc- goals by influencing people’s beliefs, expectations, is to] reduce the tion in overuse of unnecessary services can be and lifestyles through advertising, education, and accomplished by moving away from regulated out-of-pocket information dissemination. The health education prices and FFS-type contracts. Both countries burden and promotion campaigns initiated by the Chinese should consider separating drug prescribing and on individual government have been rather effective. However, in dispensing, as well as adopting alternate reim- consumers. India, almost 40 percent of the population is illiter- bursement mechanisms, such as the prospective ate (compared with 7 percent in China), so the use payment model adopted by in the of print media to convey health messages is much United States. less effective. O Improve quality of care. Both countries should make quality assessment and evaluation integral Key Challenges and Policy parts of their health systems. Developing and Implications encouraging a culture of professionalism in We conclude by identifying key challenges for health care can also help to improve quality. China’s and India’s health systems and their policy O Increase access to care for the poor. While cer- implications in each country. tain health care services are overutilized, both O Reduce the out-of-pocket burden on individual China and India face the critical challenge of a consumers. Currently, both countries rely heavily disadvantaged and underserved population. Both on out-of-pocket health care payments. However, countries need to build more primary health care as Xu et al. (2007) have argued, “moving away facilities, especially those that provide preventive 3 care and basic curative care, and better manage policymakers around the globe with ideas for cop- existing facilities. Special attention should be ing with their own health care challenges. Health paid to improving access to care in rural areas system reform is high on the political agenda of by expanding education, screening, immuniza- both China and India, and it is our hope that this tion, and transportation-assistance programs in analysis and the recommendations we derive from these areas. it will help inform this debate. Peer Reviewers O Build capacity for addressing and monitoring Teh-wei Hu emerging diseases, such as HIV and obesity, and Professor Emeritus, Health Economics, University for promoting healthy behaviors. Both China of California, Berkeley and India should improve horizontal and verti- Further Reading Shinyi Wu cal coordination between government branches Assistant Professor, Hsiao, William C., “What Is a Health System? Why Should on surveillance and control of communicable University of Southern We Care?” in Marc J. Roberts, William C. Hsiao, Peter California diseases. China needs to make its data more Berman, and Michael R. Reich, Getting Health Reform Right: transparent and reliable; India needs to develop A Guide to Improving Performance and Equity, New York: a more effective surveillance system by invest- Oxford University Press, 2003. ing more resources without interrupting routine Krishna, Anirudh, “Escaping Poverty and Becoming Poor: primary care. Both China and India have high Who Gains, Who Loses, and Why?” World Development, prevalence rates of smoking; tobacco control Vol. 32, No. 1, 2004, pp. 121–136. is one effective policy instrument to prevent Liu, Yuanli, and Keqin Rao, “Providing Health Insurance tobacco-related deaths and chronic diseases. in Rural China: From Research to Policy,” Journal of Health O Match hospitals’ capabilities with local needs. Politics, Policy, and Law, Vol. 31, No. 1, 2006, pp. 71–92. Both countries, but especially China, suffer Liu, Yuanli, Keqin Rao, and William C. Hsiao, “Medical from an inefficient health care delivery system Expenditure and Rural Impoverishment in China,” Journal of that is overly concentrated in urban areas and Health, Population, and Nutrition, Vol. 21, No. 3, September thin in rural and remote areas. Policies that 2003, pp. 216–222. ensure capital and human resources for preven- Ma, Sai, and Neeraj Sood, A Comparison of the Health tive and basic curative care will help lower-tiered Systems in China and India, Santa Monica, Calif.: RAND clinics and community hospitals to continue to Corporation, OP-212-CAPP, 2008. exist and develop. Peters, David H., Abdo S. Yazbeck, Rashmi R. Sharma, The above recommendations address the most G. N. V. Ramana, Lant H. Pritchett, and Adam Wagstaff, Better Health Systems for India’s Poor: Findings, Analysis, and pressing and fundamental challenges. They will help Options. New Delhi: The , 2002. the two countries to achieve their ultimate health Roberts, Marc J., William Hsiao, Peter Berman, and Michael system goals, particularly the goals of improving R. Reich, Getting Health Reform Right: A Guide to Improving health and providing financial protection. Performance and Equity. New York: Oxford University Press, As the home of nearly 40 percent of the world’s 2003. population, China and India face a great chal- World Health Organization, The World Health Report 2000: lenge in reforming their health systems to achieve Health Systems: Improving Performance, 2000. maximum health outcomes in the face of limited Xu, Ke, Davis B. Evans, Guido Carrin, Ana Mylena Aguilar- resources and competing priorities. The health Rivera, Philip Musgrove, and Timothy Evans,” Protecting policy choices these two countries make will not Households from Catastrophic Health Spending,” Health only affect their citizens, but could also provide Affairs, Vol. 26, No. 4, 2007, pp. 972–983.

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