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Privatization and Its Discontents — the Evolving Chinese Health Care System David Blumenthal, M.D., M.P.P., and William Hsiao, Ph.D

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Privatization and Its Discontents — the Evolving Chinese Health Care System David Blumenthal, M.D., M.P.P., and William Hsiao, Ph.D The new england journal of medicine health policy reports Privatization and Its Discontents — The Evolving Chinese Health Care System David Blumenthal, M.D., M.P.P., and William Hsiao, Ph.D. For the first-time visitor, China is breathtaking — er makes its domestic affairs — and particularly, its a land of extraordinary vitality, unimaginable size, internal political stability — potentially important and outlandish contrasts. Its cities hum with en- for people around the globe. In that context, one of ergy, purpose, and impenetrable traffic jams chok- the most fascinating and important aspects of Chi- ing inadequate roadways. It is home to one quar- na’s recent history has been the evolution of its ter of the world’s population, and more and more health care system. As its economy boomed, in part of its 1.3 billion people have flocked into megalopo- by emulating Western economic methods, its health lises (such as Shanghai, with more than 16 million care system nearly imploded, partly because China people, and Beijing, with more than 13 million) that adopted (wittingly or not) the strategies of some dwarf anything in the Western world. And while U.S. proponents of radical health care privatization. those cities sprout soaring, glass-shelled skyscrap- Ironically, the citizens of the United States, a bastion ers and business centers that make even London of capitalism, now enjoy far more protection against and Paris look modest, much of the rural popula- the cost of illness than the citizens of China, a nom- tion, which numbers 900 million, lives in poverty inally socialist nation. As a result, China faces huge and desperation that are reminiscent of the world’s health care problems that make those of the United most forgotten regions. States seem almost trivial by comparison and that This complex reality reflects the enormous eco- constitute a major potential threat to China’s domes- nomic and political changes that are transforming tic tranquility. At the same time, with governmental China. Its gross domestic product (GDP) has grown coffers swollen by tax revenues from its booming at the extraordinary annual rate of 8 percent during economy, the Chinese have opportunities for health the past 25 years, and its economy is now among care improvement that Western policymakers can the world’s largest and most rapidly expanding.1 only envy. This combination of massive challenges Analysts routinely speculate that China will become and huge opportunities makes the Chinese health the dominant world power in the 21st century,2,3 care system a unique laboratory that Western health fulfilling the aspiration of its legendary and contro- care planners cannot afford to ignore. The choices versial revolutionary leader, Mao Tse-tung. Howev- that Chinese officials make now could profoundly er, the means of China’s ascendancy probably would affect their future ability to manage epidemics, such have infuriated Mao. Instead of adopting a socialist as epidemics of the severe acute respiratory syn- and collectivist strategy that relies on central gov- drome (SARS) and the feared avian influenza, that ernmental control and emphasizes social equality, could affect the welfare of humans everywhere. the Chinese have privatized their economy and de- This report reviews the history and current sta- centralized much governmental control to provin- tus of the Chinese health care system. It traces the cial and local authorities. And instead of putting health care changes that resulted from the privat- the interests of China’s rural peasants first, as Mao ization of the Chinese economy, the significant dif- advocated (his was a peasant revolution, starting in ferences in health care problems that emerged in China’s vast countryside), China’s current leaders China’s resurgent urban and neglected rural areas, have poured money into its cities and let rural areas and the strategies that China’s leaders are imple- languish. The results have been huge and growing menting to remedy those difficulties. The report disparities in the well-being of populations in ur- concludes with reflections on the implications of ban and rural areas and increasing social strife.4 these developments for U.S. and Western health care China’s transformation into a major world pow- systems. n engl j med 353;11 www.nejm.org september 15, 2005 1165 Downloaded from www.nejm.org at HARVARD UNIVERSITY on January 26, 2007 . Copyright © 2005 Massachusetts Medical Society. All rights reserved. The new england journal of medicine the recent history of china’s tled its apparently successful health care and public health care system — 1950 to 2002 health system overnight, putting nothing in its place. In retrospect, this startling and almost inexplicable After Mao Tse-tung and the Chinese Communist event seems to have been collateral damage from Party took control of China in 1949, they created a a much more carefully planned and successful pol- health care system that was typical of 20th-centu- icy strike: the privatization of China’s economy and ry communist societies that are now largely extinct. a general effort to reduce the role of Beijing’s cen- However, China added some unique features to meet tral government in China’s regional and local af- the needs of its huge peasant population and to take fairs. Only recently have Chinese authorities recog- advantage of ancient, indigenous medical practices. nized the pain and the massive disruption in health The government owned, funded, and ran all hos- care that they have caused. pitals, from large, specialized facilities (often serving Several specific decisions in the early 1980s cre- communist cadres) in urban areas to small town- ated China’s current health care turmoil. First, Chi- ship clinics in the countryside. The private prac- na dramatically changed the way it financed health tice of medicine and private ownership of health fa- care. It reduced the central government’s investment cilities disappeared. Physicians were employees of in health care services, as well as in many other pub- the state. In rural areas, the cornerstone of the health lic services. From 1978 to 1999, the central govern- care system was the commune, which was the crit- ment’s share of national health care spending fell ical institution in rural life. Communes owned the from 32 percent to 15 percent9 (Fig. 1). At the same land, organized its cultivation, distributed its har- time, the central government transferred much of vest, and supplied social services, including health the responsibility for funding health care services care, which was provided through the Cooperative to provincial and local authorities and required them Medical System. The Cooperative Medical System to provide that support through local taxation.10 operated village and township health centers that That had the immediate effect of favoring wealthy were staffed mostly by practitioners who had only coastal provinces over less wealthy rural provinces basic health care training — the so-called barefoot and laid the basis for major and growing dispari- doctors, who received much publicity in the West ties between investments in urban and rural health for their supposed effectiveness in meeting the care. In effect, the central government drastically needs of rural populations.5 Barefoot doctors pro- reduced its ability and commitment to redistribute vided both Western and traditional Chinese medi- health care resources from wealthy areas to poor cal care and also many public health services. areas of a huge and diverse country in which the From 1952 to 1982, the Chinese health care sys- overwhelming majority of the population lived in tem achieved enormous improvements in health the poor regions. Reduction in governmental sup- and health care.5 Infant mortality fell from 200 to port for the health care system also had the effect of 34 per 1000 live births, and life expectancy increased largely privatizing most Chinese health care facili- from about 35 to 68 years. These improvements also ties, forcing them to rely more on the sale of servic- reflected major investments in public health through es in private markets to cover their expenses after a highly centralized governmental agency modeled allocations from public sources declined. Public on the Soviet Union’s system of the early 1950s.6 hospitals came to function much like for-profit en- This public health apparatus achieved major gains tities, focusing heavily on the bottom line. The Chi- in controlling infectious diseases through immu- nese government informally sanctioned this privati- nization and other classic public health measures, zation of hospitals and clinics by ignoring it.11 such as improved sanitation and the control of dis- Second, the government imposed a system of ease vectors, including mosquitoes for malaria and price regulation that had dramatic, unintended ef- snails for schistosomiasis.5,7 By the beginning of fects. To ensure access to basic care, the government the 1980s, China was undergoing the epidemiolog- continued tight controls over the amount that pub- ic transition seen in Western countries: infectious licly owned hospitals and clinics could charge for diseases were giving way to chronic diseases (e.g., routine visits and services such as surgeries, stan- heart disease, cancer, and stroke) as leading causes dard diagnostic tests, and routine pharmaceuticals. of illness and death.8 But it permitted facilities to earn profits from new Then, in the early 1980s, China virtually disman- drugs, new tests, and technology, with profit mar- 1166 n engl j med 353;11 www.nejm.org september 15, 2005 Downloaded from www.nejm.org at HARVARD UNIVERSITY on January 26, 2007 . Copyright © 2005 Massachusetts Medical Society. All rights reserved. health policy reports gins of 15 percent or more.10 Furthermore, the gov- ernment modified its salary-based system of com- 50 pensating hospital physicians to include bonuses 40 determined according to the revenue the physicians generate for their hospitals.
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