Reforming the Health Provider Payment Systems: an Innovation in Henan Province of China

CCHDS WORKING REPORT 001

Reforming the Health Provider Payment Systems: An Innovation in Henan Province of China

Meng Qingyue and Sun Yang China Center for Health Development Studies Peking University

June 30, 2012

Acknowledgement: The study team would like to thank Mr Xie Shuangbao, the Director of Henan Provincial Project Office, the Wrold Bank and DFID China Rural Health Development Project, and his colleagues for their coordination during the study, and for their valuable opinions and suggestions provided during the preparation of the evaluation proposal and report. We would like to express our thanks to Dr Wu Jian from School of Public Health of Zhengzhou University for his contributions during the study design, data analysis and report preparation. Health administrators and technicians from Yiyang, Wuzhi and Ruzhou are appreciated for their help in the field work; thank Wang Haipeng and Chang Jie for their work in data collection; and thank the students from School of Public Health, Peking University, for their help in the data entry. Mr Xu Jin coordinates translation of this report into English. Last and most importantly, we want to thank all institutions and people that experiment and implement the payment systems reform in Henan Province, which offer us the opportunity to carry out this study.

About CCHDS: China Center for Health Development Studies (CCHDS), Peking University, is a joint effort by Peking University Health Science Center and China Medical Board (CMB). Founded in April 2010, the mission of the CCHDS is to advance the health of the Chinese people by achieving academic excellence in production and dissemination of knowledge and by catalyzing and promoting health policy and systems research in China. This entails research, education, and intellectual exchange on long-term and fundamental health systems issues including measurement of health transitions and determinants, studies on development and evaluation of health systems performance, and promotion of academic exchange both within China and internationally. CCHDS focuses its research priorities on health systems research, especially in the areas of health financing, human resources, and health care delivery. CCHDS’ research products include academic publications, policy briefs, and working reports. This report is one of the efforts from CCHDS. More information about CCHDS: www.cchds.pku.edu.cn

Table of contents

Executive Summary ...... 4 Part I Background and objectives ...... 10 1. Overview ...... 10 2. The significance of the reform ...... 12 3. Aim and objectives of the evaluation ...... 13 Part II Methods ...... 13 1. Study design ...... 13 2. Sources of data ...... 16 3. Sampling ...... 16 4. Data method ...... 18 5. Analysis method ...... 18 Part III Design and practice of the payment system reform ...... 20 1. Overall design concept and principles ...... 21 2. Design of the payment system reform ...... 22 3. Implementation of the payment system reform ...... 30 4. Price level compensation of the New Rural Cooperative Medical ...... 33 5. Management and incentive mechanisms ...... 35 Part IV Progress, Achievements and Problems of The Payment System Reform ...... 37 1. Disease coverage of the payment system reform ...... 37 2. Clinical pathway and service quality ...... 42 3. Expenditure increase and control in hospitals ...... 50 4. Satisfaction analysis...... 54 Part V Conclusions and Policy Recommendations ...... 62 1. Main Innovations and Achievements of the Payment System Reform in Henan ...... 62 2. Challenges and recommendations ...... 64 3. Suggestions for improving the payment system reform ...... 66 4. Generalized values of the payment system reform in Henan ...... 66

Reforming the Health Provider Payment Systems: An Innovation in Henan Province of China Executive Summary

Background The reform of the payment system has become an important reform activity which is actively promoted in the central medicine and health system reform, actively propelled by the health and social security authorities, and actively explored by local authorities, and which is considered as one of the breakthroughs in the medical reform. In the past two years, high consensus had been reached, and active measures had been taken. However, due to the complexity of the payment system which has high requirements on the work basis and other conditions, the typical experience that can be generalized nationwide is still lacking. The common problems that exist in the reform of the payment system in China at present are as follows: the reform is not REAL reform, and the contents of reform cannot bear closer analysis; there is no top system design, and the reform is limited to the technical aspect, with poor reform results; the objective of the reform is not clear, which fails to reach a balance between the quality of medical services and charges; the reform fails to reach a balance among relevant parties and is not sustainable. The causes of these problems are complicated. The fundamental measure to solve these problems is to organize and implement a payment system reform which is based on the actual conditions of China and recognized by all parties. With the support of World Bank/DFID Funded China Rural Health Project, Henan Province has started to explore and carry out the reform of the standardized payment system, which has drawn the attention of the domestic trade and international organizations. In order to evaluate the progress, result and problems of this reform to serve any deepened reform, we conduct this study under the entrustment of Henan Province Rural Health Development Project Administration Office. The evaluation is conducted in three counties, i.e. Yiyang, Wuzhi and Ruzhou, to summarize the experience and practices of the reform of the standardized payment system in Henan and to come up with policy advices on deepening the payment system reform. By utilizing the existing documentation, medical records of medical institutions, and interviews with key persons, the evaluation analyzes the implementation of the reform, the changes of service norms and charges after the reform, and the satisfaction of each party.

Main innovations and findings from the reform

1. Main innovations 1.1 Under the dominant guidance of the government, the payment system reform defines the responsibility and interest of each party, clarifies the relations among all parties, establishes the buying system with the medical insurance agency and the medical service provider as the core, and provides the system basis with the guarantee of the government. The establishment of this responsibility system can, to some extent, guarantee the sustainability and stability of the reform, and the right direction of the reform. 1.2 In the establishment, implementation and supervision of the clinical pathway, attention is paid to the combination of scientific rigor and operability, combination of scientific establishment and strict implementation, combination of internal supervision and external supervision. In terms of the external supervision, the supervision services are bought to realize the supervision within the trade. In terms of the internal supervision, the three-level review on the medical treatment quality is implemented. The computer information management system is established to turn the pathways on paper into the actual operation practices. All these are rare in the clinical pathway activities at present. Diseases are classified, with their proportion defined. Quality controllers are deployed for each department. All these are innovative practices. 1.3 In the determination of the pay levels, full considerations are given to the control of the irrational growth of medical expenditures by adjusting the income structure of the hospital, and to the interests of the three parties, i.e. New Cooperative Medical System, patients and medical service providers in order to ensure that the income of medical staff does not decrease under the condition that the interest of patients is guaranteed. During the reform, the distribution methods for the balance of appropriation in the payment system reform of the hospital are defined, and the new incentive mechanism for suppliers is established by utilizing the price negotiation mechanism of the medical service providers and taking the clinical pathway and level of hospitalization costs as the negotiation basis. 1.4 With charges based on the disease categories, and by reference to the principle of Diagnosis Related Group System (DRGs), the hospitalized patients of the same disease are divided into three groups, i.e. Group A (basic diagnosis group), Group B (severe diagnosis group), and Group C (critical group, or group of complicated complications), for treatment and management. The expenditures for each group of patients are paid based on the standard determined in the negotiation within the controlled proportion, and can basically cover all types of patients of one single disease, which avoid variations and patient exclusion, and solve the problem of "high variation, low inclusion" under the disease-type-based charging system. The payment method by grouping and classification differs from the traditional disease-type-based charging system, and is a new charging system in China.

2. Major findings 2.1 The payment system reform in Yiyang and Wuzhi has gained the support of the government and the NCMS agency, has been well recognized by the medical institutions and medical staff, and has been well responded to by patients, which complies with the spirit of the medical reform and the requirements of the health service development, and lays a social basis for the further payment system reform and its perfection. 2.2 In the reform areas, the establishment of clinical pathways not only considers the requirements of relevant national and provincial authorities, but also fully considers the conditions of local hospitals, and brings the functions of the experts of medical institutions into full play in the payment system reform. The clinical pathway is highly recognized by medical staff, and lays a foundation for the pathway implementation. In Yiyang where the pathway is well established and organized, there is high recognition from the medical staff. 2.3 Yiyang and Wuzhi keep expanding the number of disease categories covered by the payment system reform, and have been fully aware that the system coverage is the foundation of achieving an overall achievement. The numbers of disease categories in Yiyang and Wuzhi have reached 123 and 185 respectively. The system coverage rate and the charging coverage rate for hospitalized patients have reached a high level. The coverage rate of the new payment system and the charging coverage rate for hospitalize patients in the county-level hospitals in the two counties reach above 50% in the first quarter of 2012. The payment system has had a great impact on the hospital. 2.4 The consistence of the actual operation of the clinical pathway is an important indicator of the service quality. In Yiyang and Wuzhi where the payment system reform is carried out, the actual operation of the clinical pathway highly conforms to the operation specifications. Yiyang has the best performance, with an actual operation consistence for the selected disease categories reaching above 85%. This shows that that the product responsibility system, information system and incentive system established in the reform have had an significant achievement. 2.5 The payment system reform has led to the change of the medicine application behavior, with both the medicine proportion and the use of antibiotics decreasing, which is particularly obvious in Yiyang where establishment and implementation of clinical pathways are relatively good, with a drop of 10%. The medicine application behavior is not only an expenditure problem. More importantly, it is a medical treatment safety and service quality problem. 2.6 The cost control for the payment system has had a preliminary result. Before and after the payment system reform in Yiyang County, the income increase has obviously slowed down, the price level of disease categories included in the reform has tended to become rational, the expenditures paid by patients have dropped significantly, and the security of the NCMS fund has been guaranteed.

Suggestions for improving the payment system reform 1. Main challenges 1.1 To expand the coverage of the disease categories expenditures, preparation shall be made, including the technical preparation for clinical pathways, and preparation of quality supervision, in order to avoid any implementation quality problems in the rapid expansion. In Wuzhi, the number of disease categories is rapidly increased within a short time, resulting in a low operation consistence of the clinical operation and a low recognition from medical staff. The main problem Wuzhi is facing is how to guarantee the implementation quality during the expansion of the number of disease categories. 1.2 The cost of the medical service has not become the basis of the price negotiation. The introduction of the negotiation mechanism is an important progress in the pricing process for single disease categories. However, the basic information needs to be confirmed for the negotiation between both parties. On this basis, other factors are considered to determine the basic level of the price. At present, the negotiation is still based on expenditure information in the past years, which has not fundamentally solved the problems existing in the expenditure structure and level. Costs are the basis in any pricing. 1.3 Establishment of clinical pathways and single disease categories, while stressing the operability and adaptation to local conditions, needs to be standardized and guided in above-county-level regions. At present, the pathway establishment method and pricing have considered the distinctness of each region and each institution, and are helpful in starting and facilitating the payment system reform. However, such practice also causes the problem of different pathways for the same disease category and different prices for the same disease category among regions, which reflects the standardization issue during pathway establishment and pricing. 1.4 The reform just begins, and frangibility exists in the system development. The institutional reform has been recognized by a number of parties. However, as it is still in the early stage of the reform, the further improvement and progress of the system have higher requirements on management and technology, and require good bearing capability to continue the reform. In Wuzhi, the medical institutions and medical staff need to increase their awareness of the reform, recognize the establishment of clinical pathways, establish and improve the information system. Whether the above can be achieved determines the sustainability of the reform. 2. Recommendations 2.1 Connect the payment system reform with other reforms, increase the recognition of the value of such reform, and increase the consciousness of utilizing the result of such reform. Connecting the reform with the key work of the medical reform may alleviate the pressure of the reform and gain more support. The objectives of

expenditure control, quality improvement and satisfaction improvement to be achieved by the payment system reform are also the objectives for most of the key work of the medical reform. The reform of the county-level hospital, in particular, needs to utilize the payment system as the breakthrough. 2.2 After the direction of the payment system reform is determined, the key work is the detailed management and promotion, and the further standardization of key steps. For instance, the content of the clinical pathway needs to be adjusted from time to time in practice; the supervision method for the implementation of the clinical pathway needs to be further innovated; the training on standardization of medical services needs to be conducted from time to time to create conditions for implementation of the clinical pathway. Yiyang needs to keep expanding the disease categories and increasing the system coverage. Wuzhi needs to further standardize the clinical pathway, increase the each party's recognition of the pathway, and improve the implementation achievement. 2.3 Summarize the experience of project experimental unit, form the popularization strategy and method, expand the benefit coverage of the project while continuing the existing reform, and make more regions join the payment system reform. There is no perfect payment system in the world. After the direction of the present payment system reform is defined, we should "reform and summarize simultaneously, improve and popularize simultaneously", utilize the current favorable situations of the medical reform to popularize the experience to other counties. 2.4 Encourage each region to actively carry out the cost measurement to provide the basic information for improving the pricing method and the payment system. The NCMS agency cooperates with the medical service institution follows the rational measurement method to measure the cost of the medical service and to serve the pricing. The NCMS agency carries out the expenditure analysis to estimate the compensation level of NCMS in a scientific way. The medical institution measures the earnings, defines the cost control target, and increases the resource usage efficiency.

Scale-up of the reform We summarize the features of its reform as "1234", i.e. "set up one responsibility system, define two reform objectives, facilitate standardization of three key steps, and satisfy the four parties". The responsibility system means that that the responsibility of and relationship among the government, medical insurance agency and medical service institutions is defined. The two objectives refer to the service quality objective and expenditure control objective. The three key steps include the establishment and implementation of clinical pathways, determination of the payment levels, and construction of the incentive mechanism and management system. The four parties refer to patients, service providers, medical insurance agency and the government. The medicine and health system reform in China has entered a more difficult and

complicated period. Some fundamental problems which cannot be solved by fund investment are becoming the bottleneck that restricts the reform. As an important policy tool, the payment system reform may play an active role in solving these problems. The payment system reform in Henan has just begun and requires further reform and practices. However, its experience can be used for reference judging from its basic practices and achievements made. Its main values are as follows: - The payment system reform may ignite several other key reforms of the medicine and health system. The reform of the medical security system requires breakthroughs in quality improvement and expenditure control, and this payment system reform provides the tool. The reform of the public hospital requires the breakthrough in county-level hospitals, and this reform is a very good sally port and bearing point. - The new methods of controlling the irrational increase of medical expenditures are studied, which complies with the attention and expectation of all walks of life. The incentive and expenditure control functions of NCMS in the payment process are enhanced through streamlining the responsibility and relationship of each party in the medical service. The problem of different medical services for different patients of the same disease is solved through grouping and classification. The diagnosis and treatment behaviors of hospitals and doctors are standardized before and during the event through the computer supervision and control. - The new concept of eliminating the "mechanism of subsidizing medical services with drug sales" is studied, which may fundamentally and substantially solve the problem of subsidizing medical services with drug sales. By returning the control right over the medical service costs to the hospital, the hospital will take active measures to control and reduce the medicine costs while guaranteeing its service quality, and control the medicine proportion to be within a rational scope. This is completely different from the method of using administrative means to lower the medicine proportion. - To facilitate the comprehensive reform of county-level hospitals. The payment system reform carried out in the project county involves such aspects as internal operation of the hospital, management, compensation, informatics, and management of doctor-patient relationship, and is a comprehensive reform mode oriented by the payment system.

Reforming the Health Provider Payment Systems: An Innovation in Henan Province of China

This report includes five parts. Part I briefly describes the background of the reform of the standardized payment system and this evaluation study. Part II describes the evaluation methods, including sources of data and investigation methods. Part III analyzes the basic practices and features of the payment system reform in Henan by utilizing the existing data and the site investigation data. Part IV reports the main progress, achievements and problems of the reform. The last part summarizes the innovations of the reform and proposes the suggestions on improvement. Part I Background and objectives

1. Overview The payment system reform for medical service providers has been carried out for many years in China. In the new medical reform, it is also an important element in the construction of the incentive mechanism. A number of departments facilitate and implement the payment system reform, including health department and non-health department (social security and finance department, etc), health administration department and medical insurance agency institutions, different departments within the health administration authority ( hospital management department and NCMS management department, etc). After the implementation of the medical reform, the payment system reform for providers in China has entered a fast-growing and dynamic new phase, where the reform has made a rapid and prominent progress in both its forms and contents. The payment system reform is very complicated, not in the technical aspect, but in the supporting conditions and implementation environment that it requires. The technical aspect includes the design, implementation and evaluation of the payment system, and compared with the construction of the implementation condition, is no longer the main bottleneck that restricts the payment system reform. The construction of implementation conditions includes mobilization, supporting policy, management system and information system, and has become a more important factor that determines the achievement of the payment system reform. With the restriction of these factors, there is little practical experience that can be popularized after the long and bustling payment system reform. Reform attempts have been made in various regions since the implementation of the NCMS system in 2003. At present, the nationwide payment system reform has been carried out in an all-round way, and various types of payment systems cover most of the regions. Judging from the NCMS throughout the country, the payment system reform focuses on the advance payment for the clinic total amount of the NCMS fund and on the single-disease-type payment for hospitalization. In Lufeng Yunnan, the unit-based payment method is tried, i.e. hospitalization is charged per bed/day. The advance payment for the clinic total amount is mainly conducted at the township level and the village level. That is, the control over the total clinic overall financing fund is conducted, and the fixed-amount contracting per

person or per clinic visit is adopted to make advance payment to the fixed medical institutions. The fixed medical institutions provide medical services to the NCMS participants according to the provisions. The practice of single-disease-type payment for hospitalization is mainly carried out at the county level and the township level for some disease categories which have clearly diagnosed with stable treatment proposals and distinct disease boundary. The fixed payment amount is determined based on the average diagnosis and treatment expenditures for such disease category at the local medical institution of the same level in the past few years, and based on the price increase factors and capability of the NCMS fund. Meanwhile, the NCMS management agency strengthens its supervisory management on the service standard and service quality of the fixed medical institutions. The NCMS management agency in some places determines the upper limit of expenditures for relevant disease categories via agreement. The combination of the clinical pathway and the payment system is also a focus of attention at present. The main problems of the payment system reform lie in four aspects. Firstly, there is a lack of correct awareness of the functions of the payment system reform. There are a lot of ways to control expenditures, and the payment system reform is one of such ways. Due to restrictions of various factors, some places do not have the required conditions for the payment system reform, but carry out the payment system reform of a certain form in order to meet policy requirements or to keep up with others. The achievement of such reform is not good, because it is just a superficial reform. Secondly, the payment system needs to be worthy of it name. At present, the majority of the payment system reform is not unworthy of their names. For instance, the single-disease-type fixed-price payment is actually the item-based payment under the upper limit of charging for single-disease-type expenditures. The advance payment based on the total amount is actually the item-based charging based on the allocation of total amount of the hospital. Payment per person in clinics is actually the allocation of the NCMS clinic fund per person, and is still the item-based payment from the perspective of the service object. The highest risk of the fact that the payment system is unworthy of its name is that the defects of the item-based payment cannot be corrected, and that the anticipated targets cannot be reached. Thirdly, the payment system reform needs to be supported by other measures. There is no perfect payment system in the world. Selection of the type of payment system depends on the type of problem to be solved. In whatever ways, supporting measures are required in order to ensure the expenditure control and quality in the payment system reform. Fourthly, evaluation and summary must be scientific and objective. In the expenditure control, the most important aspect is the control of the overall expenditure level of medicines and the rate of increase, instead of the expenditure for a certain disease category or a certain service. The existing evaluation tends to have some deviations, and causes great difficulty in determining the achievement of the payment system reform. For instance, in the reform for the single-disease-type fixed payment, the common practices is to analyze the expenditure change tendency between the fixed-payment disease category and the non-fixed-payment disease category, and to demonstrate the achievement of the single

disease category by using the fact that the increase of expenditure for the fixed-amount disease category is lower than that for the non-fixed-amount disease category. However, no definite conclusion can be reached if the illness difference between the capped-payment disease category and the non-capped-payment disease category is not clear, and if the cost transfer is not clear. A large number of documentation has reported the practices and experience of the payment method reform in various places. A lot of studies have gained the positive results. However, a lot of studies decrease the credibility of findings due to the lack of relatively scientific study design. Some studies have the obvious result-oriented traces, and cannot bear closer analysis from methods to conclusions. Therefore, reformers and researchers need to pay closer attention to the use of scientific methods to objectively summarize and evaluate the progress, result and problems for the current payment system reform. With the support of the World Bank/DFID Funded China Rural Health Project, Henan carries out the reform of the standardized payment system, which provides an evaluation opportunity.

2. The significance of the reform The Provincial Health Bureau of Henan Province carries out the experimental study of the payment system reform at county-level hospitals and township health centers by utilizing the World Bank/DFID Funded China Rural Health Project. After the operation for a period of time, this study has formed relatively systemic systems and standards, and gained experience. By evaluating this study, the design concept of the methods, the key steps and conditions of the implementation, and the preliminary result and popularization values may be summarized in a relatively systemic way. The main reasons why the reform of the standardized payment system in Henan deserves us attention lie in the advanced management concept of the project managers, the force and toughness in driving the reform, the practice of highly reliance on technical force, and the objective awareness and understanding of the reform process. The project managers and the researchers have exchanged viewpoints with each other sufficiently regarding the evaluation of this project. Researchers have made the investigation at the site before the study design so that they may understand the key elements and process of the payment system reform in Henan. In particular, the project managers have specifically pointed out that the most important objective is to find the problems in the reform in order to deepen the payment system reform. From the practice of the payment system reform in Henan, the reform is a gradual process where the reform is constantly improved based on the continual summary and understanding of new issues. Take Yiyang as an example. It began the reform of the fixed-amount payment for single disease categories in 2009, but failed to achieve the anticipated target in the initial phase of this reform, with the expenditures not effectively controlled, and quality not guaranteed. None of the four parties, i.e. NCMS, medical institutions, medical staff and patients, was satisfied. Such result enabled the health administration authorities to understand the complexity of the payment system reform, and

to begin the more fundamental transformation from the system aspect. This gives good inspiration to the positioning of this evaluation study. That is, during the evaluation, we need to focus on the process, as well as the experience and lessons acquired in different phases. Only the objective and true evaluation can correctively reflect the essence of the reform and facilitate the good reform practices to continue and be popularized to other regions.

3. Aim and objectives of the evaluation The general objective of this evaluation study is to summarize the progress, result and problems of the payment system reform for the rural health project in Henan, and to provide a basis for the perfection of the payment system. The specific objectives include: a) To review the main practices of the payment system reform for the rural health development project in Henan Province; b) To analyze the progress, result and problems of the payment system reform; and c) To propose suggestions on the improvement of the payment system reform. Part II Methods

1. Study design 1.1 Evaluation framework and selection of indicators The core principle of the payment reform in Henan Province is to rely on the standardized system design and thus to guarantee the quality of medical services and to control the irrational increase of medical expenditures. "Standardization" is mainly reflected by: service standardization: standardize the contents and flows of the services provided by utilizing the clinical pathway method, and thus guarantee the quality of medical services. Payment standardization: Based on the clinical pathway information of disease categories, establish the interactive payment mode where the NCMS office represents the demander and the provider (medical service institutions), and form the standardized payment system. Management standardization: Establish the standardized supporting system to guarantee the implementation of service standards, determine the rational payment level, and satisfy each party. Figure 2-1 shows the framework of this evaluation. The evaluation of the achievement of the reform in Henan Province focuses on two aspects: 1) whether the reform is carried out according to the designed standard, to what extent the reform has been carried out, and which improvement needs to be made; 2) in which aspects the achievement of the reform has been shown, including expenditures, quality, participant satisfaction, and response of medical institutions. To reply to the first question, the process of establishment and operation of the reform system needs to be evaluated and summarized. To reply to the second question, the reform achievement needs to be evaluated.

Figure 2-1 Evaluation framework of the reform The evaluation is conducted on two dimensions. The first dimension is the evaluation and analysis of the operation and conditions of the reform measures at the operation level. The second dimension is the evaluation of the quality, efficiency and satisfaction generated by the reform from the perspective of the health service system. The specific evaluation mode and indicator selection include: Operation dimension 1) Establishment and implementation of clinical pathway The establishment basis, method and implementation process for the clinical pathway of disease categories of the institutions included in the reform are summarized, and the appropriateness, feasibility, restrictions on medical behavior and standardization degree are summarized and evaluated from the perspective of the service providers. 2) Design and operation of the payment The design of the payment mode should avoid any unnecessary complicated technical details so that the providers may easily understand the incentive included in the payment mode. The payment mode is analyzed and evaluated in terms of the generation mechanism of the prices for disease categories, including the design of the price negotiation system, negotiation basis, price compensation level, and in terms of the organization framework and management framework for payment. 3) Management and incentive mechanism The auxiliary strategies and policies that guarantee the reform of the entire payment mode (including the supervision on inclusion and quality), and the incentive mechanism related to

the payment mode (including the establishment and operation of the surplus distribution mechanism and over-expenditure sharing mechanism), are summarized and analyzed. Meanwhile, the practice of using the information measure to carry out the reform is observed and analyzed. Dimension of impact on health service system 1) Impact on health service system The medical services covered by the reform measures may, to some degree, reflect the degree of impact of the reform policy and measures on the entire medical service system. The number of disease categories, number and proportion of patients included, the expenditures generated by such patients and their proportions in the reform regions where the new payment mode is implemented, are the important indicators that evaluate the impact of the reform on the health service system. 2) Quality of medical service If medical services are provided based on the standardized diagnosis and treatment specifications, the actual quality of the medical service process will be affected by three factors, i.e. rationality of establishment of clinical pathways, dependence of implementation of clinical pathways, and consistence of implementation of clinical pathways. Rationality of establishment of clinical pathways: whether the clinical pathway for disease categories executed by specific institutions complies with the related national standards or guidelines; dependence of implementation of clinical pathways: recognition and degree of dependence of medical staff in specialized fields; consistence of implementation of clinical pathways: the degree of standardization of actual diagnosis and treatment behavior, i.e. whether the institutions and medical staff can provide medical services according to the defined pathway requirements for disease categories. Meanwhile, the average number of hospitalization days and use of medicines will also be included in the evaluation and analysis process as the important indicators in the overall evaluation of the end quality of medical services. 3) Control of income and expenditure The possible impact of the reform measures on the income and irrational increase of expenditures is analyzed from the overall and specific perspectives. The indicators designed include the overall conditions and changes of the hospitalization and medical expenditures in the reform region, amount and proportion changes of the NCMS compensation; increase of overall income and hospitalization income of specific institutions; amount and changes of average hospitalization expenditures and medicine expenditures of patients of specific disease categories. 4) Satisfaction analysis The final achievement of the reform shall be based on the satisfaction of the reform participants. Therefore, the evaluation adopts the qualitative and quantitative methods to evaluate and analyze the satisfaction of each reform participant (including patients, medical staff, NCMS agency, government administration departments) on the medical service

system and reform. 1.2 Selection of the study sites The progress of the payment system reform carried out by the rural health development project in Henan varies in different project counties, which provides natural experimental conditions for the control study. There are three types of progress for the payment system reform in the progress counties: 1） Some counties carry out the payment system reform for a relatively long time with rapid progress according to the overall design concept and requirements of the provincial project office (2 counties); 2） Some counties implement the payment system reform according to the overall design concept and requirements of the provincial project office, but with slow progress(1 county); 3） Some counties have not yet carried out the new payment system reform according to the requirements of the provincial project office (2 counties). The study team selects Yiyang as the first type of county, Wuzhi as the second type of county, and Ruzhou as the third type of county from the above counties. As the total number of counties is too small, purposeful sampling is adopted to select counties. The three counties form a contrast. Yiyang may be used as the intervention county, while the other two as the control counties. Or Yiyang and Wuzhi act as the intervention counties, while Ruzhou as the control county. Therefore, the data acquired from this study may be used to compare the study indicators for each county in different periods or in the same period.

2. Sources of data Sources of data: existing policy file analysis; investigations at hospitals and institutions; medical record information for some disease categories; interview with key persons. The existing policy file analysis mainly refers to the collection, arrangement and analysis of such information as the reform policy design and establishment of clinical pathways. The investigations at hospitals and institutions mainly refer to the acquisition of the basic information of the medical institutions, including revenue and expenditure, personnel and services. The medical record information mainly refers to the analysis of the implementation of the clinical pathway and the expenditure changes. The interview with key persons refers to the interview with patients, medical staff, NCMS managers and health administration personnel.

3. Sampling 1) Sampling of the county-level hospitals: Three counties, i.e. the People's Hospital of Yiyang County, Wuzhi Hospital of Traditional Chinese Medicine, and the People's Hospital of Ruzhou County, are selected as the main county-level institutions in this inquisition. The

people's hospital is the main medical institution that implements the payment system reform. The institution investigation and the medical record sampling are carried out at the county-level hospital. 2) Sampling of township-level hospitals: Based on the geographical location and economic development of the towns, three towns in the three counties are selected as the institutions for the institution investigation and the medical record investigation. The three towns randomly selected in Yiyang are: Lianzhuang, Liuquan, Sanxiang; the three towns randomly selected in Wuzhi are: Gedang, Qiaomiao, Dahongqiao; and The three towns randomly selected in Ruzhou are: Yanglou, Linru, Miaoxia. 3) Sampling of medical records: Select some disease categories, and select randomly some medical records from the medical institutions to extract the information from such medical records. Based on the frequency of diseases, expenditure composition and specialty distribution, a simple random sampling is conducted on the medical records of relevant disease categories in the whole year of 2011. The number of randomly selected medical records is shown in Table 2-1. Table 2-1 Sampled medical records Name of disease Yiyang Wuzhi Ruzhou County level: 50 County level: 48 County level: 50 Cesarean Township level: 20 County level: 50 County level: 50 Normal childbirth Township level: 20 County level: 50 Cerebral infarction Township level: 20 Township level: 20 Child inguinal hernia County level: 48 County level: 50 Bronchopneumonia County level: 50 County level: 50 Appendicitis Township level: 20 Community-acquired Township level: 20 pneumonia Primary atypical pneumonia Township level: 20 Varix of lower limb Township level: 20 Transient cerebral ischemia Township level: 20

4) Selection of key persons: The project managers of provincial level, government officials of county level, health administration personnel, heads of medical institutions, health technicians, NCMS managerial personnel, and hospitalized patients are interviewed. The distribution of interviewed persons are shown in Table 2-2.

Table 2-2 Number of interviewed persons Name of disease Yiyang Wuzhi Ruzhou Officials of county government 1 - - Health administration personnel 2 3 2 of the county government Personnel of medical institution 8 8 9 Managerial personnel of NCMS 1 1 1 Patients 14 14 14

4. Data method The investigation tools are developed, including questionnaires for health institutions, extract form for medical record information, interview outlines for key persons. Data are collected by teachers and students of PKU China Center for Health Development Studies with the coordination of the project managers and the researchers from Zhengzhou University. Data collection is completed in February 2012, and some data are supplemented in May 2012. In the collection of medical records from medical institutions, the electronic medical records are copied based on needs, and the medical records in the paper form are photocopied in full which are then taken back for analysis.

5. Analytic method The comparative analysis method is adopted to conduct the data analysis, including the comparison between the intervention group and the control group in different periods and different phases in order to find the achievement the payment system reform, including the achievement on cost control, quality and satisfaction. 5.1 Analysis of consistence of actual operation of clinical pathways Sources of data and sampling The consistence analysis mainly relies on the head page and the medical advice part of the medical record. This analysis is based on 677 medical records for 10 disease categories randomly selected from 3 county-level institutions and 9 township-level institutions. Calculation method 1) Main concept: Divide the hospitalization process for each patient into a number of "hospitalization units". Based on the measurement of the clinical pathway consistence of such hospitalization units, it is finally added up as the consistence of the diagnosis and treatment services received by a single patient with the clinical pathway. 2) Hospitalization unit: Normally, the hospitalization unit is in "days". However, in the consistence measurement for internal disease categories with a relative long hospitalization time, the hospitalization unit is adjusted to be in "weeks". For example, the standard hospitalization days are 20 days for patients of cerebral infarction, i.e. about three weeks.

Therefore, the hospitalization unit is in "weeks". In this analysis, only the hospitalization unit for the disease category of cerebral infarction is in "weeks" in the evaluation. For other disease categories, the hospitalization unit is in "days". 3) Number of evaluation units: Considerations are given to whether the surgical operation, which is a symbolic measure, is included in the diagnosis and treatment behavior for the disease category, and to the fact that most of the hospitalized patients have their main diagnosis and treatment behaviors in the primary stage of hospitalization. Therefore, this analysis mainly divides the disease categories into the surgical disease categories and non-surgical disease categories for evaluation. The non-surgical disease categories are mainly the internal disease categories, and the evaluation focuses on 3 hospitalization units, i.e. "first day of hospitalization", "second day of hospitalization", "third day of hospitalization till hospital discharge". For the surgical disease categories, the evaluation focuses on 4 hospitalization units, i.e. "first day of hospitalization", "day of surgical operation", "first day after surgical operation", "second day after surgical operation till hospital discharge". In the specific evaluation, the number of evaluated units for specific cases may be adjusted. For example, for the acute simple appendicitis, the clinical pathway prescribes that the first day of hospitalization is the surgical operation day. Therefore, only 3 hospitalization units are evaluated, i.e. "day of surgical operation", "first day after surgical operation", "second day after surgical operation till hospital discharge". 4) Composition of unit consistence: The calculation of consistence is based on the medical advice in the medical record of the hospitalized patient; therefore, the unit consistence is subdivided into the consistence of the content of the medical advice in the analysis. The consistence of long-term / temporary medical advices is based on the diagnosis, treatment, nursing behavior, medicine application behavior and examination behavior covered by the medical advice, as shown in the following table:

Consistence of long-term Consistence of diagnosis, treatment and nursing (Zc) medical advice Consistence of Consistence of medicine (Yc) hospitalization Consistence of examination (Jl) unit (F) Consistence of temporary Consistence of medicine (Yl) medical advice Consistence of diagnosis, treatment and nursing (Zl) 5) Calculation of consistence of actual operation of clinical pathways: In this analysis, the proportion of the item prescribed by the clinical pathway, or the proportion in the item required to be completed in the medical services actually provided are taken as the consistence of such item in the consistence calculation. Examples 1 and 2 respectively correspond to two different situations of consistence calculation. Example 1: Patient of cesarean-first day of hospitalization- temporary medical advice- examination item. The case record shows that 8 items have been executed. By reference to the clinical pathway for cesarean, it is found that the pathway prescribes 7 examination

items. Of the 8 examination items executed, 6 items are within the specification of the pathway, and 2 items are not. The examination consistence in this unit is Jl=6/8=75% Example 2: Patient of cesarean-second day of hospitalization- long-term medical advice- medicine application item. The case record shows that totally 3 items have been executed. By reference to the clinical pathway for cesarean, it is found that the pathway prescribes 5 medicine application items. Of the 3 examination items executed, 1 item is within the specification of the pathway, and 2 items are not. The examination consistence in this unit is Yc=1/5=20% 6) Calculation formula for consistence:

Unit consistence FDn=1/4*(ZcDn+YcDn)+1/6(JlDn+YlDn+ZlDn)

Pathway consistence for non-surgical patients F=1/3*(FD1+FD2+FD3)

Pathway consistence for surgical patients F=1/4*(FD1+FD2+FD3+FD4) Possible deviation 1) The medical record evaluators for this evaluation are graduate students with medical background who have received training in the primary stage of the evaluation. However, due to great differences of disease categories, medical records and actual diagnosis, treatment and medicine application behavior, they may have deviation in the judgment of a small number of items. 2) Actually, consistence may be subdivided into two indicators: degree of completion of clinical pathway (the percentage of the specification of clinical pathway completed) and the actual deviation (percentage beyond the specification of the clinical pathway). At present, these two factors are not differentiated. 5.2 Difference-in-Difference analysis The Difference-in-Difference (DID) analysis method is used to analyze the clinical pathway consistence and the number of hospitalization bed-days for the same institution before and after the reform, and to analyze the clinical pathway consistence and the change of number of hospitalization bed-days in the same period for different institutions in order to clearly estimate and analyze the net achievement of the payment system reform. The DID method controls other mixed factors to the maximum extent and may compare the achievement of the policy and intervention measures under different environment. Part III Design and practice of the payment system reform

This section mainly summarizes and analyzes the overall design, basic characteristics and specific practices of the payment system reform. We summarize the features of the reform as "1234", i.e. "one responsibility system, two reform objectives, three standardization processes, and four parties' satisfaction". The content of this section mainly comes from the operating instructions and relevant documents for the payment system reform prepared by the project management institutions, and from

the specific implementation methods of each county. 1. Overall design concept and principles 1.1 Design concept and principles The main intention of the reform is defined in the design of the payment system reform. That is, the objective of the payment system reform is not to control or reduce the medical expenditures, but to control the irrational increase of medical expenditures while guaranteeing the improvement of the service quality, and to increase the effectiveness of such health security funds as NCMS to the health of the public. The goal of the payment system reform is to maximize the interests of the service provider, agency, service object and government, that is, to find the best equilibrium point acceptable to each party. The focus is on the systematicness of the reform. In particular, such management modes and operation mechanisms as the financial management, price management, income accounting, and resource allocation within the medical institutions are reformed synchronously. The payment system reform in Henan complies with the following principle: 1) Principle of government support: The payment system reform involves the responsibilities of a number of departments such as the medical administration department, price administration department, finance and tax administration department and social security department, and must be subject to the unified leadership of the government and to the active participation and cooperation of relevant departments in health, finance and development reform in order to ensure implementation of each reform measure and realization of the reform objective. 2) Principle of quality first: Establishment of the complete internal medical treatment quality control system is the foundation and precondition of the payment system reform. The concept of quality first must be built up in the whole process of the payment system reform to make sure the quality of medical services does not decrease because of the reform. 3) Principle of performance incentive: The payment system reform must strengthen the incentive and guidance of the medical service provider, establish the performance-based incentive system, extend the decision-making power of the medical institution such as the income distribution right, guide the medical institution and medical staff to actively standardize their service behavior to gradually form the self-behavior control and restriction mechanism. 4) Principle of effective payment: The payment system reform must be carried out in an active and reliable way. While the payment mode, incentive measures, fund payment and other policies are reformed, the use of such health security fund as NCMS must be supervised and controlled to ensure the safe, rational and effective disbursement of fund. 1.2 Reform objective Through the payment system reform for the basic medical services, the principle, mode and

method of the payment system are applied to the field of basic medical services to facilitate the rational deployment and use of the medical treatment resources in the countryside, to improve the quality and efficiency of the medical treatment services provided by the basic medical institutions, to control the irrational increase of medical expenditures, and to effectively increase the security of such rural health security funds as NCMS and rural medical assistance. The specific objectives mainly cover the following three aspects. 1) Improve the quality of basic medical services: Through the reform, such advanced managerial approaches and measures as the medical treatment quality control system and the same-trade supervision and control are introduced to drive the medical institutions to strengthen and improve their internal quality management, to make continuous improvement of the medical treatment quality, to standardize their service behavior and to keep improving the diagnosis and treatment level and the service efficiency. 2) Control the irrational increase of medical expenditures: The traditional way of expenditure control is changed. Through the payment by group and classification, the control right over the medical service costs and expenditures is returned to the hospital departments and doctors to drive them to figure out how to control and reduce irrational expenditures, to optimize the fund application and payment process, and to increase the service efficiency and security of such health security funds as NCMS in an all-round way. 3) Facilitate the rational deployment and use of medical treatment resources: Through the introduction of the contractual relationship, the cost awareness of health organizations and medical staff is strengthened, which drives them to take active measures to control the costs and expenditures and to reduce induced consumption, thus achieves the objective of significant allocation and use of health resources.

2. Design of the payment system reform The basic practices and features of the payment system reform in Henan are: "set up one responsibility system, define two reform objectives, facilitate standardization of three key steps, and satisfy the four parties". 2.1 Set up one responsibility system The medical service security system in China mainly consists of four parties, i.e. the government, agencies, medical institutions and patients. In the design of the payment system reform in Henan Province, a system with patients as the core, with responsibility and relationship of each party clearly defined, connecting to each other and interactional is established based on the medical treatment and health service system in the rural area. This system stresses the role of the medical insurance agency as the buyer, and complies with the development trend in China where the medical insurance system will become an increasingly important financing channel. It also has the advantage of utilizing the buying mechanism to balance the interests of each party and thus to achieve the reform objective. The establishment of such four-party responsibility system breaks away from the

constraints of the previous three-party responsibility system, and changes the management system where administration and operation are not separated. The establishment of the four-party relationship indicates that the management frame with administration and operation separated and with responsibility of each party defined is theoretically established. It is the integral part of the payment system reform, as well as the foundation that guarantees the smooth implementation of other aspects of the payment system reform. In such responsibility system, firstly, the original role of the government is restored, i.e. the multiple roles of the government as the service organizer, supervisor and demander spokesperson have been switched to the formulator of the industrial policy and standard, and to the interest coordinator between the provider and the demander, which is favorable for the more efficient macro management over the medical service and medical security system; Secondly, the role of the medical insurance agency as the demander spokesperson is strengthened and highlighted. The agency switches from a passive insurance buyer to an active service buyer, which strengthens the responsibility of the medical insurance agency in service buying, fund payment and quality supervision; Thirdly, after obtaining more definite and rational performance incentive and more decision-making power, the medical

Figure 3-1 Responsibility and relations of each party in the payment system reform

Fourthly, patients have obtained more service options and rights to know concerning expenditures and services, and become the biggest beneficiaries as a result of the control over expenditures and quality. Naturally, as to whether this responsibility system can achieve the expected achievement, specific systems and methods are required for the design, implementation and evaluation. Failure of any party, i.e. the government, the medical insurance agency or the medical institution, to perform its responsibility will affect the provision of quality health services at rational prices for citizens. Figure 3- 1 shows the basic missions and functions of each party of the responsibility system. 2.2 Define the two reform objectives At present, most of the payment system reforms focus on the expenditure control, and often ignore the guarantee and improvement of the health service quality. In China, the medical institutions in rural areas differ greatly from the tertiary hospitals in cities in terms of the service quality. The main contradictions and problems facing the rural medical institutions are different from those of the tertiary hospitals in cities. Other than the expenditure control, the improvement of quality is particularly important for rural medical institutions. Firstly, the service quality is the essential requirement on the medical service. Services without quality are valueless. Secondly, only after the service quality of the rural medical institution has been improved is it possible for patients to be reasonably distributed, which, from the systematic perspective, is good for expenditure control. In the payment system reform in Henan, the establishment, implementation, supervision and evaluation of the clinical pathway are considered as the core, and such advanced managerial approaches and measures as the medical treatment quality control system and the same-trade supervision and control are introduced to drive the medical institutions to strengthen and improve their internal quality management, to make continuous improvement of the medical treatment quality, to standardize their service behavior and to keep improving their diagnosis and treatment level. While the quality is improved, and based on the implementation of the clinical pathway, the traditional way of expenditure control is changed, and the payment by grouping and classification is adopted to return the right to control expenditures of medical services to the hospital, departments and medical staff, and to facilitate the rational change of expenditures by relying on the management mechanism of the responsibility system. 2.3 Facilitate standardization of the three key processes The core practices of the payment system reform in Henan lie in three key aspects, i.e. establishment and implementation of the clinical pathway, determination of payment method, and construction of management system. Strict standards are adopted, and requirements are strictly followed to enable the technical requirements, implementation process and management process to comply with the standardization requirements. The payment system is a system. For some reforms, it is possible that only one aspect is standardized, but there are no scientific design and strict implementation in other aspects,

therefore, it is difficult to achieve the objective of the payment system reform in an all-round way. The disease grouping and classification carried out in Henan solve the problem of "high variation, low inclusion" that has troubled the disease-type-based payment for a long time. The same-trade supervision and control proposes a seemingly very simple measure, i.e. "doctors control doctors", which is a supervision mode that has never been mentioned in China. Its implementation may effectively eliminate the bottleneck in the field of the medical treatment supervision at present. Establishment of clinical pathway and standardization of the implementation Establishment of clinical pathway and standardization of implementation are mainly reflected in the following aspects. Establishment basis of clinical pathway: According to the relevant finding of the State, Henan Province Project Office develops the Diagnosis and Treatment Norms for One Hundred Common Diseases in Rural Areas in Henan Province which addresses 100 common diseases in rural areas and which is to be used as reference by the project counties in formulating the specific quality standards. The project counties may also formulate such standards according to other relevant national and provincial standards. Establishment process of clinical pathway: The project county shall firs organize experts to arrange the sequence based on the occurrence rate and expenditures, and then screen out the proper disease categories based on the principle of "definite diagnosis, definite cure, definite prognosis". By reference to the clinical service guidelines on disease categories issued by the Ministry of Health, provincial government or prefectural government, medical treatment experts in each field shall be organized to carefully analyze and discuss the cases of the medical institutions of the same level in the past three years, and to establish the basic pathway. The fixed hospitals shall set up the technical team. Based on the actual conditions of patients of each disease, the degree of illness and the occurrence of complications, the technical team shall establish the clinical diagnosis and treatment pathways for three groups under each disease category, i.e. Basic Diagnosis and Treatment Group (Group A), Composite Diagnosis and Treatment Group (Group B), Special Diagnosis and Treatment Group (Group C). The patients of Group A mainly refer to those patients who comply with the first diagnosis with no complications, or with complications that do not require specific treatment. The patients of Group B mainly refer to those patients who comply with the first diagnosis with severe complications that require treatment. The patients of Group C mainly refer to those patients under critical conditions or with severe complications who are not suitable to be managed according to Pathway B. After the grouping pathway is established, the technical team of the hospital shall submit it to the clinical pathway management committee of the hospital for further amendment and improvement, to the expert team of NCMS for approval, and report it to the superior technical expert team for final approval, then put it into use at the fixed hospital. Grouping principle for complicated clinical pathway: By reference to the experience of DRGs, with full consideration of the distinctness of diseases and patients, and based on the actual severe symptoms and complications in the past, the clinical pathway is divided into

Groups A, B and C. Group A: Based on the clinical guidelines issued by the central and provincial government, and on the relatively fixed, proven and effective diagnosis and treatment plans established locally, it should be possible to include the majority of cases of each disease into management. Group B: It is the treatment that requires the addition of some related diseases subject to the clinical pathway of Group A, including treatment of some common complications, and also some treatment for secondary diagnosis. Group C: It refers to a tiny minority of cases which do not comply with the inclusion standards for Groups A and B, whose therapeutic schedule needs significant adjustment, with severe complications that affect the treatment for the first diagnosis. There are basic requirements on the case proportion for Groups A, B and C, i.e. from the perspective of the hospitalized patients, generally the cases of Group A shall not be less than 70%; and the cases in Group C shall not exceed 10%. The specific grouping of disease categories may be properly adjusted based on actual conditions. Confirmation of case grouping: Grouping of patients is mainly the responsibility of the doctor of the initial diagnosis. Cases of Group B need to be confirmed by the department director. Cases of Group C need to be confirmed by the department director and the vice-president in charge of operation. Implementation of pathway and its three-level medical treatment quality supervision mechanism: Thanks to the concept of the quality management system, the continuous improvement of the quality standard and quality control within the medical institution is realized. Meanwhile, the system of "chief quality controller" is established, where doctors with good medical skills, medical ethics and prestige are selected as the quality controller. Such doctors also act as the head of the quality control department, receive the remuneration equivalent to that of the vice-president, and are responsible for reviewing and supervising the internal three-level medical treatment quality. The three-level medical treatment quality review refers to three aspects: firstly, the doctor in charge shall conduct the self-inspection on the quality of the services that he/she provides; secondly, the department director shall review and check the quality of the medical treatment provided by the doctors in his/her department; thirdly, the chief quality controller or the quality control department shall conduct the final check and approval on the service quality of each department. The quality review report and the quality commitment letter are the important basis in reviewing and approving the payment application of the medical institution. Standardization of the payment mechanism Standardization of the payments mechanism mainly includes the payment scope, determination of payment level, and incentive mechanism. Determination of the payment level is the core of the payment mechanism. Payment scope: The law of large numbers is used to solve the problem of low inclusion and high variation. According to the law of large numbers, it is believed that for some

common diseases, and during the diagnosis and treatment, the proportion of patients who need to be included into Group A (basic diagnosis group), Group B (severe diagnosis group), and Group C (critical group) will show some regularity and become stabilized with the increase of cases. As a whole, the NCMS Office exercises the proportional control over the fixed medical institutions（7:2:1) , and each medical institution determines the proportion of its departments to ensure that the overall patient proportion is within range specified by NCMS. This type of mode of "patients managed by group, expenditures paid by classification" can cover almost all types of patients. Payment principle: Based on the clinical pathway, different illness conditions of the same disease category are grouped, and different payment methods are adopted. Groups A and B are subject to the fixed-amount payment system for single disease category. Pricing of Group A is lower than that of Group B. For Group C, due to such factors as complicated illness conditions, the item-based payment method or other payment methods may be adopted. Payment level: The price negotiation is an important way for the agency and the medical institution to jointly determine the payment level for each disease category. The negotiation is organized by the health administration authority between the NCMS agency and the medical institution. Based on the historical data, the prefectural rural cooperative office figures out the actual occurrence rate and average cost for cases in different groups for each type of disease. Both parties of the negotiation determine the price level (charge level for each disease category), specify the payment level in the contract and based on the expenditure standard agreed on in the contract, and pay the medical institution for their services. Determination of NCMS compensation standard: The NCMS reimbursement proportion is determined based on the payment price. After the NCMS reimbursement proportion is determined, the self-pay expenditures of the NCMS participants are also determined. Price announcement: Prices determined through the negotiation are publicized in various forms. In such publicizing, the total expenditures for each type of disease, the expenditures reimbursed by NCMS, and the self-pay expenditures are defined. Payment method: The system of "advance payment of total amount, performance-based continual payment, and withdrawal reimbursement" is implemented. The NCMS agency makes advance payment of a certain proportion (30-50%) to the service provider according to the amount defined in the contract. The service provider files the payment application for the rest of the fund by means of withdrawal reimbursement, and such fund will be paid after approval. "The fixed-amount advance payment" can effectively mobilize the enthusiasm of the service provider. "The reimbursement system", while standardizing the application conditions, application procedure and appropriation time limit, changes the usual practice of the service provider, i.e. passive waiting for the appraisal and fund appropriation, and enables the service provider to actively participate in the fund application and payment, which is good for increasing the payment efficiency, expediting the use of funds, and mobilizing the enthusiasm of the service provider.

Standardization of the management system Establishment of management organizations: The experimental county sets up the leading group for the payment system reform, with the main leader of the prefectural government as the group leader, and with the heads of the development and reform department, finance department, health department, drug administration, audit department and other governmental departments as the participants. The leading group is responsible for the overall coordination of the reform and the decision-making for important issues, for reporting the work progress and result to the superior departments, and for disclosing the progress to the public. The office of the leading group is set at the prefectural Health Bureau, and the post of the office chief is held by the director of the Health Bureau. The main responsibility of the office includes: to implement and carry out the decisions and deployment of the leading group, to organize and implement the specific work for the payment system reform, including preparation of plans, policy coordination, organizing and implementation, experience summary. The office has the affiliated quality management group, service buying group and payment approval group, which are respectively in charge of quality supervision, service buying and performance review, payment and approval. Establishment of external quality supervision system: It is defined that the subject of implementation subject to the external supervision is the medical insurance agency, i.e. according to the contract and based on the work objective and relevant contract requirements, the prefectural NCMS Office formulates the appraisal plan, breaks down the appraisal indicators, determines the professional supervision and appraisal teams ( including medical institutions, clinical panel of experts) through procurement of consultation services, and signs the contract for consultation service. The supervision standard shall be definite and open, and the supervision result shall be publicized regularly. Establishment of incentive mechanism for medical institutions: Medical institutions are encouraged to provide more better-quality lower-cost medical services by setting the objective where medical institutions that provide low-cost high-quality services may gain more compensation, and medical institutions that provide the contrary will be severely punished, and by establishing the effective performance-based reward and punishment system. For example, the payment standard may be determined to be a price which is slightly higher than the service cost based on the actual charges at present. The fund surplus resulting from the effective cost control by the medical institution may be divided between both parties, or be completely owned by the medical institution. Establishment of incentive mechanism for medical staff: This is achieved through the establishment and improvement of the internal performance review system, and through adjustment of the income distribution mechanism. Considerations are given to the fact that the buying of services is a kind of market behavior, and is an agreement reached by and between the service payer and the service provider according to contracts regarding the content, quantity, form, quality, compensation way and amount for the services provided for the service object. During the process of buying services, what the medical institution gets is not the government subsidy, but the rational compensation that it deserves for its services. Its financial accounting and income distribution methods should be different and be

sufficiently free. The income distribution mechanism is adjusted to mobilize the enthusiasm of medical staff to participate the reform. Meanwhile, the new, more rational and transparent income distribution mechanism is gradually established. 2.4 Satisfy the four parties The reform is a process of interest redistribution. Taking the concerns of the main stakeholders of the reform into consideration is the key to the successful implementation of the reform. In the payment system reform, more attention should be paid to the balance of interest. In particular, the interest of patients should never be made against the interest of the medical institution. A good and sustainable payment system reform need to consider the demands of each party, and satisfy the four parties, i.e. patients, service providers, medical insurance agency, and the government. Satisfy patients: Build up the concept of quality first in the whole process of the payment system reform. Make sure the quality of medical services does not decrease because of the reform. Standardized management is conducted for hospitalization of patients. The clinical service guidelines for patients are provided to the patients and their family. The agency publicizes the result of the supervision over the medical institution regularly to guarantee the right to know and the right of choice. Patients are encouraged to be included in the management by adopting such preferential measures as paying the self-pay expenditures only at admission, and properly increasing the reimbursement proportion. Real benefits will be given to patients to increase their satisfaction. Satisfy medical institutions and medical staff: The payment system reform strengthens the incentive and guidance of the medical service provider, establishes the performance-based incentive system, extends the decision-making power of the medical institution such as the income distribution right, guides the medical institution and medical staff to actively standardize their service behavior to gradually form the self-behavior control and restriction mechanism. Medical institutions may increase their net income from adjustment of the revenue structure and their standardized services. While expenditures are controlled, the income of medical institutions and medical staff will not be reduced, and will even be increased. Satisfy the NCMS fund management institution: The payment system realizes expenditure control and quality improvement, alleviates the management pressure of the NCMS fund management institution, especially the pressure of the fund security, and fundamentally establishes the medical insurance management mechanism with the payment system as the core. Satisfy the government: If the above three parties are satisfied, the doctor-patient relationship will be improved, the operation of the NCMS system will be more stable, residents will give more support to the medical reform. All these are what the health administration authorities are concerned about and seeking. In other words, if the payment system reform achieves the expected result, the satisfaction of doctors and the government will be improved. The improved satisfaction of the government will lead to more support to the payment system reform.

3. Implementation of the payment system reform In this section, the basic conditions of the payment system reform in the three counties, including the time node, establishment and implementation of clinical pathways, prices, construction of payment system and management system, are summarized and comparatively analyzed. 3.1 Time trends of the reform Figure 3-2 describes the main time nodes of the payment system reform in the three counties, with the number of disease categories as the indicators.

Figure 3-2 Main time nodes of payment system reform in the three counties The reform in the three counties is featured by the phase-based adjustment. The figure only shows the number of disease categories covered by the reform and the means of payment. The means of payment may be considered as an important sign of the transformation of the payment system. Other than these, there are other contents in different phases, including the control measures, perfection of information system, and price level adjustment. Yiyang and Wuzhi have carried out similar reforms that reflect the general principle, and only vary in terms of time.  The two counties began the current payment system reform from October 2010;  In Yiyang, adjustment was made in June 2011, including the adoption of the grouped and classified payment system to replace the original single-price method. Meanwhile, the types of diseases were expanded, and the information system was

improved;  In August 2011, Wuzhi improved its payment system, and expanded the number of disease categories at the county-level medical institutions;  In January 2012, the number of disease categories was further adjusted in the two counties. There were 123 county-level medical institutions and 54 township-level medical institutions in Yiyang. In Wuzhi County, both the number of county-level medical institutions and the number of the township-level medical institutions have reached 185, which was a big increase. In Ruzhou, the original single-disease-type price fixing practice is substantially kept, which differs greatly with the other two cities in terms of establishment of clinical pathways, pricing, coverage of disease categories, and forms a contrast. 3.2 Establishment of the clinical pathways Table 3-1 summarizes the basic practices of establishing the clinical pathway in the three counties. In addition to the differences in terms of number of disease categories included, there is a main difference between Ruzhou and the other two counties in the establishment of clinical pathways in the establishment process. Actually, there are four phases in the course of establishment in Yiyang and Wuzhi:  According to the good clinical practices formulated by the central and provincial authorities, and with the help of the experts of the superior level, the medical institutions of each level shall organize experts to produce the first drafts on clinical pathways;  Each medical institution organizes the clinical personnel of its relevant departments to discuss the pathway and to propose suggestions and comments;  The expert team works further to come up with the implementation draft;  In operation, the problems found are summarized, and the pathway is adjusted. Compared with Yiyang and Wuzhi, Ruzhou has a relatively simple establishment process, i.e. there is basically no external help, and no repeated discussion and amendment. The above two establishment processes and methods for clinical pathways may affect the appropriateness and rationality of the pathway to some extent, and affect the quality of service and the charges.

Table 3-1 Number of diseases included in clinical pathway

Number of diseases Selection basis for Establishment County Time Reference basis covered(count disease categories process y/township)

Before 2010.10 63 Based on the 63 Diagnosis and Organize relevant 2010.10-2011.6 40/29 disease categories Treatment Norms experts to conduct 2011.7-2012.12 55/31 selected in 2009, those for One Hundred studies and After 2012.1 123/54 disease categories Common Diseases discussions. Select with a small number in Rural Areas in elites from the of disease Henan Province; 50 county-level and Yiyang development cases are Clinical Pathways in township-level County excluded. In October Rural Areas in medical 2010, 40/29 diseases Henan Province; institutions to are taken as the start guidelines on discuss the point, the number of clinical pathways clinical pathway, which will gradually issued by the to amend, improve increase later. Ministry of Health. and finalize it.

2010.6-10 12/9 Common disease The same as above Select experts to 2010.10-2011.7 12/9 categories in rural establish the 2011.8-2011.12 118/9 areas with high preliminary After 2012.1 185/185 morbidity, mature clinical pathway. Wuzhi diagnosis and Have each County treatment technology, department amend reliable curative it and establish the achievement and high pathway that suits average expenditures. itself.

2010.1-2011.2 26/26 Common diseases, Diagnosis and Draft on 26 single 2011.3-2011.12 26/26 frequently Treatment Norms disease categories; After 2012.1 29/not encountered diseases; for One Hundred clinical pathway established clear aetiological Common Diseases series for agent and in Rural Areas in comprehensive pathogenesis; clear Henan Province; 50 payment reform in Ruzhou diagnosis and Clinical Pathways in Ruzhou City. City treatment norm and Rural Areas in criterion of cure; Henan Province; minor differences in Ruzhou local policy. the diagnosis and treatment process, definite curative achievement etc.

3.3 Pricing for the diseases Table 3-2 summarizes the pricing basis and process for disease categories in the three counties. The main differences among Yiyang, Wuzhi and Ruzhou are as follows:  In Yiyang and Wuzhi, disease categories are grouped and classified, and pricing is made based on groups and classifications. In Ruzhou, the same type of disease is not further grouped;  In terms of pricing basis in Yiyang and Wuzhi, prices are estimated and determined based on clinical pathways, and prices and service investment are connected;  In the pricing process, the most prominent feature of Yiyang and Wuzhi is the introduction of the negotiation mechanism. With the coordination of the Health Bureau, the NCMS agency as the buyer, negotiate with the medical service institution based on the above basis. The above different pricing basis and process may have an impact on the rationality of the price level, and different processes will cause the institutions and medical care personnel to have different perception on the price levels. Table 3-2 Pricing and payment methods in the three counties

Payment methods Pricing basis Pricing process Up to the end of 2011 Payment for grouping and Based on the charges for the actual cases The county-level and classification: in the past the township-level Fixed payment for Groups A Anticipated prices proposed based on the institutions negotiate Yiyang County and B estimation of each medical institution and with the NCMS Item-based payment for on clinical pathways; administrative agency Group C By reference to the charge levels of other respectively. places. Payment for grouping and Based on the charges for the actual cases The county-level and classification: in the past the township-level Fixed payment for Groups A Anticipated prices proposed based on the institutions negotiate Wuzhi County and B estimation of each medical institution and with the NCMS Item-based payment for on clinical pathways. administrative agency Group C respectively. Charges paid based on single Based on the charges for the actual cases Prices are fixed by the disease categories and items in the past Health Bureau. Ruzhou City By reference to the charge levels of other places.

4. Price level compensation of the New Rural Cooperative Medical 4.1 Prices of county-level medical institutions and NCMS compensation

Table 3-3 is the summary of the grouped and classified prices of some types of diseases and the fixed subsidy of NCMS in Yiyang and Wuzhi. In terms of the selected disease, the price level in Yiyang is higher than that in Wuzhi. This is related to the nature of these two hospitals (i.e. the people's hospital and the hospital of traditional Chinese medicine), and is also related to their previous charge levels. For the same type of disease, the price before the grouping and classification reform in Yiyang is higher than that in Wuzhi. It is moteworthy that if a disease is in Group B, its price in Yiyang is higher than that in Wuzhi. Table 3-3 Prices of some types of diseases for county-level hospitals（Unit: yuan)

Prices of Group A Prices of Group B Disease Yiyang Wuzhi Yiyang-Wuzhi Yiyang Wuzhi Yiyang-Wuzhi Cerebral infarction 3800 4000 -200 4560 4800 -240 Benign tumor of ovary 2800 2100 700 3360 2400 960 Full-term normal 1000 700 300 1200 700 500 delivery Prolonged pregnancy 1400 1300 100 1680 1550 130 Nasal sinusitis 2200 2305 -105 2640 2525 115 Adult inguinal 1900 1600 300 2280 1900 380 hernia（oblique) Varix of lower 3000 2500 500 3600 2800 800 limb（one side)

After the prices are determined, NCMS grants the fixed subsidy. Refer to Table 3-4 for the subsidy proportion and the pay proportions of NCMS participants. In Wuzhi, the proportion is relatively consistent, i.e. 75%, except for full-term normal delivery. In Yiyang, except for the full-term normal delivery, the compensation proportion of NCMS labor is between 63%-72%, which is lower than that in Wuzhi. Table 3 NCMS and subsidy proportion and self-pay proportion in county-level hospitals

Yiyang County Wuzhi County Group A Group A Group B Group B Group A Group A Group B Group B Type of disease Subsidy Self-pay Subsidy Self-pay Subsidy Self-pay Subsidy Self-pay （%）（%）（%）（%）（%）（%）（%）（%） Cerebral infarction 72 28 73 27 75 25 75 25 Benign tumor of ovary 69 31 70 30 75 25 75 25 Full-term normal 50 50 50 50 57 43 57 43 delivery Prolonged pregnancy 57 43 61 39 75 25 75 25 Nasal sinusitis 65 35 68 32 75 25 75 25 Adult indirect inguinal 63 37 66 34 75 25 75 25 hernia Child inguinal hernia 71 29 72 28 - - - -

4.2 Prices of disease categories at township-level hospitals and NCMS compensation Table 3-5 shows the grouped and classified prices of some disease categories at township-level hospitals in Yiyang and Wuzhi. They comply with the tendency of the county-level hospitals. In terms of the selected disease categories, the price level of the township-level hospital in Yiyang is higher than that in Wuzhi. The township-level hospitals are compared, which is different from county-level hospitals, therefore, the issue of different nature of hospitals does not exist. Table 3-5 Prices of some types of diseases for township-level hospitals （Unit: yuan) Prices of Group A Prices of Group B Disease Yiyang Wuzhi Yiyang-Wuzhi Yiyang Wuzhi Yiyang-Wuzhi Pneumonia 1800 1000 800 2100 1200 900 Normal childbirth 700 550 150 900 550 350 Leiomyoma of uterus 2800 1900 900 3360 2240 1120 Rotavirus enteritis 600 1200 -600 720 1440 -720 Adult inguinal hernia 1600 1280 320 1920 1520 400 Acute simple 2000 1440 560 2400 1760 640 appendicitis Varix of lower limb 2500 2000 500 3000 2240 760 Cesarean 2000 2200 -200 2400 2400 0 After the prices of the township-level hospital are determined, NCMS grants the fixed subsidy. Refer to Table 3-6 for the subsidy proportion and the pay proportions of NCMS participants. The reimbursement proportion of the township-level hospital is apparently higher than that of the county-level medical institution. In Yiyang and Wuzhi, the compensation proportions for township-level hospitals are very close, with the proportion in Yiyang being slightly higher. Table 3-6 NCMS and subsidy proportion and self-pay proportion in township-level hospitals Yiyang County Wuzhi County Type of disease Group A Group A Group B Group B Group A Group A Group B Group B Subsidy Self-pay Subsidy Self-pay Subsidy Self-pay Subsidy Self-pay （%）（%）（%）（%）（%）（%）（%）（%） Pneumonia 85 15 86 14 85 15 85 15 Normal childbirth 57 43 67 33 45 55 45 55 Leiomyoma of uterus 87 13 87 13 85 15 85 15 Rotavirus enteritis 83 18 84 16 85 15 85 15 Adult inguinal hernia 84 16 85 15 85 15 85 15 Acute simple 86 15 86 14 85 15 85 15 appendicitis Varix of lower limb 86 14 87 13 85 15 85 15 Cesarean 86 15 86 14 74 26 75 25

5. Management and incentive mechanisms Table 3-7 presents the primary contents of design of quality management and incentive mechanisms in Yiyang and Wuzhi.

Table 3-7 Main points of quality management and incentive mechanisms in Yiyang and Wuzhi Inclusion Grouping Over- External Surplus Distribution Internal Quality Rate Proportion spending Quality Management Management Management Management Sharing Supervision Grouping For the same County level: County 1. Quality 1. External classification disease 1. Hospitals and level: controllers at performance and 100% category, three departments: 40% and Hospitals hospital and appraisal: maximum groups of A, B, 60%, respectively. and department levels; once every inclusion are and C are 2. In-department departments 2. Doctors-in-charge half a year; implemented. classified distribution: take 60% have group A 2. Contract according to doctor-in-charge, and 40%. execution rights; management their 40%; others 10%. Township assignment of and letters of complications Township level level: groups B and C Yiyang commitment. of the diseases. 1. Health center and The hospital needs consultation County The overall ratio its departments: 20% within departments of groups in and 80%, respectively or hospitals and each of the 2. In-department review and approval hospitals is distribution: by superior doctors; 7:2:1 doctor-in-charge, information systems 30%; nurses, 40%; in hospitals perform other doctors, 30%. forceful review of case assignment.

Grouping The same as Surpluses are Hospitals 1. Chief quality The same as classification above. distributed at 4:3:3 in and control doctors and above. and 100% the hospital, departments chief quality control Wuzhi maximum departments and each take nurses County inclusion are individuals 50%. 2. Department implemented. quality controllers.

As can be known from the summaries in the table, the two counties are very consistent in requirements on the number of included disease categories, quality management methods as well as fund surplus and overspending handling methods. The following common characteristics are present in the two counties:  “To include disease categories and patients as many as possible” is specified in both counties;  Proportions of inpatients between disease groups are defined in both counties;  In surplus distribution, balance among institutions, departments and individuals are seriously taken, with particular emphasis laid on incentives to quality controllers;  External quality supervision is emphasized in both counties. The greatest difference between the two counties is that computer-based information

system has been employed to achieve the management target in Yiyang, whereas the information system is still under construction in Wuzhi.

Part IV Progress, Achievements and Problems of The Payment System Reform Primary findings referred to in this section of this report are analyzed with the anticipated target of the payment system reform as the main line to assess separately progress and achievements made and problems to be solved in ameliorating quality, controlling expenditures and improving social satisfaction in Henan’s payment system reform.

1. Disease coverage of the payment system reform 1.1 Expansion of the number of disease categories Grouping classification system is a key technical step in the standard payment system reform of Henan Province. This measure is intended to solve the problem that many patients cannot be included in the simple singular disease category based system and also the problem of inadequate incentive due to singular disease category payment prices. A change that can be anticipated after patients are included into different clinical pathway groups (i.e. groups A, B and C) of the same disease category and different payment prices and methods are implemented is that inclusion of patients of the same disease category will be significantly improved. Following increase of clinical pathways for singular disease categories with the implementation of grouping classification payment, the proportion of patients covered by this payment method in the total inpatients will increase, and so will the portions of expenditures for them. The numbers of disease categories are expanding inconsistently in Yiyang and Wuzhi. The initial number of disease categories in institutions at the country level in Yiyang was 40, which was expanded to 55 after initiation of the grouping classification payment system and had reached 123 by the beginning of 2012; the expansion is progressive and multi-staged. In institutions at the county level in Wuzhi, the initial number of disease categories was 12, which gradually expanded to 118 after initiation of the grouping classification payment system and had reached 185 by the beginning of 2012; the expansion occurred in a leaping manner. Variations of numbers of diseases categories in two township health centers were concordant with those in medical institutions at the county level (Fig. 4-1 and Fig. 4-2).

200 180 160 140 120 100 80 60 40 20 0 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1 Yiyang People’s Hospital Wuzhi Hospital of Traditional Chinese Medicine

Fig. 4-1 Trends of numbers of diseases included in the reform at the county In township health centers in Yiyang County, the initial number of disease categories was 29, which expanded to 31 at initiation of the grouping classification payment system and reached 54 at the beginning of 2012; in township health centers in Wuzhi Country involved in the reform, the number of singular disease categories had been maintained at 9 and was expanded to 185 at the beginning of 2012.

200 180 160 140 120 100 80 60 40 20 0 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1

township-level institutions in Yiyang township-level institutions in Wuzhi

Fig. 4-2 Numbers of included disease categories in health institutions at the township level 1.2 Coverage of the payment system One of the key indicators for evaluating the progress and achievements of the payment system reform is the payment system coverage including patient coverage and expenditure

coverage. Only when the coverage of the payment system reaches to a certain level can the overall effect of the payment system reform be manifested. If disease categories included in the payment system reform are rational in pathway development and price payment but if the payment covers only a small amount of patients and accounts for only a very small portion of the total hospital income, the overall effect of the reform will be greatly impaired. Inpatient coverage of the payment system Patient coverage is the proportion of inpatients included into clinical pathway management of singular disease categories and involved in the grouping classification payment system among all inpatients in the same period. Primary findings about the inpatient coverage rates of the payment system in medical institutions at the county level are as follows: (1) Following increase of the number of included disease categories and initiation of grouping classification reform, the proportions of patients included were significantly increased in both counties. Take institutions at the county levels as an example. The patient coverage of the payment system increased from less than 10% before initiation of grouping classification reform to 40% at the end of 2011 in Yiyang People’s Hospital and from 18.7% at the beginning to 36.8% after the grouping classification reform in Wuzhi Hospital of Traditional Chinese Medicine.

70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1

Yiyang People’s Hospital Wuzhi Hospital of Traditional Chinese Medicine

Fig. 4-3 Proportions of patients included in the payment reform at the county level (2) In the subsequent period (the first quarter of 2012), the patient coverage continued to increase and had reached 52% by the end of the first quarter of 2012 in Yiyang; the patient coverage also continued to increase and reached around 62.4% at the end of the first quarter of 2012 after expansion of disease categories in Wuzhi. (3) During the period without further disease category increase and expansion, the patient coverage of the payment system stopped increasing and decreased slightly within certain time. This needs to be observed for a longer time. Changes of patient coverage in institutions at the township level exhibited more

complicated trends. At the end of the first quarter of 2012, the patient coverage was below 10% in one township health center, between 35% and 60% in three and around 80%-90% in two. In Wuzhi, the number of patients included was inconsistent with the inclusion reform trend of 185 disease categories in township health centers in 2012 (Fig. 4-4).

100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1

Sanxiang (Yiyang) Liuquan (Yiyang) Lianzhuang (Yiyang) Qiaomi (Wuzhi) Dahongqiao (Wuzhi) Gedangdian (Wuzhi)

Fig. 4-4 Proportions of included patients at the township level Expenditure coverage Expenditure coverage is the proportion of expenditures incurred from inpatients included into clinical pathway management of singular disease categories and involved in the grouping classification payment system among the total hospitalization income in the same period. The expenditure coverage rates of the payment system in hospitals at the county level in the two counties continually increased, with high consistency with the numbers of included disease categories and patients. The expenditure coverage has approximated to 60% in Wuzhi and, in the first quarter of 2012, also exceeded 50% in Yiyang (Fig. 4-5).

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00% 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1

Yiyang People’s Hospital Wuzhi Hospital of Traditional Chinese Medicine

Fig. 4-5 Proportions of expenditures of patients covered by the reform The expenditure coverage rates varied a lot in six township health centers. In the first quarter of 2012, the expenditure coverage was higher than 70% in two towns, between 50% and 60% in two and lower than 30% in two. Worth noting is that, though more disease categories were included into payment system reform in township health centers in Wuzhi than in Yiyang, the expenditure coverage rates were not high (Fig. 4-6).

100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1

Sanxiang (Yiyang) Liuquan (Yiyang) Lianzhuang (Yiyang) Qiaomi (Wuzhi) Dahongqiao (Wuzhi) Gedangdian (Wuzhi)

Fig. 4-6 Proportions of expenditures of the patients covered by the reform at township level

2. Clinical pathway and service quality Service quality in payment system reform is dependent on three factors: rationality of clinical pathway establishment, compliance of clinical pathway implementation and consistence of clinical pathway implementation. Improvement condition of service quality will be evaluated at such three levels. 2.1 Standardization degree of clinical pathway establishment Establishment of clinical pathway is a premise for implementation of single disease payment system. Meanwhile, since the payment system of packet classification requires the current clinical pathway of singular disease category to be further classified according possible complications and degree of severity, it is very important to establish clinical pathways for diseases to be launched in pilot areas. In addition to whether clinical pathways established in pilot areas reflect the institute’s features and practical status, whether it is in accordance with requirements of the State and Henan Province for clinical pathways is also an important evaluation factor, which is related to whether the reference clinical pathways used during the process of specific clinical services are standard or not. Yiyang County and Wuzhi County are selected to be evaluated in this time. Clinical pathways commonly used at the county level and at the town level are compared with relevant standards for clinical pathways regulated by the Ministry of Health (MOH) and Henan Province; 4 disease categories are selected at the county level and 2 disease categories are selected at the town level. Localization degrees of clinical pathways adopted in pilot areas as well as its discrepancy with national and provincial standards are to be evaluated. Childbirth (natural birth), cesarean section, inguinal hernia and varicose vein of lower limb are selected at the county level; childbirth (natural birth) and mycoplasma pneumonia are selected at the town level. Since amendments to clinical pathways are progressively made in pilot areas, clinical pathways to be evaluated in this time are all collected on site from reform pilot units during the data collection period in February 2012. MOH clinical pathways standards refer to clinical pathways that promulgated on MOH website; clinical pathways standards of Henan Province refer to Standards for Diagnosis and Treatment of 50 Diseases Commonly Seen in Rural Area. Comparison between typical clinical pathways in Yiyang and Wuzhi demonstrates that at the county level, pathway establishment in Yiyang County subdivides drug selection and administration on the premise of maintaining MOH clinical pathway standards, and meanwhile certain examinations are added optionally. Clinical pathways in Wuzhi County keep pace with MOH clinical pathway standards in general, and meanwhile as to establishment of the comparatively complicated B pathway, clinical pathways for diseases in association with certain compilations are established based on MOH clinical pathway standards.

Table 4-1 Comparison between Clinical Pathway Standards at the County Level Yiyang Wuzhi Subdivision of MOH pathway, including Based on MOH clinical pathway for implementation frequency of medical instructions and normal vaginal delivery (2009 specific choice for drug administration; edition); Pathway A: the inpatient period is 1 day longer than Pathway A: blood glucose test is Childbirth that of MOH; added; Pathway B: the longest inpatient period is prolonged Pathway B: inpatient days are to 8 days; increased by 2; no further amendments are made. Based on MOH pathway for normal vaginal delivery Based on MOH pathway for complete (2009 edition); placenta praevia (2010 edition); Pathway A: subdivision, including implementation Pathway A: examinations of blood frequency of medical instructions and specific choice type, blood glucose, hepatic and renal for drug administration; some items are simplified, function are added; items including e.g. Blood pressure test on the date of operation; the administration of traditional Chinese Cesarean longest inpatient period is 7 days, 2 days less than medicine and abdominal drug change section MOH standard; are added; the other items generally Pathway B: the same as MOH standard in general; remain unchanged; descriptions of optional diagnosis and treatment for Pathway B: degree of flexibility is complications are added; the inpatient days are increased on the basis of Pathway A; increased by 2 compared with Pathway A. the longest inpatient period is prolonged to 10 days. Based on MOH clinical pathway for inguinal hernia Based on MOH clinical pathway for (Edition for hospitals at the County level); inguinal hernia (Edition for hospitals Subdivision of MOH pathway, including at the County level); implementation frequency of medical instructions and Pathway A: generally the same; Inguinal specific choice for drug administration; Pathway B: inguinal strangulated hernia Pathway A: optional examinations are added; CT is hernia; added when necessary; the longest inpatient period is prolonged from 7 days to 10 days; Pathway B: descriptions of optional diagnosis and treatment for complications are added Based on MOH clinical pathway for varicose vein of Based on MOH clinical pathway for lower limb (Edition for hospitals at the County level); varicose vein of lower limb (Edition Subdivision of MOH pathway, including for hospitals at the County level); implementation frequency of medical instructions and Pathway A: generally the same; specific choice for drug administration; amendments are only made to the Varicose Pathway A: optional examinations are added; number of inpatient days; vein of ultrasonic cardiogram and pulmonary examination are Pathway B: pathway for varicose vein lower limb added; the longest inpatient period is the same as of lower limb in combination with MOH standard; ulcer Pathway B: descriptions of optional diagnosis and treatment for complications are added; the longest inpatient period is prolonged to 24 days; Establishment of clinical pathways at the Town level has the same feature as that at the County level in Yiyang County in general. Relevant MOH standards are generally adopted as clinical pathways of institutions in Wuzhi County; since the quantity of disease categories at the Town level did not start to expend until 2012, pathways adopted in 2011

are comparatively simple; meanwhile there are no documents prepared about Pathway B. Table 4-2 Comparison of clinical pathway standards at the township level Yiyang Wuzhi Based on MOH pathway for normal vaginal delivery (2009 edition); Based on MOH pathway for normal vaginal Pathway A: basically the same as MOH delivery (2009 edition); standard; nursing items and vaccine Childbirth Basically the same as the MOH standard; no administration for neonates are added; the pathway B not available maximum LOS is prolonged to 8 days;

Pathway B: basically the same as pathway A

Based on MOH clinical pathway for mycoplasmal pneumonia (2009 edition); Pathway A: basically the same as MOH standard; antibiotic use is detailed; the LOS is limited within 10 days, and the maximum LOS is decreased to 4 days shorter than the Based on MOH clinical pathway for Mycoplasmal pneumonia MOH standard mycoplasmal pneumonia (2009 edition); Pathway B: basically the same as the MOH basically the same, pathway B not available standard; antibiotic selection and use are detailed; the maximum LOS is the same as the MOH standard

2.2 Medical workers’ opinion about clinical pathways Whether the development process was rational The proportion of medical workers considering that the clinical pathway development process was inadequately rational was higher in Wuzhi Hospital of Traditional Chinese Medicine than in Yiyang (Fig. 4-7).

100.00% 90.00% 80.00% 70.00% 60.00% rational 50.00% common 40.00% irrational 30.00% indeterminate 20.00% 10.00% 0.00% Doctors Nurses Doctors Nurses Yiyang Wuzhi

Fig. 4-7 Medical workers’ evaluation of rationality of the development process of clinical pathways

Whether the clinical pathway complied with the practical conditions of the specialty The proportion of medical workers considering that the clinical pathways developed in the regions complied with the practical conditions of the departments was lower in Wuzhi than in Yiyang.

100.00% 90.00% 80.00% 70.00% 60.00% rational 50.00% common 40.00% irrational 30.00% indeterminate 20.00% 10.00% 0.00% Doctors Nurses Doctors Nurses Yiyang Wuzhi

Fig. 4-8 Medical workers’ evaluation of compliance of clinical pathways with specialties Restriction of clinical pathways on diagnosis and treatment behaviors The proportion of medical workers in Wuzhi considering clinical pathways could restrict medical behaviors was lower, while a higher proportion of doctors in Wuzhi thought the restriction of clinical pathways on diagnosis and treatment behaviors was not so significant.

100.00% 90.00% 80.00% 70.00% 60.00% apparent 50.00% common 40.00% 30.00% basically not changed 20.00% indeterminate 10.00% 0.00% Doctors Nurses Doctors Nurses Yiyang Wuzhi

Fig. 4-9 Medical workers’ evaluation of restrictions on diagnosis and treatment behaviors at county

Medical workers’ recognition of influence of clinical pathways on diagnosis and treatment behaviors In both counties, the proportions of medical workers considering changes of diagnosis and treatment behaviors after implementation of clinical pathways were inapparent were high; the proportion of doctors considering current changes of medical behaviors were inapparent was higher than that of nurses.

90.00% 80.00% 70.00% 60.00% 50.00% apparent 40.00% common 30.00% basically not changed 20.00% indeterminate 10.00% 0.00% Doctors Nurses Doctors Nurses Yiyang Wuzhi

Fig. 4-10 Medical workers’ recognition of impact of the clinical pathways on diagnosis and treatment behaviors at township health enters 2.3 Consistence of clinical pathway implementation and medication Consistence of clinical pathway implementation The degree of consistence of clinical pathway implementation may reflect the discrepancy between the designated clinical pathway and the actually implemented clinical pathway; the higher the consistence is, the smaller the discrepancy is, indicating the better the developed clinical pathway is implemented in actual operation. In clinical pathway based payment system reform, actual operation of clinical pathways is a major issue, and it is also difficult to make judgment in evaluation. We analyzed the consistence of pathway implementation using data of part cases. The primary findings in medical institutions at the county level are as follows (Table 4-3). (1) On several comparable disease categories that were included in the payment systems of all of the three counties, a trend of high consistence and great changes after the reform was found in Yiyang. Except on pediatric inguinal hernia, the consistence in Yiyang changed significantly after the reform and was higher than in other counties. (2) In Ruzhou as a control county, the actual operation of the clinical pathways (quality standard) implemented in singular disease category price fixing reform was significantly different from the specification; the overall consistence of actual operation to the

specification was less than 3/4 on the included disease categories. (3) The consistence in Wuzhi was between those in Yiyang and Ruzhou. On the diseases commonly included, absolute levels of consistence and improvements after reform were both lower than in Yiyang. (4) The above findings were consistent with the anticipation. Standard payment system reform hasn’t been carried out in Ruzhou; though standard payment system reform has been carried out in Wuzhi, the quality supervision measures and methods, e.g. information system, are still backward relative to those in Yiyang. Additionally, the number of disease categories included into the reform was rapidly increased within short time, posing a great challenge to implementation of clinical pathways. Table 4-3 Comparison of clinical pathway consistence in medical institutions at the county level After Reform–Before Disease County Before Reform After Reform Reform Yiyang 87.69% 91.82% 4.13% Uterine-incision delivery Wuzhi 84.06% 84.60% 0.54% Ruzhou 74.36% 76.32% 1.96% Yiyang-Wuzhi 3.63% 7.22% 3.59% Yiyang-Ruzhou 13.33% 15.50% 2.17% -1.42% Wuzhi-Ruzhou 9.70% 8.28% Yiyang 86.82% 83.51% -3.31% Pediatric inguinal hernia Ruzhou 86.71% 88.32% 1.61% Yiyang-Ruzhou 0.11% -4.81% -4.92% Yiyang 72.73% 76.16% Cerebral infarction 3.43% -0.61% Ruzhou 74.54% 73.93% Yiyang-Ruzhou -1.81% 2.23% 4.04% Yiyang 80.43% 85.61% Childbirth 5.18% 3.45% Wuzhi 69.83% 73.28% Yiyang-Wuzhi 10.60% 12.33% 1.73% Bronchial pneumonia Wuzhi 66.05% 69.61% 3.56% Appendicitis Ruzhou 55.35% 53.18% -2.17% Changes inconsistent with the anticipation were found in clinical pathway consistence in township health centers. The pathway implementation consistence decreased on half of the eight included disease categories. Overall, the consistence exceeded 80% on only three disease categories and, in Yiyang, where the consistence was relatively high in institutions at the county level, the pathway consistence in township health centers was relatively low. Table 4-4 Analysis of clinical pathway consistence at the township level Township Health Before After After Reform – Disease Center Reform Reform Before Reform Childbirth Liuquan (Yiyang) 68.86% 67.43% -1.43% Cerebral infarction Lianhua (Yiyang) 86.35% 86.54% 0.19% Uterine incision delivery Sanxiang (Yiyang) 55.13% 52.93% -2.20% Varicose veins of lower limb Dahongqiao (Wuzhi) 82.18% 81.80% -0.38% Community acquired pneumonia Qiaomiao (Wuzhi) 78.94% 81.02% 2.08% Mycoplasmal pneumonia Gedang (Wuzhi) 79.68% 75.84% -3.84% Appendicitis Yanglou (Ruzhou) 58.22% 59.99% 1.77%

This phenomenon, on one hand, reflects that, under incentive of the new payment mode, the cost may be reduced or the profit may be increased by adjusting supply of diagnosis and treatment services and, on the other hand, demonstrates the difference between institutions at the county and township levels with respect to degree of clinical pathway implementation supervision. Length of stay (LOS) Under the incentive of quota payment, medical institutions are strongly motivated to reduce the actual medical service cost by shortening patients’ lengths of stay (LOSs), which may exert adverse influence on the service quality. We, using data of part cases, analyzed the mean LOS for each disease category before and after introduction of grouping classification measures. Primary findings in medical institutions at the county level are as follows (Table 4-5). (1) No significant changes were found in LOSs for several disease categories after the reform in Yiyang and Wuzhi; increases and decreases had occurred. (2) Compared to the conditions in Ruzhou, the mean LOSs for the same disease categories in Yiyang were significantly shorter. This deserves attention. Additionally, the LOSs for the same disease categories in all of the three counties were significantly shorter than the standard LOSs established for clinical pathways by MOH and in Henan Province. Table 4-5 Comparison of mean LOS for each disease category in medical institutions at the county level Before After After Reform – Disease County Reform Reform Before Reform Yiyang 6.08 5.8 -0.28 Uterine incision Wuzhi 6.39 5.4 -0.99 delivery Ruzhou 5.46 6.12 0.66 Yiyang-Wuzhi -0.31 0.4 0.71 Yiyang-Ruzhou 0.62 -0.32 -0.94 Wuzhi-Ruzhou 0.93 -0.72 -1.65 Pediatric inguinal Yiyang 3.04 4 0.96 hernia Ruzhou 6.87 5.79 -1.08 Yiyang-Ruzhou -3.83 -1.79 2.04 Childbirth Yiyang 2.64 2.84 0.2 Wuzhi 1.81 1.61 -0.2 Yiyang-Wuzhi 0.83 1.23 0.4 Bronchial pneumonia Wuzhi 6.71 6.42 -0.29 Appendicitis Ruzhou 7.41 7.45 0.04 Cerebral infarction Yiyang 12.13 12.59 0.46 The mean LOSs in township health centers also demonstrated irregular changes. It was very difficult to draw definite inferences or conclusions from these data.

Table 4-6 Comparison of mean LOS for each disease in medical institutions at the township level Township Health Before After After Reform – Disease Center Reform Reform Before Reform Cerebral infarction Lianhua (Yiyang) 12.67 10.36 -2.31 Ruzhou 7.8 10.5 2.7 Yiyang-Ruzhou 4.87 -0.14 -5.01 Childbirth Liuquan (Yiyang) 1.91 2 0.09 Uterine incision delivery Sanxiang (Yiyang) 5.33 5.73 0.4 Varicose veins of lower limb Dahongqiao (Wuzhi) 2 2 0 Community acquired pneumonia Qiaomiao (Wuzhi) 3.88 4.33 0.45 Mycoplasmal pneumonia Gedang (Wuzhi) 6.4 5.87 -0.53 Appendicitis Yanglou (Ruzhou) 6.64 7.22 0.58 Drug spending as a proportion of the total inpatient expenditure and antibiotic use rate Overuse of drugs and antibiotic abuse are important factors affecting service quality of medical institutions. Fig. 4-11 shows changes of the above indicators in Yiyang People’s Hospital after initiation of the payment system reform. Significant changes were found in the antibiotic use rate, which decreased by nearly 10% from the fourth quarter of 2010 to the first quarter of 2012 in patients included into payment system reform. Drug spending as a proportion of the total inpatient expenditure also decreased to some extent; in patients included into the reform in 2012, the proportion was around 38%, which was at a low level in hospitals at the county level.

0 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1

mean quarterly proportion of drug spending in the total inpatient expenditure in the entire hospital antibiotic use rate in included patients

proportion of drug spending in the total inpatient expenditure in included patients

Fig. 4-11 Medication in Yiyang People’s Hospital

0 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1 mean quarterly proportion of drug spending in the total inpatient expenditure in the entire hospital antibiotic use rate in included patients

proportion of drug spending in the total inpatient expenditure in included patients

Fig. 4-12 Medication in Wuzhi Hospital of Traditional Chinese Medicine Compared to the conditions in Yiyang People’s Hospital, changes of the proportion of drug costs in total inpatient expenditure and the percentage of antibiotic use were queer in Wuzhi Hospital of Traditional Chinese Medicine. The proportion of drug spending as a proportion of the total inpatient expenditure didn’t decrease but increased in included patients. The same trend was found in antibiotic use. Worth mentioning is that, in Wuzhi Hospital of Traditional Chinese Medicine, for its institutional type, antibiotic use has been consistently at a relatively low level (Fig. 4-12).

3. Expenditure increase and control in hospitals 3.1 Income changes of hospitals and compensation from NCMS Total incomes of health institutions Changes of institution incomes may mirror the expenditure increase on the whole. The expenditure control target of the payment system reform not only focuses on expenditure from included disease categories but, more importantly, irrational increase of the overall expenditure and income of hospitals. Table 4-7 and Fig. 4-13 describe expenditure increases in three hospitals. Table 4-7 Incomes of three medical institutions at the county level (unit: 10,000 yuan) Increase 2009 年 2010 年 2011 年（2011-2009） Yiyang People’s Hospital 4750.16 5204.73 5621.42 871.26 Wuzhi Hospital of Traditional Chinese 1603.77 2023.62 2525.80 922.03 Medicine Ruzhou First Hospital 9271.17 11170.92 12137.35 2866.18

Fig. 4-13 shows the different income increase rates of the three hospitals. The increase was fast in Wuzhi, whereas, in Yiyang and Ruzhou, the increase rate slowed down. Over the three years, the increase rate had increased by nearly 58% in Wuzhi, by 31% in Ruzhou and by 18% in Yiyang. Though the increase rate was the highest in Wuzhi Hospital of Traditional Chinese Medicine, the absolute increase was less than 10000000 yuan, whereas the annual income increase of Ruzhou First Hospital was approximate to 30000000 yuan. This correlated greatly to the hospital scale and business performance.

180.00%

160.00% Yiyang People’s 140.00% Hospital

Wuzhi Hospital of 120.00% Traditional Chinese Medicine Ruzhou First Hospital 100.00%

80.00% mean county level all over the country 60.00% 2008 2009 2010 2011

Fig. 4-13 Income increase rates of medical institutions at the county level in three counties Compensation ratio from new rural cooperative medical system When the amounts of capitals raised by the new rural cooperative medical system are equivalent, the compensation ratio from the new rural cooperative medical system can, to a certain extent, reflect the effect of expenditure control. Of course, the compensation ratio is also subject to the influence of disease constitution and service utilization, so this result needs further analysis.

Table 4-8 Total inpatient expenditures and compensation from new rural cooperative medical system in three counties (unit: 10000 yuan)

County Level Township Level

County Year Compensation Compensation Total Total Inpatient from New Rural Compensation from New Rural Compensation Inpatient Expenditure Cooperative Ratio Cooperative Ratio Expenditure Medical System Medical System

2009 3505.36 1793.13 51.15% 1930.87 1288.34 66.72% Yiyang 2009 4308.6 2254.3 52.32% 2507.33 1704.62 67.99% 2009 4918.94 2611.35 53.09% 2975.58 2072 69.63% 2009 3741.1 1578.67 42.20% 2681.54 1379.12 51.43% Wuzhi 2009 5349.8 2561.06 47.87% 3133.68 1793.04 57.22% 2009 8502.03 4320.95 50.82% 3521.28 2210.54 62.78% 2009 10141.82 4189.94 41.31% 1957.05 1158.33 59.19% Ruzhou 2009 12566.92 4911.73 39.08% 1373.5 790.02 57.52% 2009 15165.34 6999.5 46.15% 1984.43 1304.92 65.76%

3.2 Inpatient expenditure per time Hospital inpatient expenditures per time According to the data in 2011, the inpatient expenditures per time in the three counties were 2667.41 yuan in Yiyang, 2747.73 yuan in Wuzhi and 3946.69 yuan in Ruzhou. As the mean data of the whole country in 2011 were not available, the inpatient expenditures per time in the three counties were relatively low if compared to the mean national levels in 2010, i.e. 3261.8 yuan in hospitals of counties and 4891.5 yuan in hospitals of cities at the county level. Fig. 4-14 and Fig. 4-15 give the total inpatient expenditures per time and the inpatient expenditures per time for included disease categories in medical institutions at the county level in Yiyang and Wuzhi. In both counties, the inpatient expenditures per time for included disease categories were lower than the total inpatient expenditures per time in the hospitals.

4000

3000

2000

1000

0 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1

expenditure per time

expnediture per time in paitents included into pathway management Fig. 4-14 Inpatient expenditures per time in Yiyang People’s Hospital (yuan)

3500

3000

2500

2000

1500

1000

500

0 2010-4 2011-1 2011-2 2011-3 2011-4 2012-1

expenditure per time expnediture per time in paitents included into pathway management

Fig. 4-15 Inpatient expenditures per time in Wuzhi Hospital of Traditional Chinese Medicine ( yuan) Inpatient expenditure per admission Table 4-9 shows the inpatient expenditures per time for three disease categories in medical institutions at the county level. The expenditure per time was significantly higher in Ruzhou than in the other two counties. Table 4-9 Inpatient expenditures per admission at the county level (unit: yuan)

Disease County Before Reform After Reform

Yiyang 2355.53 2521.63 Wuzhi 2200.00 2200.00 Ruzhou 3464.26 3451.19 Uterine incision delivery Yiyang-Wuzhi 2355.53 2521.63 Yiyang-Ruzhou 2200.00 2200.00 Wuzhi-Ruzhou 3464.26 3451.19 Yiyang 1571.86 1744.96 Pediatric inguinal hernia Ruzhou 1945.46 1940.56 Yiyang 658.16 919.56 Childbirth Wuzhi 700.18 699.45 Table 4-10 presents the drug expenditure in the inpatient expenditure per time. Obviously, the high drug spending in Ruzhou was responsible for its higher inpatient expenditure per time than in the other two counties. Table 4-10 Inpatient drug expenditure per time in medical organizations at the county level (unit: yuan)

Disease County Before Reform After Reform

Yiyang 425.14 471.95 Uterine incision Wuzhi 266.50 268.39 delivery Ruzhou 1707.92 1506.56 Pediatric inguinal Yiyang 63.65 67.46 hernia Ruzhou 528.19 430.95 Yiyang 102.40 123.03 Childbirth Wuzhi 23.40 22.62

4. Satisfaction analysis 4.1 Medical workers’ satisfaction with income distribution Whether the surplus distribution mechanism was rational The surplus between inpatient expenditures of patients under grouping classification management after the reform and the actual item-based payment may be distributed within medical institutions. As summarized above, different medical institutions in Yiyang and Wuzhi had different surplus distribution schemes. Seen from Fig. 4-16, the proportion of medical workers considering the surplus distribution mechanism rational was high in Yiyang, while the proportion of medical workers considering the distribution mechanism inadequately rational was high in Wuzhi. Some doctors definitely considered the surplus distribution mechanism irrational.

90.00% 80.00% 70.00% 60.00% 50.00% rational 40.00% common 30.00% irrational 20.00% indeterminate 10.00% 0.00% Doctors Nurses Doctors Nurses Yiyang Wuzhi

Fig. 4-16 Medical workers’ evaluation of the surplus distribution mechanism Changes of the income structure According to Fig. 4-17, the proportions of medical workers considering that surplus distribution had brought significant changes of the income structure were less than 20% in Yiyang and Wuzhi; more medical workers in Yiyang thought the income structure was changed to some extent but the change was not pronounced; part medical workers in Wuzhi thought the income structure remained the same as before.

90.00% 80.00% 70.00% 60.00% 50.00% apparent 40.00% common 30.00% basically not changed 20.00% 10.00% 0.00% Doctors Nurses Doctors Nurses Yiyang Wuzhi

Fig. 4-17 Medical workers’ evaluation of income structure changes Changes of the income amount As was the same with changes of the income structure brought by surplus distribution, Fig.

4-18 indicates that only about 1/5 of medical workers in Yiyang and Wuzhi thought surplus distribution had brought significant changes of the income structure; the proportion of medical workers considering the income had not increased was higher in Wuzhi than in Yiyang, and more medical workers thought, though the income amount had somewhat increased, the increase could not be considered as significant. This conclusion was verified at a discussion with medical workers.

90.00% 80.00% 70.00% 60.00% 50.00% apparent 40.00% common 30.00% basically not changed 20.00% 10.00% 0.00% Doctors Nurses Doctors Nurses Yiyang Wuzhi

Fig. 4-18 Medical workers’ evaluation of income amount changes Medical workers’ expectation about income Incentive of the grouping classification payment system for medical workers is now materialized in fulfillment of surplus distribution. Fig. 4-19 shows that the majority of

60.00%

50.00%

40.00% 0-500 yuan 30.00% 500-1000 yuan 1000-1500 yuan 20.00% 1500-2000 yuan 10.00% more than 2000 yuan

0.00% Doctors Nurses Doctors Nurses Yiyang Wuzhi

Fig. 4-19 Medical workers’ expectation of increase in income

doctors in Yiyang expected an income increase of 500 yuan, while doctors in Wuzhi tended more to expect an increase of 500-1000 yuan. Nurses had similar expectation of income increase to doctors; the proportion of nurses expecting an increase of 1000 yuan or less in income accounted for more than 70%. Medical workers’ opinions about the workload Payment system reform, on one hand, requests quality standardization of services provided by medical workers and offers the incentive of surplus distribution to them and, on the other hand, brings different changes to the work loads of medical workers. At the initial stage of the reform, communication with patients is an important task that must be done by medical workers. Medical workers in Yiyang commonly thought that more efforts were needed to communicate with patients so that they could understand the specific details of inpatient diagnosis and treatment services and the relationships between service quality, advance payment of a deposit for hospitalization and the final out-of-pocket payment and were willing to join the grouping classification clinical pathways and payment system. Nursing personnel of Yiyang People’s Hospital said: In the past, we only needed to interpret the disease conditions to patients, but now we have to interpret the expenditure too. More communication is needed about the expenditure. Some patients believe medication at diagnosis and treatment will be restricted. Additionally, interpretation of pathways can be understood by the majority of patients but cannot by a small number of patients, and the work load of communication is heavy. Patients need to accept the reform gradually, and promotion and participation of the entire society are needed. Following implementation of grouping classification, diagnosis and treatment behaviors have changed a lot. We need to further familiarize ourselves with it. New we need to work using computers. We feel the work load will be increased and further training for familiarization is needed. However, not all medical workers think the work load has been increased. For nursing personnel: The work has been more programmed, so doctors’ advice can be output more quickly; the operation has been simplified to a certain extent. In handling medical orders, the work load has been reduced; additionally, clarity of the diagnosis and treatment process and the expenditures has exempted very much nursing personnel from urging payment of the expenditures, and the work load reduction in this aspect is also considerable. 4.2 Patient satisfaction Patients’ opinions about clarity of medical service expenditures Under the original payment mode, patients first paid a deposit in advance for diagnosis and treatment and, at discharge, requested reimbursement at the management office of new rural cooperative medical system of the medical institution. The payment mode had the following two defects for patients: 1) patients had no definite concept about the total amount to be paid in advance and didn’t know the amount of the deposit to be raised, which might exert adverse influence on availability of inpatient services; 2) patients had no clear

judgment of the out-of-pocket part of the final inpatient expenditure and didn’t know clearly whether they could afford the out-of-pocket amount for hospitalization. For patients, improvement in convenience of hospitalization and accessibility of medical service brought by the payment system reform is considerable. After the payment system reform is initiated, patients, at the beginning of admission, may know about, from the assistant doctors, the diseases they have, the total expenditure to be paid (deposit) and the final out-of-pocket expenditure at discharge (e.g. medical expenditure that can be retrieved through reimbursement from the new rural cooperative medical system), greatly reducing patients’ psychological stress and burden at admission, simplifying the reimbursement procedures and exerting positive influence on accessibility of inpatient services. In Yiyang, the daughter of a patient with asthma who needed hospitalization every winter said: In the past, each time we visited the hospital, we didn’t know how much money we should pay and were always thinking where to borrow money to pay the hospitalization deposit. This time, we know how much money we should pay and thus feel not worried. A patient with cerebral infarction in Liuquan Health Center of Yiyang County said: After the diagnosis was confirmed, the doctor told me about the pathway. A card of the pathway is pasted at the end of the my bed in the ward, so I know that diagnosis and treatment of this disease will cost 2300 yuan, but I need only to pay 540 yuan at discharge. It is clear. Patients’ opinions about the medical service quality Another requirement of the payment system reform is to provide diagnosis and treatment services to patients according to clinical pathways, so another item of communication between medical workers and patients is the patients’ disease conditions. Through the communication, patients in the areas with implementation of the reform showed improved awareness of the LOSs and some critical diagnosis and treatment activities as compared to patients in areas with the reform not initiated, but the patients still knew little about highly professional issues such as the specific medications. After communication, patients commonly thought medical workers’ service attitude had further improved. Concerning overall quality of medical services, patients’ expectation about capacities of institutions were relatively rational; they consider that, at present, the overall diagnosis and treatment capacity of medical institutions at the township level is relatively weak, and the capacity of county hospitals is slightly stronger but still inadequate as compared to municipal hospitals. A patient with transient cerebral ischemia in Gedang Health Center of Wuzhi County said: I have been hospitalized for 4 days. The doctor said I have to stay for another 3 days. Nurses inform us in advance of what examinations to be carried out, but we don’t’ know what drugs should be used; we just ask the doctors to make the decision. A patient with appendicitis in Sanxiang Health Center of Yiyang County said: Last time I was hospitalized, it was 2009 and I came to deliver my child. The conditions of the health center then were much poorer than now. Now doctors’ skills have improved, and better facilities are used. The environment is also clean.

A patient with chronic bronchitis in Miaoxia Health Center of Ruzhou said: Relative to the conditions 1-2 years ago, medical workers’ service attitudes are better, and the equipment has improved in an all-round way. As long as our diseases can be cured, poor environment is not a very big problem. The capacity of the health center, frankly speaking, is much weaker than that of hospitals in the county and the city. We will still considering visiting hospitals in the city when we have major diseases. Patients’ opinion about the medical expenditure The amount of subsidies to patients included into the new rural cooperative medical system is increasing yearly in Henan Province, and so is the proportion that can be reimbursed. By 2012, the proportion of reimbursement has increased to 90% for expenditures incurred in township health centers and to 70% for expenditures incurred in medical institutions at the county level. As the same time, out-of-pocket items have substantially been cancelled for patients at the operation tier following implementation of the grouping classification payment system. Overall, patients were fairly highly satisfied with the payment system of hospitalization service expenditures. For patients, what is brought by the grouping classification payment system is, in a greater sense, not the decrease of the absolute out-of-pocket expenditure but the subsequent easier access to medical services. It was found in interviews that patients commonly felt satisfied with the compensation of the current new rural cooperative medical system and expected more improvement of medical service quality. A patient with cardiac failure in Gedang Health Center of Wuzhi said: Diagnosis and treatment of my disease will cost 2700-2800 yuan, but actually I only have to pay 300 yuan. The national policies are favorable to us. As long as my disease can be cured, I won’t mind even if asked to pay 100 or 200 yuan more. A patient with cerebral circulation insufficiency in Gedang Health Center said: All of the 9 members in my family have joined the new rural cooperative medical system. We are asked to pay 450 yuan each year. We think it a great number, but once any one in my family is ill and needs to be hospitalized, several thousand yuan may be reduced from the medical expenditure, so we still consider it worthwhile. 4.3 Satisfaction of managers of new rural cooperative medical funds The new rural cooperative medical system was initiated in 2003 in Wuzhi and in 2006 in both Yiyang and Ruzhou. It was found in interviews of new rural cooperative medical system managers that, at present, very high risks are posed for operation of the new rural cooperative medical fund, mainly for the following reasons: 1) the medical service demand is released due to increase of the compensation amount; 2) new rural cooperative medical system management institutions are inadequately competent in negotiating prices with medical service institutions and have been acting as reimbursement institutions ever since initiation of the new rural cooperative medical system without forceful control of expenditures. A new rural cooperative medical system manager in Ruzhou said: The current

reimbursement proportion spurs hospitalization, making beds all occupied in the health center and also the county hospital. Patients are continually transferred to superior institutions. The proportion of inpatient expenditure that can be reimbursed has been increased to so high a level that patients are all unwilling to accept diagnosis and treatment services through unified planning of outpatient services, which have become unattractive to patients. Though balance of revenue and expenditures can be ensured, the new rural cooperative medical fund is actually being confronted with great running risks. The calculated inpatient expenditure per time for patients included in the new rural cooperative medical system is increasing very fast, while the medical expenditures can only be passively reimbursed. Though some problems of excessive medical services can be found in after examination of cases of medical institutions, but such punishments as penalty and closedown for rectification cannot thoroughly solve the problems but may ignite the hatred of medical institutions and worsen the relationship between. The payment system reform has provided a very favorable opportunity for executive institutions of the new rural cooperative medical system, rendering them initiatives in expenditure control and having established new payment mechanisms. Therefore, executive institutions of the new rural cooperative medical system are highly satisfied with the reform, considering: 1) the fund may be run more safely; 2) their role is changing from fund management institutions into the essential service purchasers and, through price negotiation and establishment, their power of control as a buyer has been consolidated; 3) the reform is facilitative for executive institutions of the new rural cooperative medical system to, on the basis of realizing the fundamental target of balance of revenue and expenditures of the fund, further conduct delicacy management of the new rural cooperative medical fund so that its medical coordination function may be better displayed. An executive officer of the new rural cooperative medical system in Yiyang said: The year 2011 saw a surplus of 70000000 yuan from the new rural cooperative medical system; the surplus in 2012 will possibly be not so great. The accumulative surplus is 60000000-70000000 yuan now. The reform has improved the new rural cooperative medical system. In the past, for the purpose of ensuring balance of revenue and expenditures, we were not so free to use the surplus. Now it is possible to budget use of the new rural cooperative medical fund on the basis of actual data, so delicacy management of the new rural cooperative medical fund may be realized. We are now envisaging a further increase of several percents in the compensation proportion for patients involved in the case-based payment system. The work load of management after the reform hasn’t increased but decreased as compared to traditional management. With the strict review system of case grouping within institutions under the new rural cooperative medical system, generally pathway-a case files are not reviewed, and the purpose of sampling inspection is not to assess whether any over-treatment has occurred but to identify presence of sloppy work, essentially different in orientation from that before the reform. Quite a large part of or even the entire pathway c is subjected to sampling inspection, so the work load of management is reduced but not increased. The management process is better normalized and the management

responsibilities of each party are more definite. An officer from Wuzhi Health Bureau said: The target of the reform is to switch the fund management mode of executive institutions of the new rural cooperative medical system from post-supervision to pre-supervision and synchronous supervision and to cooperate with governmental departments to set regularly rules for running the fund so that we can all work according to the regulations. 4.4 Government satisfaction Seen from the governmental tier, the medical and health system reform has become an important behavior of governments at all levels to improve people’s life and benefit the public with economic development achievements. For the current governments and health administrative departments at the county level, the first problem is how to further propel the medical and health system reform, reform of governmental hospitals in particular, fulfill comprehensive reform measures of hospitals at the county level and implement the zero markup policy of essential drugs. Besides, the constantly aggravated physician-patient relationship has also become a hot field for governments and the public. The grouping classification reform has provided governments at the county level with opportunities to make breakthroughs in both of the problems mentioned above. Through interviews, it was found that governments and health administration departments at the county level thought the grouping classification reform may be implemented as an important control measure for the comprehensive reform of governmental hospitals at the county level to be carried out and anticipated that the reform would possibly play a critical role in fulfilling the zero markup policy of essential drugs in governmental hospitals at the county level, so governments showed high activeness and initiatives in promoting this reform. Regarding operation, the payment system reform, by enhancing communication between doctors and patients, has preliminarily exhibited positive influence on relaxing the doctor-patient relationship. Continual improvement of the intense doctor-patient relationship using this concept is an active trend that is commonly expected by governments and medical institutions. An officer from Wuzhi Health Bureau said: This reform greatly alters the incentive system in the current medical services. Institutions will regard their costs more important. Take medication for example. It was a source of profit in the past but has become a cost factor after the reform, so doctors might prescribe as many as expensive drugs in the past but will prescribe as few as drugs or not prescribe drugs whenever possible after the reform. This may be favorable for fulfillment of the essential drug policy. An office from Yiyang Health Bureau said: Since initiation of the reform in People’s Hospital, the doctor-patient relationship has improved and the number of doctor-physician disputes has significantly decreased. This is also one important reason why the People’s Hospital is very active to participate in the payment system reform.

Improvement of the doctor-patient relationship will directly favor administrative departments, institutions and medical workers and play a very active role in stabilizing the entire team.

Part V Conclusions and Policy Recommendations

It requires time for the payment system to develop and reach a certain maturity degree, and other conditions require to be completed. Henan Province has performed a systematic and fundamental payment system reform under the support of a World Bank Project. Although further promotion and completion are still required, certain experiences do have been achieved and there are methods that are worth of generalization. Particularly, medical system reform in China has entered into a harder and more complicated period, and some in-depth problems which cannot be solved by capital investment are becoming bottlenecks to restrict the reform. As an important policy instrument, payment system reform is able to play a positive or even essential role in solving these problems.

1. Main Innovations and Achievements of the Payment System Reform in Henan Further efforts are required by payment system reform in Henan, and there are still spaces for further development, however, it is considered according to the evaluation that innovations in the following aspects have been obtained and achievements have been noticed initially in a short period. 1.1 Main innovations 1) Under the lead of the government, payment system reform has specified responsibilities of various parties, clarified relationships among various parties, and established a purchase mechanism focused on medical insurance operators and medical service providers; ensured by organizations, it has provided an institutional foundation for reform. Establishment of this responsibility system is able to assure sustainability and stability as well as the right direction of reform to a certain degree. 2) Attention has been paid to combination of appropriateness and feasibility, combination of scientific establishment and strict implementation, and combination of internal supervision and external supervision during the process of establishment, implementation and supervision of clinical pathways. External supervision implements supervision within the same industry through purchasing supervision services, while internal supervision puts a medial quality audit at three levels into practice, and turns clinical pathways on paper into practical operation standards through establishment of a computer information management system, which is not commonly seen in practical activities of clinical pathways at the present. Classification of diseases and clarification of proportions of various categories, and appointment of persons in charge of quality control are all innovative measures.

3) As to determination of payment level, it has been fully considered to adjust income structure of hospitals and to keep inappropriate increment of medical expenses under control; benefits of the new rural cooperative medical care system, patients and provider of medical services are taken into full consideration to ensure that income of medical personnel will not decline on the premise that patient’s benefits are guaranteed. During the reform process, with clinical pathways and actual medical expenses as the basis of negotiation, a price negotiation system between medical insurance operators and medical service providers is used to determine the method for distribution of surplus funds in hospital payment system reform, and a new incentive system for suppliers has been established. 4) Based on payment according to disease categories and with reference to the concept of Diagnosis Related Groups (DRGs), admitted patients with the same diseases are classified into three groups, i.e. Group A (patients with primary diagnosis), Group B (patients with serious diagnosis) and Group C (patients in critical conditions or with complicated complications) for treatment and management. Expenses of patients in each group are paid within the controlled ratio according to payment standards determined by the negotiation. All types of patients with single disease category are covered in general, and occurrence of variation and patients out of the pathways are avoided; the “high variation and low inclusion rate” problem of payment according to disease categories is solved. The payment method of packet classification breaks through the traditional pattern of payment according to disease categories, and it is a new payment type rarely seen in China at the present. 1.2 Initial results 1) Payment system reform in Yiyang and Wuzhi has obtained support from the government and operating institutions of new rural cooperative medical care system, understanding of medical institutions and medical staffs, and better responses of the patients. It is in conformance with the spirit of medical reform and requirements for health care development, and it has set a social foundation for further reform and completion of payment system reform. 2) In the areas where reforms are implemented, establishment of clinical pathways shall not only take requirements of the State and relevant departments of Provincial level into consideration, but also the condition of local hospitals shall be fully considered; experts from institutions implementing payment system reform shall be brought into play; clinical pathways have been highly accepted by medical staffs, which provides a basis for implementation of clinical pathways. The degree of medical staffs’ acceptance is even higher in Yiyang, where establishment of pathway is well organized 3) The quantity of disease categories covered by the payment system reform is increasing in both Yiyang and Wuzhi, and it has been understood in both counties that coverage area of the system is the foundation for exertion of its overall effects. The numbers of diseases categories in Yiyang and Wuzhi have reached 123 and 185 respectively, and the coverage rates of inpatient systems and expenses have reached a relatively high level; new payment system coverage rates of inpatient systems and expenses in hospitals of county level in both

counties are all above 50% in the first quarter of 2012. Influences of the payment system on hospitals have reached a higher level. 4) Consistence of clinical pathways in practice is an important index of service quality. Consistence of clinical pathways in practice with operation standards is significantly high in Yiyang and Wuzhi, where payment system reform is implemented. Yiyang is even better, and consistence of selected disease categories in practice is above 85%, which means that quality supervision system, information system and incentive mechanism established during the reform are significantly functional. 5) Payment system reform has changed drug administration behaviors, and the proportion of patients’ drug expenses as well as administration of antibiotics are on the decline. The phenomenon is especially significant in Yiyang, where establishment and implementation of clinical pathways are performed better, and a decrement of nearly 10 percents has been obtained. Drug administration behavior is not only a matter of expenses, but more importantly, it is also an issue of service quality. 6) Expense-control effects of the payment system have been primarily noticed. Income growth rate of the hospitals in Yiyang County has been obviously slowed down after the payment system reform is implemented; charge levels for disease categories included in the reform range are tending to be rational; expenses paid by patients have been significantly decreased; safety of the new rural cooperative medical care fund is thus ensured.

2. Challenges and recommendations 2.1 Main challenges 1) In expanding the number of disease categories and the coverage of expenditures, various preparations should be made, including technical preparation of clinical pathways, quality supervision preparation, etc., so as to avoid implementation quality problems brought by rapid expansion. In Wuzhi, the number of disease categories was increased rapidly within short time, but the clinical pathway operation consistence and medical workers’ recognition levels were both low. The principal problem in Wuzhi is how to ensure the implementation quality while expanding the number of disease categories. 2) The medical service cost hasn’t become the base for price negotiation. Introduction of the negotiation mechanism is an important progress in the process of pricing services for singular disease categories. However, for negotiation, the basic fundamental information should be established and, on this basis, other factors may be considered to set the basic price level. At present, negotiations are still based on expenditure information of the past few years and problems in the expenditure structure and level haven’t been radically corrected. Costs are the basis in any pricing activity. 3) With respect to clinical pathways and prices for services of singular disease categories, while feasibility and adaptation to practical conditions are being emphasized, normalization and guidance in a larger scope above the county level are needed. Particularity of each area and each institution has been taken into account in the current pathway establishment and price setting work, which is helpful for initiating and propelling the payment system reform.

However, this has also brought the problems of different pathways and prices for the same disease category in different places, reflecting the problem of inadequate normalization in the pathway development or pricing process. 4) The reform is still in its initial stage and the system development is still vulnerable. The reform has been acknowledged by many parties, but, as it has just begun, further maturation and development of the system impose very high requirements on management and techniques and also require great stress bearing capacity for sustainability. In Wuzhi, medical institutions and workers’ recognition of the reform needs improving, clinical pathway development needs acknowledging and the information system needs building and improving, and whether these can be implemented determines sustainability of the reform. 2.2 Recommendations 1) Bridge the payment system reform and other reforms and improving recognition of values of this reform and the awareness of using the reform achievements. To connect the payment system reform with major tasks of the medical and health system reform can not only reduce the reform pressure but also win more support. The targets of controlling expenditures and improving service quality and satisfaction to be realized by the payment system reform are also the objectives of the majority of critical tasks of the medical and health system reform. Particularly, reform of hospitals at the county level needs the payment system as the breakthrough point. 2) After the major direction of the payment system reform is established, the priority is delicacy management and promotion to further improve standardization of critical steps. For example, contents of clinical pathways should be frequently adjusted in practice; the supervision methods of clinical pathway implementation should be further innovated; training on normalization of medical services should be continually performed to create conditions for implementing the clinical pathways. In Yiyang, the number of disease categories should be further expanded and the coverage of the system should be further enlarged; in Wuzhi, clinical pathways should be further normalized, recognition of each party about the pathways should be enhanced, and the implementation effects should be improved. 3) Summarize experience of pilot sites of the project to formulate promotion strategies and methods; while continually improving the prior reform, expand the benefit coverage of the project so that more areas join the payment system reform. There is no perfect payment system in the world. On the premise that the direction of the current payment system reform is defined, combination of “implementation, summarization, improvement and promotion” is needed to popularize the obtained experience to other counties as soon as possible using the favorable situations of the current medical and health system reform. 4) Encourage such work as cost calculation in each place to provide fundamental information for improving the pricing methods and the payment system. Executive institutions of the new rural cooperative medical system and medical service institutions should cooperate to calculate the medical service cost using rational calculation methods to provide reference for pricing; executive institutions of the new rural cooperative medical

system should carry out analysis of expenditures to determine the compensation level of the new rural cooperative medical system in a scientific manner; medical institutions should calculate the profits to clarify the cost control target and improve the resource utilization efficiency.

3. Suggestions for improving the payment system reform We believe that the major contents of suggestions proposed on further reform of the payment system in Henan are also applicable to the majority of areas where similar reforms are carried out. Apart from these, the following suggestions are put forward about the payment system reform and evaluation. Make the payment system reform feasible at various localities: Expenditure control and quality improvement are permanent subjects of the medical and health cause. In each place, the reform should be implemented with the local practical conditions taken into account, and what methods for medical expenditure control and quality improvement are available and what methods are suitable for the local conditions should be known. Lay stress on reference to domestic and foreign experience and carry out normal and standard payment system reform: Learn and understand the accurate definitions and improve recognition of the connotations of various payment systems. By setting up diagnosis and treatment data norms and clinical standards and strictly implementing clinical pathways, establish quality monitoring and evaluation systems and improve and ensure medical service quality. Create fundamental conditions for the payment system reform: Reform and improve the human resource management system and the distribution system and create an internal environment favorable for implementation of the incentive system; fulfill economic compensation policies for medical institutions and provide an economic basis for the payment system reform. Improve the level of scientific evaluation of the payment system reform: Places where the reform is carried out should make full use of various research resources including relevant research personnel of institutes and colleges to improve the rationality of design and analysis of reform evaluation; management departments of the new rural cooperative medical system should improve the capacity of information collection, summarization and analysis; learn and master advanced evaluation methods; and improve the technical level of research evaluation results.

4. Generalized values of the payment system reform in Henan The payment system reform in Henan has demonstrated values in multiple aspects including reform exploration, technology innovation and policy implementation, embodied mainly in the following five respects. The reform may promote several other critical reforms of the medical and health system. The medical assurance system reform, including maturation and improvement

of the new rural cooperative medical system, needs breakthroughs in quality improvement and expenditure control and has been provided with a tool by the payment system reform; efforts are being made from hospitals at the county level to overcome difficulties in reform of governmental hospitals and, in this process, such reforms as the payment system reform are also needed; generalization of the essential drug policy in governmental hospitals also need support of effective policy instruments and should be provided with a center of efforts, while the payment system reform may act as an important supporting point. New methods for controlling irrational increase of medical expenditures have been explored, complying with attention and expectation of all segments of the society. By clarifying responsibilities of and relationships between subjects of medical services, strengthen the incentive and expenditure control functions of the new rural cooperative medical system in payment; by means of grouping classification payment, reduce the difference of medical services; through computer-aided supervision, normalize doctors’ diagnosis and treatment behaviors before and during implementation; at the same time, strengthen incentive and guidance of hospitals and improve the service efficiency. Take comprehensive measures to return the control power of medical expenditures and medical quality to hospitals and doctors. New ideas for withdrawing the system of “subsidizing hospitals by charging more medicine fees” have been explored, which can radically solve the problem. The power of controlling medical service costs is returned to hospitals so that hospitals will initiatively adjust the income structure, reduce the proportion of drug spending in the total inpatient expenditure and control the total medical expense. This will produce effects that are completely different from the effect of reducing the proportion of drug fees in the total inpatient expenditure by administrative methods in the past. Practice indicates that, when the proportion of drug fees in the total inpatient expenditure has decreased to a certain level, the zero markup of drugs will bring very insignificant impact and influence on hospitals; this has provided a new idea for promoting withdrawal of the system of “subsidizing hospitals by charging more medicine fees”. A breakthrough point has been provided for comprehensive reform of hospitals at the county level. Payment system reform in counties where the project is implemented relates to internal operation, management, compensation and information technology of hospitals and also doctor-patient management, constituting a completely new reform mode led by payment reform and setting a very favorable example for promotion of comprehensive reform of hospitals at the county level put forward for implementing the medical and health system reform. The reform is feasible in management and easy to perform in operation with interests of each related party balanced and thus won’t be strongly impeded. Though human resource investment and organizational management are required for this reform, the management capacity and technical conditions in most areas can satisfy the demand in the current overall situation of reforms. Computer-based information system is not necessarily the prerequisite for the reform.