An Evaluation of China’s Health Policy in the Reform Era

An Evaluation of China’s Health Policy in the Reform Era

Executive summary

China’s health-care reforms has spanned over a three year decade. A number of health policies have been implemented with a greater number proving to be unsuccessful while a small fraction serving the intended intention.  A new healthcare system was unveiled by Hu-Wen administration to address the shortcomings of previous regime policies dating back to 1987. In the 2009 policy, the government intends to increase its funding in healthcare, reintroduction of universal healthcare insurance cover, provision of public health and primary health-care clinics, restructuring pharmaceutical marketing and emphasizing feasibility studies before implementation. This policy was to be implemented in a three years time frame.


The healthcare service system in the People Republic of China (PRC) has undergone rapid revolution since the country inception in 1949: Starting from Mao Zedong era to Hu-Wen administration. Under Mao reign, China enjoyed a structured health-care organized in a three-tier system in an effort by the central government to provide universal quality health to its citizens regardless of one’s ability to pay for the services rendered (Henderson, Gail & Stroup, 1998).

The three-tier system in the rural areas was organized into three levels: The barefoot doctors who were majorly concerned with preventive and primary care services among the agricultural communes. The next hierarchical level was the township health centers and finally the county hospitals which acted as the referral hospital. It should be noted that the above mentioned facilities managed to eradicate some persistent parasitic and infectious diseases.

The urban areas had a similar three-tier organization management level categorized as; street clinics (primary healthcare), district hospital (secondary care), while city hospitals provided tertiary care. In an effort to improve the gains by Mao regime, health reform policies were proposed and implemented. Some were a success while others performed dismally.

The de-collectivization of Agriculture and privatization of government owned hospitals in an attempt to transform China’s economy to a social market one, vital collective welfare systems collapsed consequently triggering inequity in healthcare provision among the rural and urban communities. (Bloom & Xingyuan, 1997, pp. 351–360)

Cost of medical care was on the rise and with the introduction of private for profit hospitals and minimum funding by the central government, gains recorded by Mao regime was up in smoke.

In an effort to address the shortfalls that were triggered by the transformation of China’s economy to a free social market based, Hu-Wen administration proposed a policy paper in 2009 which is being implemented to date. It chiefly focuses on five areas that were badly affected by the previous policies (Wagstaff et al., 2009, p.7).

In an effort to analyze China’s healthcare policy post reform era, a brief background of previous health policies have been discussed, recording their success and failures before turning to China’s post reform healthcare.


Pre-Reform Era of China’s Healthcare System

This was a period between 1949 and 1978 before economic reforms in the People Republic of China began. Private practices were of non existence and the masses relied fully on the government sponsored hospitals. The central government had designed a model in which it operated as the chief financier of medical services and policy maker. Moreover, the central government controlled the cost of medical services in its hospitals as a measure of ensuring the masses had access to quality health-care. The medical practitioners were paid a fixed salary and there was a central system to monitor the cost of drugs coordinated by the central government (Blumenthal & Hsiao 2005, pp. 1165-1170).

During this era, the central government championed a policy that chiefly focused on public health and preventive medicine. Through a campaign christened ‘patriotic health campaign’, the masses where educated on the need to observe high hygiene standards in addition to environmental sanitation. One such notable exercise was the campaign against the four pests: Rats, sparrows, flies and snails (Sidel, 1972).

With regards to hygiene and sanitation, the central government invested heavily on improving water quality. This was achieved through construction of deep wells and introduction of a protocol to treat human waste before it was incorporated as a farm yard manure. Needless to underscore that raw sewage was a major source of infectious and parasitic diseases.

Having addressed the root cause of the infectious and parasitic diseases, the central government successfully managed to control diseases such as typhoid, cholera and plague.

Acceptance of western medicine was a major boost as it supplemented traditional Chinese medicine in deliverance of quality health-care. This was apparent by the number of trained medical practitioners increasing to an extent of overshadowing traditional Chinese medical practitioners (Center for Health Statistics, 2004). The central government fortified this integration by establishing schools, research institutions as well as departments in hospitals to cater for both traditional and western medicine.

The rural community was attended to by the barefoot doctors. They where mass trained to bridge the gap of physician shortage in the rural areas. The community based doctors provided primary health care as well as spearheading public awareness campaign at a relatively low cost (Sidel, 1972).

Insurance Scheme

Two kinds of health insurance schemes were established based on the geographical and demographical setting. Rural population was covered through agriculture commune cooperatives (cooperative medical insurance system) whereas the urban population was covered by two schemes depending on the area of job specialization. ‘Government Insurance Scheme’, for government staff and ‘Labour Insurance Scheme’ which covered employees of state owned factories. The remaining population was covered by poverty aid programs. Private insurance was of non-existence during this period (Dong, 2009, pp 591-597).

Post Mao Zedong era characterized by market mechanisms.

With the introduction of economic reforms in China, various sectors underwent transformation. De-collectivization of Agriculture lead to the decrease in participation by the rural community in collective welfare systems of which healthcare was inclusive. The initial rural coverage dropped significantly. From 90 % (1979) to less than 7% in 1999.This was the beginning of the end of the cooperative medical system. A vital health component that had  all along facilitated and managed the barefoot doctors in the village clinics (Hsiao,1995, pp. 1047-1055).

The rural population opted for individualize farm practices. The cooperative medical system was hit by shortage of funds which eventually saw the scheme coming to a halt.

The next casualties were the barefoot doctors who opted to join farming as it provided better returns as opposed to the health sector. They were never replaced. A shortage of medical personnel was beginning to bite (Sidel, 1972).

Urban health care system also underwent restructuring. The central government withdrew funds on state owned hospitals and introduced block grant payments that prove too little to run the daily in-house activities in the hospital. A change in policy allowed hospital to charge patients and implement their own structures to raise funds to bridge the budget deficit that was occasioned by decentralization of health care management by the central government.

The central government in an effort to encourage privatization of its economy empowered the new levels of management and gave them powerful economic incentives. For instance, allowing medical practitioners to practice as part time self employees to make an extra income and with-holding out of pocket patient fees as their salary among others (Dehzi, 1992).

With the collapse of government health insurance cover, access to quality medical health care started proving difficult especially for the rural community who could not afford the fees being charged besides the expenses involved in accessing these facilities which were concentrated in the urban centers. Uneven distribution of health services and quality medication had begun to take shape in China (Eggleston, 2010).

Restructuring of Health Insurance Systems in China

First major reform in the insurance sector was the 1997 proposal: Sponsored by the Communist Party Committee. It proposed the revival and expansion of rural medical cooperation schemes in addition to having a single insurance plan to cover all urban employees in what was to be called ‘urban employee-based medical insurance’. This was in a bid to do away with the previous two insurance schemes: ‘Labour Insurance Scheme’ and ‘Government Insurance Scheme.’ The new urban policy covered all urban employees regardless of their employer (Dong, 2009, pp.591-597).

However, it should be noted that lack of funds and political goodwill ensured that the proposed ideas where never fully implemented.

It’s quite unfortunate that major epidemics have been the driving force behind health reform policies in China. For instance, it’s only after the severe acute respiratory syndrome (SARs) epidemic that the health insurance was restructured to level out the inequalities between urban and rural health care systems, lower cost of treatment and ensure accessibility to quality medication. Consequently, the rural cooperative medical scheme was revamped and renamed ‘New Rural Cooperative Medical Scheme’. Within a very short period of time the NRCMS had insured close to 800 million rural residents. Apart from the reforms on health insurance sector, the government invested heavily on the rural health systems by funding constructions and purchase of medical facilities to a tune of US$2 billion. (Dong, 2009, pp. 591-597)

It was during this period that the short comings of the previous directive of privatization of government owned hospitals and change in methods of hospital fees was readdressed. Alternative means of settling fees were brought into focus. They included; diagnostic related groups, capitation and prepayment that were mainly used in maternal care (Huang, 1994).

A Review of the Health Care Reform Policies

Did the health care reforms implemented in the early 1980s achieve its goals? To a greater extent I choose to disagree. It has not. The economic transformation of state owned enterprises to market based, failed to bridge the inequalities between the haves and haves-not population. With the privatization of state owned facilities, the central government did a great injustice to the rural population.  Sidel in ‘The Barefoot Doctors of the People’s Republic of China’ is of the view that  the inception of Agriculture de-collectivization, the central government had began a process of  destabilize a health-care system that had initially worked for the rural population through collective welfare system of which cooperation of medical scheme was inclusive . With the breakdown of the rural insurance fund (cooperative medical schemes) many rural inhabitants were unable to access quality health care due to lack of finances.

The breakdown of social health insurance, presented a new challenge to the new insurance schemes under the new economic atmosphere. Insurance providers were most likely not to cover high risk individuals and at the same time low risk individuals were unlikely to seek medical cover. Besides that, risks of misuse of insurance by individuals who have been covered (moral hazard) would definitely trigger high cost of insurance effectively locking out the greater rural population (Eggleston and Yip, 2004, pp. 343-368).

The central government disassociating itself and allowing hospitals to be operated in a profit based fashion; lead to the rise in fees charged when one seeks medical attention. To exacerbate the situation, privatization caused   jobs cuts thus making it next to impossible for individuals to access quality health care when need arose. In a nutshell the privatization of healthcare has adversely undermined the impartiality of health care provision.

China has also enjoyed publicity in the international media all for the wrong reasons. Major media houses in the world have at one time reported on the ailing healthcare systems in China. For instance, BBC reports on the ailing healthcare system of China on 7th December 2004.

The misadvised government incentives in the early part of China’s health reforms policy lead to the failure of the health reforms that otherwise had good intention for the greater mass.

The privatization and removal of drug control pricing of essential drugs left millions of rural China citizen vulnerable to exploitation by private practitioners. They had a free hand of setting profit margins at will an aspect that I strongly believe was a distorted government incentive to encourage private practice in China (Potter Pitman, 2010, pp. 164-179).

As the old adage goes, ‘if it is not broken don’t fix it.’ The barefoot doctors where an integral part of china healthcare system in the Mao era. In an effort to improve the healthcare system, the central governments come up with a new policy of privatization and licensing private practitioners without having done feasibility studies to access the nature and importance of barefoot doctors in rural China.  The mistake proved to be costly (Sidel, 1972).

The primary duty of the barefoot doctors was to offer primary care which entailed preventive and public health campaigns. It should be noted that with a change in government funding and policy, health services was on a fee for service model: Preventive medicine was in no way going to compete with curative medicine in the restructured hospital for profit model.

Infectious and parasitic diseases that were successfully controlled by the barefoot doctors were once again on the rise with the collapse of the cooperative medical schemes.

With the private for profit hospitals it made more sense to treat than to prevent. Treatment would be more expensive and thus meant more profit margins. Barefoot doctors (primary healthcare providers) opted for greener pastures in farming and where never replaced. A shortage of medical personnel was experienced in the rural settings.

It’s disheartening for China to report the reemergence of infectious diseases that the barefoot doctors had eradicated in the 1970s; more specifically Syphilis (Merli et al., 1996, pp. 1-22).


The one million dollar question was and still remains how come China made major health strides when it had a relative small economy and experienced stagnation when it was an economic power – house?

It was during this era of economic growth that great inequity in healthcare access was witnessed. Lower life expectancy was recorded in rural areas as compared to urban areas. Great variation of staffing, quality as well availability of health services from city to rural clinics was reported.

Naughton (1995) attributes the aforementioned systemic failure on the dysfunctional government incentives to promote hospitals for profit.



Epidemiological Transitions

After successfully implementing the social market policy, China enjoyed a rapid economic transformational growth. Data by Chow (2006) indicate that the average income per capita in 1993 was 1936 Yuan but rose to 4333 Yuan in 1998. With such a booming economy, there was a shift on the social lifestyle of the urban population. This triggered the rise of non-communicable diseases. The privatization and shift to social market economy had successfully controlled infectious diseases on one hand but on the other hand opened another can of worms in the name of non-communicable diseases (Mendez & Popkin, 2004).

Conditions and diseases associated with the affluence (cancer, cerebrovascular and cardiovascular diseases) presented a new headache to the health sector (Nianjian, 2006).

The non communicable diseases could have easily been avoided if preventive medicine which was being offered by barefoot doctors and paramedics was still in practice.
Hu-Wen Administration Policy Change

The acknowledgement that the post Mao health reforms has failed in contemporary China, the current administration is revisiting its policy with an aim of establishing the reasons behind the failure of health reforms in 1980 (Li & Peter Yuen, 2003). The three unforeseen negative impacts that were triggered by an otherwise sound health reforms policy (privatization, restructuring of health insurance policy and misplaced government incentives) has forced the central government back to the drawing boards in an attempt to come up with a practicable health reform policy.

The new proposed policy by Hu-Wen government focuses on increasing health funding, reintroduction and expansion of social health insurance, provision of public health and primary health care clinics, restructuring pharmaceutical marketing and emphasis on feasibility studies before implementation (Wagstaff et al., 2009).



In evaluating China’s healthcare reforms, a brief back ground of China healthcare system was put under the microscope. Starting with the Mao Zedong   era where healthcare system was centralized under the central government with clear cut administrative units from the national level to grassroots levels. Health care was provided in a three tier system under government funding and cooperative medical insurance schemes. To a certain extent the system was a success as life expectancy, infant mortality and eradication of some parasitic \ infectious diseases were eliminated.

In an effort to improve the gains by the Mao Zedong era, China transformed its economy from a closed administered to a social market. Agriculture was the first to undergo transformation. From an economical stand point, China superseded expectations. It recorded rapid economic growth on one hand but on the other hand, it had successfully killed collective welfare organization of which cooperative medical scheme was inclusive.

Privatization of state owned health facilities and introduction of misplaced government incentives to the medical practitioners signaled the beginning of inequity and inaccessibility of quality health care between the haves and have-not.

Great disparities existed between urban rich populations and rural poor regions: From medical personnel understaffing to poor facilities to distorted drug pricing.

The once flourishing insurance cover under the umbrella of cooperative medical schemes systematically collapsed as new unaffordable insurance policy was advanced by the new insurance providers. Private for profit clinics mushroomed, preventive medicine and public health care was ignored since it was more rewarding to treat that to prevent in a market driven environment.

Accessing quality health services was proving to be elusive to the greater population of China especially with the introduction of fee for service received. The situation was worsened with the government relinquishing its jurisdiction to private practitioners to set pharmaceutical drug prices. The poor were left vulnerable to exploitation by the profit thirst medical practitioners.

In a nut shell the gains of Mao Zedong era were overwritten by the failure of his successor policy of transforming China’s healthcare to a market based.

In response to the challenges China’s healthcare system was facing, Hu-Wen administration advanced healthcare policy reform in 2009. His administration policy focused on five aspects in attempt to resuscitate the ailing China’s healthcare. They include; increasing health funding, re-introduction and expansion of social health insurance, provision of public health and primary healthcare clinics, restructuring pharmaceutical marketing and emphasis on feasibility studies before implementation (Wagstaff et al., 2009).



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