Qualitative analysis of direction of public hospital reforms in China

Abstract

Reforms in public hospitals are among the most important improvements in China’s health care system over the last two decades. However, the reforms that should be implemented in public hospitals are unclear. Thus, a feasible direction of reforms in Chinese public hospitals is suggested and reliable policy suggestions are provided for the government to reform public hospitals. The data used in this study were mainly derived from a qualitative study. Focus group discussions and in-depth interviews were conducted in Shanghai, Guangdong, and Gansu between May and December 2014. Government funding accounted for approximately eight percent of the total annual revenue of public hospitals in China, and the insufficient government subsidy considerably affects the operation mechanism of public hospitals. However, solely increasing this subsidy cannot address the inappropriate incentives of public hospitals in China. The most crucial step in setting the direction of reforms in public hospitals in China is transforming inappropriate incentives by implementing a new evaluation index system for directors and physicians in public hospitals.

Keywords

public hospital / government hospital / public funding / operation mechanism

Introduction

According to information asymmetry theory in the context of physicians and patients, as well as the limited competition theory in the hospital system [¹–³], a consensus was reached both in the academe and in practice that the government should play a crucial role in providing medical services. Therefore, government-funded public hospitals have an important position in medical service systems in all countries.

Public hospitals around the world are often categorized into two types. The first type is that the public hospital plays a dominant role in one country’s health care system. In the United Kingdom, the percentage of public hospitals that provide free health care to all patients is approximately 85%, and public hospitals are funded by the federal government through general taxation [⁴]. The second type is that the public hospital plays a complementary role in a country’s health care system. In the United States, public hospitals that provide free medical services to the uninsured, poor, or senior citizens account for approximately one-fifth of all hospitals, and funding is obtained from the government and social health insurance programs such as Medicare and Medicaid [⁵,⁶]. Therefore, regardless of the type of public hospitals in different countries, all public hospitals provide free or nearly free medical care to patients and receive full or major funding from the government or a social health insurance system [⁷,⁸].

Despite the existence of public hospitals in China, people commonly complain about the high cost of medical services. Thus, the central government recently prioritized public hospital reforms [⁹]. Although various studies have been conducted on the status and problems of Chinese public hospitals, a consensus on how Chinese public hospitals can be reformed has not been reached [¹⁰,¹¹].

Although studies on public hospitals in China are numerous, systematic and comprehensive qualitative research is limited. Therefore, by conducting qualitative analyses, the study aims to provide a feasible direction to reform public hospitals in China and identify feasible policy suggestions for the Chinese central government to carry out these reforms.

Methods

Data

The data used in this study were mainly derived from a qualitative study in which focus group discussions (FGDs) and in-depth interviews (IDIs) were conducted in Shanghai, Guangdong, and Gansu between May and December 2014. Three FGDs were conducted in each province or municipality. The first focus group included officials from provincial government departments, such as those related to health, finance, and development and reform. The number of participants in the FGDs that discussed the status, difficulty, and direction of public and private hospitals in China was 9, 12, and 13 in three provinces, respectively. The second focus group included officials from county and city government departments, such as the departments related to health, finance, human resources and social security, and development and reform. The number of facilitators in the FGDs who focused on problems and government subsidies to hospitals in the county level was 10, 11, and 14 in the three areas, respectively. The third focus group included physicians from public hospitals. The number of participants in the provinces was 12, 9, and 11, respectively, and the major topic was the incentive of physicians and physicians’ attitudes toward the evaluations on hospitals or physicians. In addition, FGDs were conducted with 11 scholars in the field of health policy to determine the status and existing problems of public hospitals in China. IDIs were conducted with 12 directors of hospitals and the health department to draw insights into the current status of government subsidies, incentives, and evaluations of public hospital directors. Furthermore, the quantitative data were collected from various volumes of China’s Health Statistical Yearbook and Health Statistical Bulletin from 2006 to 2014.

Analysis

The qualitative data in this study were analyzed using content analysis with NVivo 10 (QSR Ltd., Australia). SPSS 19.0 was utilized for all quantitative analyses (IBM Corp., USA).

Results

Overview of public hospitals in China

According to China’s Health Statistical Yearbook, two classification systems are adopted for hospitals in China. The first classification system is based on ownership: government, social, and private hospitals are owned by the government, social organizations, and private individuals or companies, respectively. In the second classification system, public hospitals include all government hospitals and non-profit social hospitals, whereas non-public hospitals include all private hospitals and for-profit social hospitals. The qualitative data from FGDs with scholars and directors of public hospitals indicated that the second classification system serves a more functional purpose than the first classification system. One director from a public and nongovernment hospital said that “[the] main difference between our hospital and a government one is state or collective ownership, [which] is meaningless for us; the operating and funding mechanism of our hospital is the same as that of the government hospital.” Furthermore, the definition of a public hospital identified from FGDs did not depend on whether the hospital was owned by the government. Therefore, in this study, public hospitals refer to government and not-for-profit social hospitals.

The number of hospitals in China increased steadily from 2005 to 2014 (Table 1). During the same period, the number and percentage of public hospitals decreased from 15 483 to 13 343 or from 82.8% to 52.3% of all the hospitals in China. Table 1 also shows that the number of government hospitals remained almost unchanged, and the percentage of government hospitals continued decreasing from 53.1% to 41.6% of all the hospitals in China from 2005 to 2012. Furthermore, the number and percentage of non-public hospitals increased steadily from 3220 to 12 166 or from 17.2% to 47.7% of all the hospitals in China from 2005 to 2014.

Whether the number of public hospitals will continue to decrease is unclear. Qualitative data from the FGDs with the scholars in the field of health policy and IDIs with directors of hospitals and health department showed that the decrease in the number of public hospitals in the past decade was mainly due to the consolidation of neighboring public hospitals; thus, a sharp decline in the number of public hospitals and their privatization is highly unlikely. An official from the Health Department of Guangdong Province said that “it is impossible for the public hospitals at the county level and above to be bankrupt or privatized. However, numerous private or non-public hospitals are entrusted to public hospitals.” Another official from the same health department said that “the number of private hospitals will certainly increase in the future, but since the majority of clinics and inpatients are in the public hospital sector, the leading position of public hospitals in the medical care system is unquestionable.”

Operation mechanism of public hospitals in China

The goal of the directors of private hospitals with for-profit characteristics is straightforward: they seek to generate profits through rational investment with objective cost–benefit analysis. Physicians in private hospitals attempt to reduce costs and attract patients by offering cheaper care and improved service [¹²]. By contrast, the goal of directors of public hospitals in China is to achieve political objectives rather than to generate profits because all public hospital directors have political and administrative ranks. Expanding the scale of the hospital is the easiest means to demonstrate political accomplishments. Therefore, the goal of public hospital directors is to expand facilities and increase the sophistication of medical technology without regard for the costs and benefits involved [¹³]. To achieve these goals, public hospitals always depend on funding from banks. The debts of public hospitals to banks account for approximately 40% of their total assets, and nearly all public hospitals borrow from banks when building facilities and purchasing expensive medical technology. The qualitative data from the IDIs with the public hospital directors confirmed their aforementioned goal and the debts to banks. According to a director from a county-level public hospital in Gansu Province, “every year, we are exhausted in having to cope with the high interest rates of the bank, in which the total subsidies to our hospitals are not enough to pay for.”

Under these circumstances, directors of public hospitals assign expenditure to every division, and the latter redistributes this expenditure to every physician to balance the revenue and expenditure. In accordance with the incentive theory of private companies, physician salaries depend on the number of clinics and inpatients as well as the drugs and high-technology tests prescribed [¹⁴,¹⁵]. The qualitative data from FGDs revealed that the physician’s salary is related to the number of clinics and inpatients, and all departments and physicians in a public hospital have their own workload quota. One director of a public hospital said that “although the policy requires us to cut the relationship between the salary and workload of the physicians, this was impossible to put into effect. Doing so would have taken us back to the ‘big rice pot’ distribution system.”

Funding mechanism of public hospitals in China

According to statistics, government funding accounted for 8.4%–9.3% and 7.8%–8.7% of the total annual revenue of government and public hospitals, respectively, in China from 2008 to 2012. Furthermore, the annual percentage of government funding to public hospitals was 0.2%–0.7% lower than that to government hospitals. This finding indicates that the funding mechanism of public hospitals is nearly the same as that of government hospitals (Table 2).

The qualitative data from the FGDs revealed that the insufficient government subsidy considerably affects the operation mechanism of public hospitals. Furthermore, in the FGDs, the scholars agreed that insufficient government funding for public hospitals in China was one of the main differences between public hospitals in China and the essential attributes of public hospitals worldwide and was one of the direct causes for the overcharging of patients. Nevertheless, a consensus was not reached regarding whether insufficient government funding was the root cause of the inappropriate incentives of public hospitals and physicians. For example, a director of a county-level public hospital in Gansu Province said that “if our hospital gets the adequate government subsidies to keep the balance of payments, there is no doubt that the inappropriate incentives of the hospital will disappear.” However, one official from the Department of Finance said that “the public hospital is a bottomless pit. No matter how much funding the government puts into it, the profit-oriented mechanism of hospitals and physicians will not change.”

Funding and operation mechanisms of public hospitals in China

As mentioned, whether improving the subsidy can change the inappropriate incentives of directors and physicians in public hospitals remains unclear. Thus, we addressed this question by comparing the operations of public and private hospitals. The private hospital which was one part of non-public hospitals and treated as a comparison object due to their completely different funding mechanism and taxes with those in public hospitals.

The qualitative data from the FGDs and IDIs revealed that the major differences between public and private hospitals are twofold. First, public hospitals receive subsidies from the government, whereas private hospitals do not. Table 2 indicates that government funding accounted for 7.8%–8.7% of the annual total revenue of public hospitals from 2008 to 2012. Second, for-profit hospitals must pay several types of taxes, such as business income, property, and urban land use taxes, whereas public hospitals are exempted from these. In addition, according to China’s Health Statistical Yearbook, over 90% of private hospitals in China between 2005 and 2014 were for-profit hospitals. Moreover, the amount of taxes was approximately 10% of the total revenue of for-profit hospitals, and the current tax rate has been 25% of the profits of for-profit hospitals since 2010.

Apart from the differences in regulation, government rules stipulate that public hospitals should also take the burden of public health and social welfare, whereas private hospitals do not have such obligations. Nevertheless, the qualitative data analysis showed that the expenditure of public health and social welfare accounts for a non-significant amount of the annual total revenue of public hospitals. Therefore, public hospitals were considered to have much more favorable policy priorities than their private counterparts. However, the number and percentage of private hospitals have increased rapidly among all hospitals in China in the past decade. According to the classic economic principle, private firms refuse to enter a market until they can generate profit. The steady increase in the number of private hospitals shows that private hospitals can generate profits despite the unfavorable environment they are facing. Thus, we hypothesize that public hospitals have more favorable operation mechanisms and much more favorable priorities than private hospitals. Furthermore, this study primarily reveals that solely increasing the subsidy amount cannot change the inappropriate incentives of public hospitals.

Discussion

China is widely known for its rapid economic growth in the past three decades, which was largely the result of market reforms [¹⁶]. However, the effects of the market reform policy on health care are not fully understood [¹⁷]. The direction of public hospital reform is controversial; this situation may be a critical consequence of the recent reforms in health care [¹⁸]. This study hopes to determine the feasible directions of public hospital reforms in China through the qualitative analysis.

Although the number and percentage of private hospitals increased rapidly in recent years, privatization is not a viable option for future reforms because of the primary characteristics of the health care system and the objective realities of China’s economic and social conditions. Therefore, the dominant position of public hospitals in the Chinese health care system tends to stay unchanged, and examining possible future directions of public hospital reform in China is particularly crucial for the future development of the country’s health care system.

Our findings showed that insufficient government funding and inappropriate incentives for public hospitals in China are not aligned with the requisites of public hospitals. Although insufficient government funding is not the root cause of the inappropriate incentives for public hospitals, changing the inappropriate incentives is contingent on adequate funding from the government because of the balance-of-payments problem in public hospitals. Countries such as Germany and Japan finance public hospitals through social health insurance and government funding. Over the past decade, China has made remarkable strides in improving its health care system and has established three key social health insurance systems covering the vast majority of the national population [¹⁹]. Under these circumstances, using both government funding and the social health insurance system is the most apparent strategy to finance public hospitals.

Apart from increasing funding, changing the incentives and goals of directors and physicians is crucial. Considering that a public hospital seems to be an administrative division of China, the main directors of public hospitals are high-ranking public servants. Therefore, administrative reforms of public hospitals are synonymous to penalizing the main directors of public hospitals with removal from the bureaucratic ladder or demotion in rank. Thus, changing the current performance evaluation system of directors, which is based on the scale of public hospitals, to a more scientific one is a more viable option. Notably, public hospitals should be public-oriented rather than profit- or scale-oriented. Therefore, the performance evaluation of directors should focus on a core index, such as patient satisfaction rate, that can accurately measure the public orientation of the hospital [²⁰]. Regarding the internal management of public hospitals, a new salary policy should be implemented to disrupt the association between the number of prescriptions and the compensation amount even for staff physicians who do not take assignments from directors [²¹,²²]. Accordingly, another component of the reform of the performance evaluation system of physicians should resolve the following: before economic reforms, physicians would receive the same salary regardless of the actual work they have rendered, which has been proven to be inefficient in China [²³]. Thus, establishing a new performance evaluation system for directors and physicians is critical for public hospital reforms.

In conclusion, public hospitals in China have not met the essential features of public hospitals. Regarding the direction of the reform of public hospitals in China, improving funding for public hospitals through government subsidies and the social health insurance system is critical. In addition, the most crucial step is transforming the inappropriate incentives by implementing a new evaluation index system for the directors and physicians who work in public hospitals.

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