No More Labs in Public Hospitals in China?

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A Typical Day in a Chinese Hospital; Source: sixth tone

Prior to the 2009 health system reform, in the face of dwindling governmental health spending, Chinese public hospitals relied primarily on drugs with high mark-up and expensive laboratory tests as their sources of revenue. In fact, according to earlier estimation, lab testing expenditure alone costs the system 751.9 billion RMB in 2015. Unlike in the U.S. where lab tests are conducted in both hospital lab settings (62%) and independent laboratories, lab tests are completed almost exclusively within public hospital laboratories (99.3%) in China.

In the effort to improve healthcare quality and cost-effectiveness, the Chinese central MOH has recently published policy recommendations that call for labs within public hospitals to register as independent legal entity. In addition, the development of independent medical laboratory companies is also encouraged. However, actual implementation of such policy recommendations (not mandate) is at the discretion of individual provincial MOH, whose opinion is largely influenced by large public hospitals. In this case, public hospitals are unlikely to support such policy in fear that they will lose another source of revenue (in light of the recent “zero drug mark-up” policy). General publics have also voiced concerns related to whether all hospital laboratory services will be removed and how that might affect their care-seeking experience.

To maintain healthcare quality and mitigate the risk of national health insurance fund deficit , the central government of China should enforce such policy with no delay. However, in order to generate buy-in and reconcile the conflicts between different stakeholders, the CMOH should:

  1. Change the “policy recommendation” to “policy mandate”, set pilot cities, start from small-scale implementation to national roll-out;
  2. Subsidize public hospitals to help them go through the transition period;
  3. Emphasize to the public that frequently used lab services will be available at public hospitals, only to be financially separated from the public hospitals’ revenue streams;
  4. Set high quality control standard for independent lab services.

Group member: Ai Liu, Zhengchun Jiang, Shanshan Wang

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3 Responses to “No More Labs in Public Hospitals in China?”

  1. Sehyo Yune Says:

    Thank you for sharing this interesting healthcare policy issue in China. This article reminds me of the separation of pharmacy from hospitals and physician offices in South Korea. Similar to the current situation in China, drugs and laboratory tests were the major source of revenue for health care providers as payments for care services were very low, sometimes even lower than the actual costs. As the single payer for healthcare services in the nation, the national health insurance was concerned about unnecessary prescription of drugs and separated all pharmacy service from hospitals and physician offices. Despite a strong backlash from physicians including a national strike, the new law was taken into action in 1999. However, contrary to the intention of reducing spending on prescription drugs, use of prescription drug did not decrease and the actual spending increased because now the insurance also had to pay pharmacists for dispensing drugs. In addition, following loss of a major revenue source, many physicians switched to specialties that provide nonessential services of which the prices are not controlled by the national insurance. As a result, 18 years later, there are too many clinics for skin care, obesity and cosmetic surgery but shortage of OB/GYNs and general surgeons.

    Health policies should always aim for high-quality services as well as efficient use of resources. Although healthcare professionals are expected to serve the public’s health, policymakers need to have realistic view on how they will act in response to the new policy in the long run. Strategies for dealing with unintended consequences should accompany implementation of a policy that may change provider behaviors.

  2. drrakshagupta Says:

    Thanks a lot for sharing this important issue. I would like to share the system in government hospitals in India. We have a humongous patient load and clinic services where patients outnumber doctors everyday. And all the services are free of cost in government hospitals, including meds and diagnostics. But there are few drugs and diagnostics machines not available in government setup so patients often are referred to private centers and chemists shops. Now there are two situations, one is when the patients are referred for their own benefit as the drugs are life saving or better quality with less side effects. For example leveteracetam for seizure is better than phenytoin for pregnant patients. Also some radiology and pathology investigations are urgent so due to non availability patients might be asked to get these done in private setup. Now they are expensive and not everyone can afford. The second situation is when the commercialization of health system pages way to these private owners to earn extra money by unnecessarily prescribing expensive drugs and investigations. This dual scenario creates a havoc in the community and general behavior of community towards doctors as they don’t know what situation applies in their case.
    I strongly advocate that policies should be shaped so that the burden on doctors is allayed and also general population knows how to make right decisions. That can happen by stringent laws and policies. And health education and awareness.

  3. vcsbf Says:

    Thanks for sharing the latest developments in the Chinese healthcare system. It is unclear exactly why the government wants to privatize the laboratories. Such separation may not necessarily result in reduced costs, since independent lab companies would also need to be financially-viable, and will have fewer opportunities than hospitals for cross-subsidization. Moreover, having independent laboratories could result in fragmented data sharing and service provision, as well as greater inconvenience for patients. It is important to get to the root of the problem. If unnecessary tests are being ordered (leading to inflated healthcare costs), this may be due to more than just financial considerations, such as pressure from patients, lack of clinical guidelines, or the practice of defensive medicine in a litigious environment.

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