Posted by Damjan DeNoble

A January 12 article in China Daily comments on a Health Ministry announcement that patients will no longer have to pay 7 to 15% extra fees that Public Hospitals charge on health medicines, saying:

“The new policy, to be adopted on trial basis, is intended to stop hospitals from relying too much on income from medicines. It is estimated that income from the sale of medicines makes up 50 percent of a hospital’s revenue on an average. But the catch is that a doctor’s income too is closely tied to the hospital’s earnings from medicine sales. No wonder it is common for doctors to prescribe expensive drugs while cheaper drugs can work just as well or possibly even better…It is an open secret that some doctors get kickbacks from drug manufacturers for prescribing their drugs. This move will undoubtedly dampen the enthusiasm hospitals have to urge their doctors to prescribe expensive drugs.”

While the article remains guarded in its optimism about the reforms, the key point left out is that the ‘open secret’ of doctor’s taking incomes from drug companies is a symptom of a greater issue. In China, like in Vietnam, and other economies where the salaries of health workers are still government funded, but the economy outside of the healthcare system is consumer driven, heavy incentives exist for doctors, nurses, even health administrators to earn additional income through grey market mechanisms. Indeed, patients regularly pay additional fees in the form of red envelope bribes simply to see doctors and nurses, or, as some patients have told us, to “ensure operations go smoothly.”

Currently, private funds in China account for 85-95% of hospital revenue and government funding has remained unchanged for the better part of 15 years.

The Health Ministry’s announcement, therefore, is barely even half a step in the right direction, because the gray market system is entrenched in the entire health system infrastructure. Real progress will only happen when salaries for physicians within the public health system go up to be on par with their private practice counterparts. When this happens, a red envelope containing 50RMB will cease to mean much, and the 7-15% fee on medical drugs will not contribute significant revenue to the bottom line when it comes time to pay salaries.

What do you think?