Stanford Center for International Development researcher Karen Eggleston put out a working paper called Incentives in China’s Healthcare Delivery System.

Eggleston writes a fascinating analysis of how the perceived role of doctors in the Easy Asian herbal medicine tradition…

In herbal medical traditions as dominated in East Asia…the prescription and preparation
of medications was central to the entire enterprise, and the dispensing of medicine came
to be seen as the central outcome of the patient-physician interaction. For example, from ethnographic
study as an anthropologist and clinician, Kleinman (1980, pp.260-264) describes clinical
interactions between patients and Chinese-style doctors that feature little or no explanations, and
belief that the doctor’s therapeutic power stems from emotional distance from the patient and the detailed prescription.

…has come to influence China’s current healthcare system…..

In the early 1950s at the outset of the PRC, the tradition of physician-dispening found a modern
counterpart in the decision to allow hospitals to charge a mark-up for selling pharmaceuticals (Zhang
2008). Although the policies regarding hospital finance and pharmaceutical price regulation have
changed over the years, this mark-up for dispensing drugs has remained (Huang and Yang 2008).
Pharmaceutical prices have long been regulated in China, except from 1992 to 1996, when the Chinese government let the market set drug prices (Sun et al. 2008). Pharmaceuticals account for
about half of total healthcare expenditures in China, representing 43% of expenditure per inpatient
episode and 51% of expenditure per outpatient visit (ibid). This relatively large share appears in part related to hospitals or other providers receiving between 15% (the official mark-up) to 40% or more of the retail price of pharmaceuticals.

The article then undertakes complex economic analysis to diagram the economic incentives that Chinese doctors and hospitals have to over prescribe pharmaceuticals and treat (or not treat) certain groups of patients.  The conclusion of the paper ties the paper into current Chinese health reform and makes a case for why national health insurance reform will make the separation of prescribing and dispensing (SPD) a necessity in China.

Introducing insurance lowers the costs of separation eventually, because provider payment need no longer be defined by patient willingness to pay linked to expectation of obtaining a drug during a doctor’s visit; patients are more willing to accept new ‘rules of the game’ when the rulemakers are the ones footing the bill. Insurance not only makes SPD  ‘easier’ in this sense, it also makes SPD increasingly necessary. Without a strong demand-side constraint, SPD can threaten the financial sustainability of social health insurance. Similar concerns spurred separation reforms in Korea and Taiwan.

I have tended to think about SPD in China as a result which can only be brought about by stringent government regulation.  But, my argument for this necessity is, admittedly shaky. What I find intellectually appealing  about Karen Eggleston’s work is that she views SPD as a process which can only be achieved organically due to the immutability conferred upon it by thousands of years of Chinese history.  It is a somewhat romantic notion that like so many other  areas of Chinese life, the issues in China’s healthcare system cannot be properly addressed until one reads a great Chinese novel or two.