All change for healthcare

To encourage patients to use these grassroots-level facilities, the Action Plan and the Opinion provide that: (i) from 2009 all grassroots-level facilities are required to be stocked with and sell essential medicines at cost (at the facilities' purchase price) with mark-up of medicine prices forbidden; and (ii) essential medicines will be covered by the national basic medical insurance catalogue with a higher reimbursement rate than for non-essential medicines. To compensate for the loss in revenue from the sale of medicine, the Action Plan and the Opinion provide that the government will subsidise the relevant costs of administrating the medicines. The government will also make additional investments to improve equipment at grassroots facilities – good news for medical equipment manufacturers.

Reforms of public hospitals

Reforms of public hospitals mainly include the following:

Discontinuing public hospitals' dependence on profit from sale of medicine: According to the Opinion and the Action Plan, the source of public hospitals' revenue will be reformed. Hospitals will rely on treatment fees and government funding alone, and not on sales of medicine. In order to strengthen public hospitals' provision of medical services and break their dependence on profiting from medicine, they will receive more government funding and be allowed to charge higher treatment fees.

Public hospitals can now sell medicines at a price 15% higher than their purchase price. The Opinion and the Action Plan specifically point out that this practice will be gradually abolished, and a new pricing system will be established to prevent doctors from prescribing medicines with a higher purchase price. According to the Opinion, the scope of the mark-up under the new pricing system will be determined based on the purchase price of the medicines – the higher the purchase price, the smaller the mark-up that is allowed. Another important measure is that public hospitals are required to preferentially prescribe so-called essential medicines.

Allowing private capital investment: The government has cautiously permitted private capital, either domestic or foreign, to be invested in hospitals. The Opinion and the Action Plan aim to lower the number of public hospitals through privatisation. Private hospitals will be treated comparably to public hospitals in terms of medical insurance, tax preference, qualifications for service, and so on. The Opinion and the Action Plan also encourage investment of private capital into non-profit hospitals. Furthermore, on May 4, the Ministry of Commerce issued the Circular on Matters Relevant to the Approval and Administration of Certain Foreign-invested Enterprises of the Service Industry by Provincial-level Competent Commerce Departments and State-level Economic and Technology Development Zones (商务部关于省级商务主管部门和国家级经济技术开发区审核管理部分服务业外商投资企业相关事项的通知), which delegates approval power to lower government levels, resulting in a faster approval process for foreign investors seeking to invest in medical institutions through joint or co-operative ventures.

Fighting commercial bribery: The Opinion reiterates the government's determination to strike down commercial bribery. The Action Plan further provides that public hospitals and grassroots-level facilities are forbidden from accepting discounts for purchasing medicines. Under current laws, explicit discounts faithfully recorded in the accounting books of public hospitals or grassroots-level facilities are deemed lawful. The legality of these explicit discounts may be challenged in the future as the government wishes to eliminate public hospitals' dependence on revenue from the sale of medicines.

Sheng Huang, associate, East Associates