China's push to overhaul its health-care system is encountering challenges from public hospitals, Health Minister Chen Zhu said, an obstacle that has broad implications for the country's economic outlook.
On the positive side, Dr. Chen said that China has extended basic medical coverage to 96% of rural Chinese.
Until a few years ago, the bulk of the rural population had no health insurance, which meant that a serious sickness within a family often led to financial ruin, and returned many farmers to the poverty they had recently escaped.
However, Dr. Chen portrayed a situation that increasingly worries health-care experts: that the biggest obstacle to fixing health care in China is public hospitals that see reform as a threat to their for-profit status—and to the income of both doctors and administrators.
"The major challenge is the reform at the public hospitals," said Dr. Chen in an interview.
China in 2009 embarked on an ambitious three-year, $125 billion effort to expand health-insurance coverage, improve primary-care facilities and revamp the public-hospital system, among other goals.
The push fits in with China's broader economic goal of spurring domestic consumption: The government hopes that a better social-safety net will encourage families to spend more of their savings.
It has made major strides, experts say, especially on extending insurance coverage to the country's 833 million rural residents. But public hospitals, historically the backbone of treatment in China because of the lack of primary-care facilities, have fought the overhaul. They benefit from the current system in which they are allowed to make up for low government-set prices for beds, nursing care, operations and other services by reaping profits from the sale of drugs and diagnostic tests.
The system has led to massive overprescription of expensive drugs, and needless testing.
In the past three years, reforms have created a list of "essential drugs" for common illnesses whose prices are fixed at a discount and whose use doesn't lead to a commission, which has helped lower health-care costs at some hospitals.
Such moves, however, have lowered hospital revenue, which has prompted resistance from hospitals and doctors.
"China has not been able to make much movement because the government and the minister of health are trying to change the hospitals' motive, structure and management," said William Hsiao, an economics professor at Harvard University's School of Public Health who studies Chinese health reform. "Hospitals and physicians are fighting back furiously."
Hospitals appear to be shifting away from drugs on the essential list to more expensive drugs and passing the higher costs on to patients, according to research from Dr. Hsiao and his colleagues recently published in the medical journal the Lancet.
Dr, Hsiao said China has made great strides in improving the primary-care infrastructure. According to his analysis, around 92% of the Chinese population has some form of insurance coverage, slightly below Chinese government claims, though the coverage for many is limited. "The strategy is: get everyone covered, then deepen the coverage," said Dr. Hsiao.
However, he said the inability to successfully curb costs at hospitals could have trickle-down effects for insurance coverage.
"When the public hospitals, which are the mainstay of the provision for health care in China, are for-profit institutions, they will use every possible means to get money out of the patients or the insurance, so the insurance fund is going to have a tough time to sustain itself," said Dr. Hsiao.
Currently, the total health expenditure in China accounts for about 5% of its gross domestic product, and of that, about 28% is paid for by the government, 35% by individuals and the remainder by employers. By the end of 2015, the goal is to increase the government's contribution to about 33% and reduce individuals' out-of-pocket expenses to 30%, said Dr. Chen.
Dr. Chen, a hematologist, was in New York to receive an award from the National Foundation for Cancer Research for work that he and colleague Wang Zhenyi conducted on leukemia. The only nonparty member among China's senior leaders, Dr. Chen became a self-taught "barefoot doctor" when he was sent to the Chinese countryside for re-education in the 1960s. Later he obtained his doctorate in Paris.
He said the workload of doctors has almost doubled at hospitals over the past three to four years as more people have gotten insurance and have begun seeking medical care. "Nowadays, everybody wishes to see the best doctors," Dr. Chen said.
In the next phase of reform, the Health Ministry will seek to protect doctors' salaries by increasing government investment in hospitals and relying more on payments from insurance, said Dr. Chen. The low cost of medical services, like operations or nursing care, also needs to be addressed he said. "We need to increase the price of nursing fees, operating fees," he said.
The ministry will begin pilot projects in hospitals at the county level in some 300 of 2,800 counties across China, using public funds to improve equipment and using insurance to pay for operational costs, said Dr. Chen. If successful, it plans to launch the problem nationally at the county level next year.
China also has another tier of hospitals in cities, and is conducting pilot programs in hospitals in 17 cities, including some of the largest like Beijing, Shanghai and Shenzhen.
Part of the pilot programs will include ongoing tests of various payment policies, including paying a set amount per patient or a lump sum for a particular diagnosis.
The government also wants to improve training of general practitioners and attract new talents at the grass roots level, such as at village clinics, instead of just big hospitals.
