China's Medical Service Pricing Reform: Current State and Future Development
In our last newsletter, we delved into the three fundamental issues connected with medical service pricing in China:
- Fragmented pricing governance and management, leading to significant regional disparities.
- Insufficient consideration of human care in developing medical service pricing, resulting in deviations from market value.
- A lack of alignment with technological innovation.
China has introduced a series of policies to tackle these challenges in recent years. These measures focus on standardizing the management of the national service catalog, creating mechanisms for price formation and dynamic adjustments, expediting the adoption of new medical technologies, and underscoring the significance of supporting the value of technical labor in managing medical service prices.
Since 2021, a select group of five pilot cities has been designated to embark on a 3 to 5-year exploration. The objective is to develop a replicable and scalable model supported by five key mechanisms: total budget control, tiered price formation and dynamic adjustments, output-oriented price management, and comprehensive monitoring.
Focus on total budget control and structural adjustments, allowing increases and reductions in medical service prices.
One of the primary objectives of the ongoing reform is to enhance the macro-management of medical service pricing. The reform places significant emphasis on controlling the total budget and introducing structural adjustments that allow for both increases and reductions in medical service prices.
For price increases, particular attention is being given to categories highly reliant on technical labor, such as surgical procedures, nursing, and traditional Chinese medicine, which have not undergone adjustments for a significant period. By the end of 2022, according to the National Healthcare Security Administration (NHSA), prices in these technical categories had increased at a rate surpassing the average, aligning with broader economic and social development trends.
However, the existing fixed total budget means the current reform primarily focuses on redistributing income among hospitals and medical specialties. This implies structural adjustments without causing substantial changes to the overall revenue of hospitals or physician compensation.
“There remains a shortfall in adjusting medical service prices, and progress in optimizing the revenue structure of public hospitals has been slow. Between 2012 and 2022, the average annual increase in the proportion of revenue from medical services was a mere 0.4% ... The financial stability of public hospitals is uncertain. Public hospitals depend on maximizing patient volume to maintain operations, and issues such as siphoning and profit-driven motives persist.” - Xu Shuqiang, Director of the Reform Division, China National Health Commission
In response to queries from reporters, the NHSA emphasized the agency will continue to guide local authorities to prioritize increasing the proportion of technical labor in the dynamic adjustment of medical service prices in the subsequent phases of the reform.
Additionally, the agency underscored the importance of integrating the reform of medical service pricing with overhauling the public hospital compensation system to address physician compensation more comprehensively.
Apply different pricing approaches based on medical service categories.
China's medical service pricing grapples with two prominent issues: significant regional disparities and a weak foundation in cost accounting. Nationally defined service items often undergo diverse interpretations by local authorities, leading to substantial differences in names, codes, service scopes, and associated costs for the same services across various regions.
Furthermore, historically, pricing decisions were exclusively government-controlled, overlooking the operational costs incurred by public hospitals when delivering services. This omission resulted in an inadequate and unscientific calculation of service costs.
In response to these challenges, the ongoing reforms seek to strike a better balance by standardizing pricing for straightforward, well-defined services and improving the accuracy of cost accounting for complex services. As a result, the current reform introduces three distinct pricing approaches based on service categories:
- Government-Set Prices for General Services: General services like diagnosis and nursing feature well-defined procedures and service scopes. They are widely understood and applied by healthcare institutions and medical staff. Their uniformity offers an excellent opportunity to minimize regional disparities and establish standard national or provincial pricing.
Consequently, the NHSA has focused on regulating pricing standards for general services, ensuring stability and reliability by guiding provinces to adjust prices dynamically based on big data analysis of service element costs, macro indices, and service delivery tiers.
- Government-Guided Pricing for Complex Services: Complex services, like high-risk surgical procedures, demand high expertise and substantial technical support within healthcare institutions. These services lack uniformity.
Previously, pricing was solely government-determined, leading to a one-size-fits-all approach. The pilot reform emphasized that the government should set the rules while involving hospitals in determining prices for complex services within government-defined parameters.
The recently completed 2023 update of the National Medical Service Technical Specification, involving over 700 experts, significantly improved the accuracy of cost estimates related to technical labor.
- Market Pricing for Specialized and Emerging Services: Specialized and emerging services, often involving new medical technologies, are priced by public hospitals themselves. The number and cost of such services are limited to no more than 10% of all hospital services.
Create a responsive and well-balanced mechanism for dynamic price adjustments.
Implementing a responsive dynamic adjustment mechanism is critically important to continually improve the revenue structure of medical services and accurately represent the market value of physician services.
Historically, the criteria and timing for price revisions were uncertain and heavily reliant on directives from local authorities.
In 2019, the NHSA, in collaboration with the National Health Commission (NHC), issued initial guidance that mandated each province to establish a dynamic price adjustment mechanism. This involved clearly defining the conditions that trigger adjustments.
Subsequently, in the 2021 pilot program, these triggering conditions, constraints, and mechanisms for dynamic adjustments were further refined. Distinct dynamic adjustment mechanisms were also introduced for general and complex services.
For general services, the aim is to simplify the triggering mechanism based on income and price indices to achieve more stable pricing trends.
In the case of complex services, the focus is on creating a more flexible adjustment mechanism that prioritizes critical areas. These adjustments can be triggered by factors such as technical complexity, risk factors, and an evaluation of input value if they surpass certain thresholds.
Lastly, flexibility is allowed in choosing price adjustment windows in situations necessitating special price adjustments, particularly in conjunction with significant reform initiatives, major public health events, or to address notable price disparities.
As per the NHSA, dynamic adjustment mechanisms have been implemented in all provinces. Between 2020 and 2023, each province carried out yearly assessments, aligning adjustments in medical service prices with factors such as economic development levels, social affordability, fund operations, and hospital performance.
Establish an output-oriented price management mechanism separating labor and medical technology pricing.
Effective medical service pricing management is vital in reducing regional pricing disparities and aligning hospital services with medical advancements.
Currently, service items are intricately linked to technical specifics and internal hospital operations, making them vulnerable to incompatibility due to minor changes in clinical practices, such as location, steps, or methods of an operation. This forces healthcare institutions to seek approval for new price items to offer and bill for these services.
As of August 2021, the nationwide medical service pricing catalog comprised 13,612 items, including 7,884 national codes and 5,728 local temporary codes.
To help reduce regional disparities, medical service price management will shift towards decoupling pricing from technical details and focusing on service output. Additionally, it will separate pricing for technical services and medical technologies to promote genuine innovation.
Moreover, the current process of requesting new-price items can be lengthy. To better align medical service pricing with innovation, the NHSA will guide local authorities to simplify the process for new service applications, expedite the review and approval process, and implement health technology assessments to evaluate the innovation and cost-effectiveness of new service items.
Establish a rigorous and efficient price monitoring and assessment mechanism.
Establishing a price monitoring system will align with key reform dimensions, encompassing total budget control, price determination, and dynamic adjustments. This will involve the development of a robust data infrastructure for price management, gaining deeper insights into the implementation of pricing in healthcare institutions, and proposing the publication of medical service price indices for macro management and to prevent arbitrary pricing.
Additionally, there will be an increased emphasis on the practical application of price monitoring outcomes, connecting monitoring results with actual medical service pricing. If monitoring reveals excessively high or low prices, intervention measures will be implemented, and assessments of hospital price responsibility will be enforced.
Final Thoughts
China's ongoing reform acknowledges and takes promising strides in tackling the fundamental issues associated with medical service pricing. These issues include regional disparities, inadequate physician compensation, and a lack of alignment with medical innovations.
Nevertheless, the prevailing emphasis on total budget control has confined the current reform to structural adjustments, essentially reallocating interests among various hospitals and medical specialties. As a result, the adjustment space for medical service prices will be constrained.
References:
- 【权威发布】《全国医疗服务项目技术规范（2023年版）》发布, 2023-9-28, http://www.phirda.com/artilce_32864.html?cId=4
- ZOU et al., Current situation, problems, and countermeasures of the reform of the medical service items pricing mechanism in China, Soft Science of Health, Mar 2022, Vol. 36, No. 3
- 《全国医疗服务项目技术规范》影响几何？, 21st Century Economy, 2023-10-11
- 为推进医疗服务价格改革，国家医保局做了哪些工作？, China Medical Insurance, 2023-10-25, https://www.cn-healthcare.com/articlewm/20231025/content-1615646.html (Accessed 11/6/23)
- 国家医疗保障局相关负责同志就《深化医疗服务价格改革试点方案》答记者问, 2021-9-1, https://www.gov.cn/zhengce/2021-09/01/content_5634741.htm (Accessed 11/6/23)
