China's Medical Service Pricing Reform: 3 Core Challenges
China's medical service pricing reform is pivotal in reshaping China's healthcare landscape, impacting not only inpatient treatments but also the entire pricing and access ecosystem for innovative medicines.
From a more intuitive perspective, as drug and medical consumable markups are phased out, medical service price adjustments are expected to account for a significant portion, ranging from 70% to 80%, of public hospitals' financial gap. Consequently, the reform deeply impacts these healthcare institutions' sustainability and future growth.
This newsletter explores the three key challenges associated with medical service pricing in China, laying the foundation for a deeper insight into the current reform focus in the upcoming article.
Medical Service Pricing Governance and Management
In China, medical service pricing is managed according to the guiding principle of "standardizing medical services nationally while granting local pricing autonomy."
The National Health Commission (NHC) is responsible for establishing nationwide clinical pathways and standards for medical services. The National Healthcare Security Administration (NHSA) sets the principles for medical service price items, including naming, service content, and coding rules. Local divisions of the NHSA, whether at the provincial or county level, set and manage the prices of medical services.
One significant output of NHSA's efforts is the "National Medical Service Price Item Catalog," last updated in 2012. The inclusion of medical treatments in this catalog and their assigned prices are prerequisites for not-for-profit hospitals to offer diagnoses and treatments to patients in China.
However, the utility of the 2012 catalog has been compromised by the ambiguous link between medical service price items and technical specifications, leading some regions to continue using the outdated 2001 edition.
The recent release of the National Medical Service Technical Specification by the NHC marks a significant advancement in regulating and managing medical service pricing in China. For the first time, this document clearly delineates the relationship between medical services' technical specifications and pricing, aiming to enhance the efficacy of the existing pricing catalog.
Medical Service Pricing Core Challenges
A fragmented medical service pricing system has resulted in large regional disparities.
A highly decentralized governance structure has fragmented China's medical service pricing system. More than 300 funding units exist, each managing prices autonomously instead of operating within a unified national pricing system.
In practice, services defined at the national level are frequently deconstructed and redefined in diverse ways by local authorities. Consequently, the names, codes, scope of services covered, and associated costs for the same services vary significantly across regions.
Moreover, the update of the national medical service catalog has been slow, and service item definitions lack consistency, resulting in disparities in the versions adopted by various provinces. Integrating old and new versions has been slow, with 22 provinces still not transitioning to the 2012 version.
These substantial disparities have posed challenges for cross-provincial reimbursement, weakened the foundation for cost accounting in medical service pricing, and hindered the efficient allocation of insurance funds.
The legacy of China’s planned economy has left medical service prices artificially low.
China's historically planned economy has emphasized the welfare orientation of public hospitals. It has perpetuated artificially low medical service prices, particularly undervaluing human care during treatments, which is one of the core factors contributing to the country's multitude of healthcare reform challenges.
This historical legacy has evolved into the peculiar pricing structure seen in China today, where the pricing of medical services is based on hospital expenses. Within this structure, drugs and medical consumables account for the lion’s share of medical service prices, while labor costs are significantly underrepresented.
One area where the impact of this distinctive pricing structure becomes apparent is China’s ongoing provider payment reform. The introduction of China's DRG/DIP provider payment reform happened before the overhaul of medical service pricing. As a result, DRG/DIP payments inherited the challenges from the legacy pricing system, resulting in an insufficient compensation structure that fails to cover the full costs of medical service delivery.
Consequently, public hospitals continue to face the dilemma of promoting "large prescriptions" and "extensive examinations" or favoring high-cost, high-volume services to compensate for the loss of income due to eliminating markups on drugs and medical consumables. This practice has led to continued overuse of medication and overdiagnosis.
On a broader scale, inadequate compensation for physicians, along with insufficient differentiation in pricing among various levels of medical institutions, has created significant hurdles for China in its transition from a hospital-centered healthcare system to one based on primary care.
Lack of dynamic pricing update mechanism for adding new technologies and adjusting existing services
Revision to the national medical service catalog is slow, leading to the obsolescence of treatment methods. Innovative treatment approaches are frequently left out, causing significant delays in the pricing and reimbursement of new medical technologies.
Furthermore, the mechanism for initiating dynamic price adjustments at local levels is inadequate. Different provinces adhere to varying pricing standards, with some still using rates from 2001, others adopting 2010 pricing, and some implementing more frequent adjustments. The criteria and timing for price revisions remain uncertain, often reliant on directives from local authorities.
In the case of specialized services and emerging technologies, there is no uniform nationwide approval procedure. Hospitals are tasked with submitting applications to local authorities. Once recognized as a new medical service, hospitals are granted the autonomy to determine pricing. However, this approval process varies by region and can be time-consuming. Public hospitals also lack clear guidance on what qualifies as a "new service" and lack standard operating procedures for establishing and adjusting the prices for these items.
In summary, the three core issues associated with China’s medical service pricing are:
- Fragmented pricing governance and management, leading to significant regional disparities.
- Insufficient incorporation of human care in the formation of medical service pricing, resulting in medical service prices deviating from market value.
- A lack of alignment with technological innovation.
The next article will discuss how China’s current reform tackles these issues.
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
- 独家专访｜毕井泉：“三医联动”关键在于理顺医疗服务价格体系，E药经理人 2023-03-17， https://mp.weixin.qq.com/s/ATGb7pP8tErBKVEIg4ohiw （Accessed 11/1/2023)
- 金春林：医疗服务价格改革，应该怎么改？,华夏界网，2021-12-8, http://jt.hxyjw.com/arc_43336 （Accessed11/1/2023）
