Chinese Healthcare System in Transition – Opportunity or
Challenge for the Healthcare Industry
•Somya Datta, Research Analyst
•Economic Research and Analytics Division,
•Healthcare Industry,
•October 30, 2008
Somya Datta, Research Analyst
Healthcare Industry
Economic Research Analytics
• © 2008 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan.
12 February, 2008
No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.
1

Focus Points
Healthcare System
Health Insurance System
Healthcare Financing and Expenditure
Health Condition and Epidemiology of Diseases
Demographic Profile
Health Information System
Key Healthcare Issues
Health Reform
Health Reform Movement
Health Reform and Impact on Chinese Healthcare Industry
2

China - Evolution of Present Healthcare System
EVOLUTION OF URBAN HEALTHCARE SYSTEM
1998- Basic Health Insurance Scheme for
1952 - Urban Health Insurance – GIS and LIS Urban Employees (integration of LIC and
GIS)
LIS & GIS system collapsed as insurance became a burden for enterprises.
Workers in newly emerging informal sectors were left uninsured as GIS and LIS covered formal public sector employees.
EVOLUTION OF RURAL HEALTHCARE SYSTEM
1940 - Rural Co-operative Medical System 2002 -New Cooperative Medical Scheme
(CMS) (NCMS)
CMS financed through worker contribution into welfare funds.
During economic reforms of early 1980s, cooperative health insurance system was abolished.
CHANGING PHASE IN HEALTHCARE FINANCING
Central government's health care funding fell over the years.
Additionally, household health expenditure increased.
3

China - Healthcare System
HEALTHCARE SYSTEM
Government Private Sector
Provide Majority of Health Provide Majority of Health
Infrastructure Funding
Health Services
URBAN AND RURAL HEALTHCARE SYSTEM
Urban Healthcare System Rural Healthcare System
•New Basic Medical Insurance System (BIS) for urban
•New Co-operative Medical Health Insurance system co-
employees , co-funded by employer and employee
funded by government and rural population
•Launch of pilot projects to cover urban residents even
•By end of 2007, NCMS covered 86 percent of rural
outside workforce by 2010
population and targeted is 100% by end of 2010
4

China - Healthcare Financing
HEALTHCARE FINANCING
Government Enterprises Individuals
URBAN BASIC MEDICAL INSURANCE PLAN
70% •Employer Contribution rate – 2% of average per capita disposable income
Pooled Social Funds
6% of Wage/Salary •Insurance project would cover 50 to 60% of total cost of insured
•Initial participation on free will
30%
•Local government likely to set different contribution rate for adults and children
Personal Medical
Savings Account •Premiums paid by households, instead of individuals
2% of Wage/Salary
•Project to mainly cover expenses for hospitalization and major illnesses
RURAL CO-OPERATIVE MEDICAL INSURANCE PLAN
Government
40 Yuan=$5.2 Contribution •Government subsidy - 40 Yuan ($5.2) annually per person and extra 5
subsidies to low-income families and disabled
Contribution from •Farmers can get reimbursement up to 30% of medical expenses
Insured Individual
10 Yuan= $1.2

China - Healthcare Delivery System
HEALTHCARE DELIVERY SYSTEM
70% Social
employer Funds Inpatient
contribution and
Personal
Urban Citizens Urban Comprehensive Outpatient
Contribution
Medical Care System expenses
+Enterprise
Contribution 30% employer Personal
contribution + Medical
Employee Saving
contribution Account
Taxes Government Public Fiscal Budget Public Health Health
Services Expense
Rural Citizens New Rural Co-operative Basic medical care
Medical System
6

China - Healthcare Expenditure
Government
Health Expenditure (China) 1965-2007 Resuming
Healthcare
100.0% Responsibility
Other Private – 2.20% of GDP
80.0%
60.0% Out of Pocket – 0.32% of GDP
40.0%
Government- 1.98% of GDP
20.0%
0.0%
1965 1975 1985 1995 2000 2005 2007
Government Expenditure Out of Pocket Social Security Expenditure
Health Expenditure as % of GDP (China), Per capita Health Expenditure (China),
1995-2007 2001-2007
5.6% of GDP $315
Using a poverty line measure of $1.08 per
3.7% of GDP $183 day, out-of-pocket health expenditures
increased poverty rate in China to 16.2
percent from 13.7 percent
1995 2007 2001 2007
7

China - Healthcare Expenditure
INERNATIONAL COMPARISON HEALTHCARE EXPENDITURE
Health Expenditure (Select Countries), 2007
USA
Russia
Mexico
India
China Brazil
•* Bubble shows per capita health expenditure
•China’s Government health expenditure spending low by international standards
•Per capita health expenditure low
8

China - Health Condition
KEY HEALTH INDICATORS
Indicators 2001 2008 2010 2015
Total Life 72.5 75.2 75.9 77.5
Expectancy
Birth Rate 13.4 13.7 14.3 13.8 •Between 1987-2007, China made great
strides in improving health status of its
Death Rate 6.9 7.0 7.1 7.3 population
Population Growth 0.6 0.63 0.68 0.65
Rate
Infant Mortality Rate 28.9 21.2 19.4 15.6
INTERNATIONAL COMPARISON
Rank C o u n try N a tio n a l H e a lth
In d ex
1 F in la n d 0 .6 5 5
•United States ranked 11th
2 D e n m ark 0 .6 5 5
3 Sw eden 0 .6 4 9 • Russia ranked 29th
4 N o rw ay 0 .6 4 5
5 A u s tr a lia 0 .6 3 7
13 C h in a 0 .5 7 6
* Conducted by Chinese Academy of Sciences (CAS)
* Tally uses a Nation Health Index (NHI) combines four branch indexes measuring populations' metabolisms, immunities, nervous systems
and behavior
9

China - Epidemiology of Diseases
A GLANCE AT DISEASE PROFILE OF CHINA •Chronic diseases, non-
communicable diseases
Disease Profile (China), 2008 account for 80% deaths
Others Cerebrovascular
Chronic •Cardiovascular diseases,
35% Disease
obstructive chronic respiratory
Lower respiratory 18%
pulmonary disease and cancer -
infections
disease leading causes of both
3%
14% death and burden of
Ischaemic heart disease
disease
8%
Tuberculosis
•Exposure to risk factors
3% Stomach cancer
is high
Trachea, 5%
Self-inflicted Perinatal Liver cancer
bronchus, lung
injuries conditions 4%
cancers •Since 1998, prevalence
3% 3% 4% of water and air pollution
linked diseases has risen
RECENT GOVERNMENT INITIATIVES TO IMPROVE HEALTH
•Since 2003, after SARS major efforts taken to protect people from infectious diseases, including water-borne illnesses
•Investment made to control water pollution in Eleventh Five-Year Plan
• Initiation of first national environmental performance information disclosure program
10

China - Demographic Profile
Demographic Structure (China), 1995-2020
100% 6.3 8.0 9.5 11.9
80%
60% 66.5
(%)
71.9 71.4 69.0
40%
20%
27.2 20.1 19.1 19.2
0%
1995 2008 2015 2020
•China’s population relatively
0- 14 years 15- 64 years 65 years and above young by international
standards
International Comparison- Life Expectancy, Aged Population and Total
Population (Select Countries), 2007
•However, rapid aging will
soon begin in China
China US Japan
India EU
Brazil
Russia •By 2050, 25.0% expected to
be above 65 years
•China’s ‘one child policy’ to
pose serious economic and
social challenges for society
from aging
* Bubble size represents country's total population
11

China - Health Information System
HEALTH INFORMATION SYSTEM
Routine Disease National Maternal & Child Health Supervision
Health Statistic Surveillance Household Health Health Care Information
Information System Services Survey Surveillance System
System System
Assessment Score of HIS Data Collection Methods (Select Countries), 2007
D a t a C o lle c t io n R e s u lt
M e th o d s
Census A d e q u a te •In 2002, China released the
Guidelines for Development of
V ita l R e g is tr a tio n A d e q u a te
National Health Informationaization
P o p u la tio n b a s e d A d e q u a te
Planning, 2003-2010, which
su rv e y s emphasizes resource sharing,
D is e a s e S u r v e illa n c e A d e q u a te application, market-oriented, safety
A c u te A d e q u a te and reliability and effectiveness
C h r o n ic - H I V A d e q u a te issues related to health.
C h r o n ic - T B A d e q u a te
H e a lt h S e r v ic e S t a t is t ic s P re se n t b u t n o t
A d e q u a te
H M IS A d e q u a te
H e a lth S y s te m S ta tis tic s P re se n t b u t n o t
A d e q u a te
N a tio n a l H e a lth A d e q u a te
A c c o u n ts
12

China - Key Healthcare Issues
Severe state of
public finance
Lack of funds for Rising Healthcare
health care
Costs
Problem of Underdeveloped
healthcare Health Insurance
accessibility Severe State of Public System
Healthcare System
Critical Diseases Uninsured
and SAR/AIDS Population
Problems in rural Uneven
cooperative health- Distribution of
care system Health Resources
Rural Urban
Disparity
13

China - Health Reform
Pre-Reform Era: 1949-1978 Post-Reform Era: 1978-2000 New Reform Era: 2000-2012
2000-2005
•Merger of GIS and LIS into
Basic Urban Employee Health
Insurance plan
• Centrally Planned •Decentralization - Healthcare
responsibility shifted to local
•Rural co-operative medical
• Health care for all bodies
scheme launched
•Reimbursement system •Collapse of traditional
•Commercial insurers allowed to
healthcare system
enter market
•Urban Health Insurance Plans-
GIS and LIS • Out-of-pocket expenditure
increased drastically
2005-2012
•Rural Cooperative Medical
Scheme (CMS) • Permission granted for profit
•Healthcare for all
hospitals and clinics
•“Face” of healthcare was
•Expand health insurance
barefoot doctor
coverage
•No private clinics/hospitals
•Improve healthcare system
•Focus of quality in delivery of
health services
14

China - Government’s Healthcare Achievements (2004-2008)
RECENT HEALTHCARE ACHEIVEMENTS IN CHINA
•Increase in disease covered under state plan for immunization and prevention from 7 to 15
• AIDS, tuberculosis, schistosomiasis and other major communicable diseases now treated free of charge
• Improvement in healthcare infrastructure
• Improvement in health indicators and significant drop in infant and maternal mortality rates
• Increase in average life expectancy
•Further progress made in family planning programs, and birthrate remained stable at a low level
15

China - 11th Five Year Plan (2006-2011)
MAIN GOALS of 11th FIVE YEAR PLAN
Target 1 Efficient Resource Allocation
Target 2 Boost Rural Economy
Improve Public Services
Target 3
Target 4 Shift to Efficient Growth Model
Target 5 Balanced Spatial Development
Target 6 Upgrade and Optimize Industrial Structure
16

China - 11th Five Year Health Plan (2006-2011)
MAIN GOALS of 11th FIVE YEAR HEALTH PLAN
Increase investment in health sector
Cover all rural residents under cooperative healthcare network by end of 2010
Spend more funds on building and upgrading clinics in rural areas
Emphasis on introducing new facilities and training local medical staff
Health authorities to dispatch more doctors from cities to countryside to bridge medical gap
Encouragement to private sector to run non-profit health and medical institutions in counties and villages
Government to encourage individuals and non-government organizations to participate in health services
Efforts to tighten drug supervision and develop study of China's traditional medicine
17

China - Government’s Healthcare Goals (2008-2012)
INITIATIVES TO REFORM HEALTHCARE SYSTEM
•Establish universal basic health care system •Improve family planning programs
• Ensure medical access in both urban and rural areas •Tighten government control over medical fees in public
hospitals
•Key areas for investment - public health, rural health, city
community health services, basic medical insurance and •Encourage private medical institutions
primary care
•Entrusting of domestic and overseas organizations to
•Implement policies and measures to prevent and treat conduct independent research on medical reforms
major diseases
•Government inviting public opinions on medical reform
INITIATIVES TO REFORM HEALTHCARE FINANCING
•Government commitment to increase its health funding by 1–1.5 percent of GDP in next couple of years
•Government to double its rural co-operative medical health insurance funding
•Government considering use of public welfare lottery to contribute in healthcare funding
•Proposal for creation of Private Health Account
18

China - Demographic Challenge and Government Policies
Government Initiatives To Meet Elderly Society Other Government Initiatives Supporting Elderly
Challenge Society
• Implementation of various chronic-disease prevention •In 2007, Government spending on social security was
programs at national level $3.3 billion more than the year before.
•Local government agencies training laid-off workers in •Eligible beneficiaries of basic social security plan have
long-term care increased from 18.6 % of the population in 2000 to 90% in
2008.
• Provision for geriatric medical training at undergraduate
level and set up more geriatric units
•Increase in private and government-sponsored elderly
homes
•Community-based long-term elderly care services have
started to emerge especially in urban areas
•Government has started to allocate more funds towards
elderly care
19

China - Expected Impact of Healthcare Initiatives in China until 2012
Basic
Increased Prevention and
Healthcare Primary Care
Insurance
for All
Enrolment
Efficiency in
Rural Areas Service
Increased Insurance Delivery
Enrolment Urban
Areas
Public Assistance to
Bridge Rural Urban Poor
Healthcare
Disparity
Initiatives
Increase in
Government Private
Responsibility
Insurance
Expensive Medical
Treatments Rise in Type of
Diseases
Eliminate Over Eliminate
medication by doctors
corruption
20

China - Health Reform and Opportunities in Health Industry Segments
Healthcare System
Ongoing Change Initiative Opportunities
Components
Pharmaceuticals, Biotechnology,
Urban Healthcare Cover even non-employees under
Drug Discovery and Medical Devices
System insurance plan
Companies
Health Infrastructure, Telemedicine,
Rural Healthcare
Cover all rural citizens by 2010 Pharmaceuticals, Biotechnology,
Systems
and Medical Devices Companies
Private Health
Encouragement to commercial
Insurance Commercial Health Insurance
healthcare insurance
Pharmaceuticals, Biotechnology,
Increased government participation
Healthcare Financing Drug Discovery and Medical Devices
in healthcare financing
Companies
Healthcare Information
Establish e-healthcare system Healthcare IT Companies
Systems

China Health Reforms and Opportunities for Healthcare Industry
2012 Long Term
Elderly Care Improved
Centers Healthcare
Management
Demand for
Health
Personnel
Demand for
Healthcare
Infrastructure
Demand for
Advanced
Technologies
Improved Demand for Demand for
Rural Health Innovative Medical
Services Drugs Devices
2008
22

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