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Factors Contributing to High Costs andInequality in China’s Health Care System
Houli Wang, MDTengda Xu, MDJin Xu, MD
world, has experienced great economic devel-opment in recent years. Since reform and theopening-up policy were implemented in 1978,the national economy has grown at an average rate of 9.6% each year, and in 2005 China’s gross domestic prod-uct (GDP) per capita reached US $1698.
Along with eco-nomic development have come social challenges. The gapbetween rich and poor has widened. In 2005, China’sGini coefficient, an indicator of income distribution dif-ference, was estimated
at more than 0.48 (for compari-son, the US Gini coefficient was 0.45 in 2004).
Althoughthe proportion of the population with incomes below thepoverty level has decreased dramatically over the past 3decades, about 21.5 million individuals are absolutelypoor (annual income
US $85) and another 35.5 millionare underprivileged (annual income US $85-$115) inChina.
More than half of the poor reside in remote west-ern counties.
One result of economic inequality is widedisparity in access to many social programs, especially inthe health care system.The first widespread health care reforms in Chinabegan in 1985, and since that time a market-driveneconomy has operated in the health care sector. Duringthe past 2 decades, China has made great strides inimproving the health status of its population.
In 1978,there were 1.08 physicians and 1.93 hospital beds perthousand population compared with 1.51 and 2.57 in2005, respectively.
In 2004, the neonatal death rate was1.54%, the maternal mortality rate was 48.3 per 100000,and the life expectancy at birth was 71.8 years.
In devel-oped nations, these figures are on the order of 0.5% (neo-natal death rate), 20 per 100000 (maternal mortalityrate), and approximately 80 years (life expectancy).
According to the World Health Organization (WHO),“Overall, people in China are living longer and healthierlives. . . . The disease profile resembles that of the devel-oped countries: 85%-90% of deaths are due to non-communicable diseases and injuries.”
Along with this progress has come an increasing burdenofmedicalexpenseanddifficultywithaccesstomedicalser-vices.
Low-income families find it difficult if not impossible to affordthe expensive medical costs. Prior to the 1985 reforms, thepatient-physician relationship was generally consideredstrong and trusting, but since 1985, this relationship ap-pears to be under increasing strain.
The high cost of health care, health care inequality,and the tension in the patient-physician relationship aredue to multiple factors. First, the allocation of health careresources between urban and rural China is uneven. Thepopulation of China reached 1.3 billion at the end of 2005 and accounted for 22% of the world’s population,while its total health care expenditures account for only2% of the total medical expenditures of the world.
About 800 million individuals live in rural areas, but 80%of the medical institutions are concentrated in cities. Fur-thermore, high-quality medical resources tend to be con-gregated in large-capacity hospitals.
This uneven distri-bution of medical resources has worsened significantlyduring the last 2 decades. In the 1970s, approximately3.5 million medical personnel were working in ruralareas but this has declined to about 500000 in the lastdecade.
Patients in rural areas have a difficult timereceiving timely medical assessment and care, leading tomore advanced disease at diagnosis and subsequenthigher medical care costs.
A second major factor is that government investmentin the health care sector has been inadequate during thepast 2 decades. National Health Accounts data show thattotal health expenditure has increased more than 40-foldover 2 decades
to US $91.8 billion in 2005, accountingfor 5.55% of China’s GDP.
However, while governmen-tal investment in the health care sector has increasedannually, its share of total health expenditure hasdeclined from 36% in 1980 to 17% in 2004.
The govern-ment’s underfunding of the public health system has had
Author Affiliations:
Department of Emergency Medicine, Peking Union MedicalCollege Hospital, Chinese Academy of Medical Sciences, Peking Union MedicalCollege, Beijing, PR China.
Corresponding Author:
Houli Wang, MD, Department of Emergency Medicine,Peking Union Medical College Hospital, Chinese Academy of Medical Sciences,Peking Union Medical College, Beijing, 100730, PR China (houli_wang@yahoo.com).
October 24/31, 2007—Vol 298, No. 16
©2007 American Medical Association. All rights reserved.
 at Harvard University, on January 30, 2008www.jama.comDownloaded from 
a major influence on the prevention and treatment of epi-demics and common illness, making it difficult for indi-viduals, especially the poor living in remote rural areas,to access primary health care.
A third factor is the government’s weak supervisionand administration of the health care sector over the last2 decades. The central and local governments haveoffered limited financial support to hospitals. Approxi-mately 94% of hospital revenue comes from patients’medical care expenditures.
In addition to increasinginvestment in infrastructure, hospitals have strived tointroduce modern technologies and new drugs fromdeveloped countries. However, because there are no leg-islative or official administrative rules or regulations toguarantee physicians’ performance, some physicians haveordered repeated unnecessary examinations and pre-scribed potentially unneeded and expensive drugs.
Medical costs often exceed the economic capability of low-income families. In addition, the relatively highprices of drugs, including many common and essentialdrugs, have also increased patients’ economic burden forhealth care.In the United States, the Food and Drug Administra-tion approved 148 new drugs in 2004, while an astound-ingly high number of “new” drugs (approximately10000) were registered in China during the same periodby the State Food and Drug Administration, a system thatremains lax.
Although the Chinese governmentattempts to control drug prices by administrative means,drug prices remain high. As a result of the approval of potentially ineffective and dangerous medications, poorand relatively uneducated individuals may be more sus-ceptible than their urban counterparts to exploitation bycharlatans and also improperly treated by inadequatelytrained health care practitioners.
Fourth, the majority of the Chinese population is noteffectively covered by any form of health care insurancesystem. The Labor and Social Security Administrations of central and local government agencies are the mainstayin the provision of health insurance. According to the2003 census, 45% of residents in urban and 80% in ruralareas were not covered by this public system.
Govern-ment officials, civil servants, and those working in state-owned companies are usually enrolled in the publichealth care insurance system but few of the absolutelypoor, especially those in remote rural areas, are broughtinto this system. At the same time, the commercial healthinsurance market is quite underdeveloped, and in 2006,represented only 6.7% of China’s total commercial insur-ance business.
Among the 5 performance indicators cited in the WorldHealthReport2000,China’shealthsystemranked144among191 WHO member countries.
Highlighted in the reportwasthelackoffairnessinfinancialcontributionstothehealthsystem.From1980to2004,householdpaymentsformedi-cal costs increased from 21.6% to 53.6% of the total healthexpenditure.
An overreliance on household payments tofinance health care operating costs has led to even greaterinequalities in access to health services, since more indi-vidualscannotaffordtopaythecostoftheirmostbasicmedi-cal bills. Some low-income families have become abso-lutelypoorduetotheexpenseofasinglecatastrophicillnessin the family. To ensure the fundamental rights of the poorto receive adequate health care, the government must es-tablish a more broad and reasonable health care insurancesystem.As is the case in much of the rest of the world, the agedproportion of China’s population is increasing. The popu-lation older than 65 years included 100.4 million persons,or 7.69% of China’s total population, in 2005 and is ex-pectedtoincreaseatanannualrateof3.28%duringthenext14 years to peak in the 2030s.
 With this increased agedpopulation, total health care needs and expenditures willincrease as well. China’s proportion of GDP allocated tohealth care, currently about 5.55%, is likely to increasesteadilytobecomeclosertothatofdevelopedcountries,mostof which have comparable rates of 8% to 11%, up to nearly16% in the United States.
Improving the health care system will require the Chi-nese government to take more responsibility for healthcare equality among its citizens. China’s decision makersface a difficult challenge balancing the differential finan-cial contribution of the government against the dispro-portionate amount the poor and middle-class nongovern-ment employees pay for health care. This cannot beachieved easily by simply increasing investment in thepublic health system. As most poor individuals are notcovered by the public insurance system and they cannotafford commercial insurance, the public health careinsurance system should be modified to include themajority of its population, especially the poor. Middle-and higher-income individuals should be encouraged topurchase commercial insurance.The contribution of the Chinese government cannotreplace the responsibility of each household to bear someof its medical costs. While commercial insurance compa-nies can and should play an important role in providingmore equal health care services in the future, policies andfinancial incentives are needed to promote the develop-ment of health care insurance companies and private hos-pitals to broaden China’s medical resources. This willrequire time, dedication, and fiscal discipline in all sec-tors, but if China can build a prosperous market of pri-vate health care services and commercial health insur-ance, the government’s burden should be alleviated, andmore government resources can be used to ensure that allthe poor in China may benefit from the fundamentalhuman right of health care.
Financial Disclosures:
None reported.
©2007 American Medical Association. All rights reserved.
(Reprinted) JAMA,
October 24/31, 2007—Vol 298, No. 16
 at Harvard University, on January 30, 2008www.jama.comDownloaded from 

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