1

Somya Datta, Research Analyst

Healthcare Industry

Economic Research Analytics

12 February, 2008

•Somya Datta, Research Analyst

•Economic Research and Analytics Division,

•Healthcare Industry,

•October 30, 2008

Chinese Healthcare System in Transition – Opportunity or

Challenge for the Healthcare Industry

• © 2008 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

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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

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China - Evolution of Present Healthcare System

1998- Basic Health Insurance Scheme for Urban Employees (integration of LIC and

GIS)

2002 -New Cooperative Medical Scheme (NCMS)

1952 - Urban Health Insurance – GIS and LIS

1940 - Rural Co-operative Medical System (CMS)

Central government's health care funding fell over the years.

Additionally, household health expenditure increased.

EVOLUTION OF URBAN HEALTHCARE SYSTEM

EVOLUTION OF RURAL HEALTHCARE SYSTEM

CHANGING PHASE IN HEALTHCARE FINANCING

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.

CMS financed through worker contribution into welfare funds.

During economic reforms of early 1980s, cooperative health insurance system was abolished.

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China - Healthcare System

Health Services

Government Private Sector

Provide Majority of Health Funding

Provide Majority of Health Infrastructure

Urban Healthcare System

•New Basic Medical Insurance System (BIS) for urban employees , co-funded by employer and employee

•Launch of pilot projects to cover urban residents even outside workforce by 2010

Rural Healthcare System

•New Co-operative Medical Health Insurance system co-funded by government and rural population

•By end of 2007, NCMS covered 86 percent of ruralpopulation and targeted is 100% by end of 2010

HEALTHCARE SYSTEM

URBAN AND RURAL HEALTHCARE SYSTEM

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China - Healthcare Financing

Government

Contribution40 Yuan=$5.2

10 Yuan= $1.2

Contribution from Insured Individual

6% of Wage/Salary

2% of Wage/Salary

Personal Medical Savings Account

Pooled Social Funds

70%

30%

•Employer Contribution rate – 2% of average per capita disposable income

•Insurance project would cover 50 to 60% of total cost of insured

•Initial participation on free will

•Local government likely to set different contribution rate for adults and children

•Premiums paid by households, instead of individuals

•Project to mainly cover expenses for hospitalization and major illnesses

•Government subsidy - 40 Yuan ($5.2) annually per person and extra subsidies to low-income families and disabled

•Farmers can get reimbursement up to 30% of medical expenses

RURAL CO-OPERATIVE MEDICAL INSURANCE PLAN

URBAN BASIC MEDICAL INSURANCE PLAN

IndividualsGovernment Enterprises

HEALTHCARE FINANCING

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China - Healthcare Delivery System

70% employer

contribution

Public Health Services

30% employer contribution +

Employee contribution

Personal Contribution +Enterprise Contribution

New Rural Co-operative Medical System

Inpatient and

Outpatient expenses

Public Fiscal Budget

Urban Comprehensive Medical Care System

Social Funds

Personal Medical Saving

Account

Urban Citizens

Basic medical care

Taxes Health Expense

HEALTHCARE DELIVERY SYSTEM

Rural Citizens

Government

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Health Expenditure (China) 1965-2007

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

1965 1975 1985 1995 2000 2005 2007

Government Expenditure Out of Pocket Social Security Expenditure

China - Healthcare Expenditure

Government Resuming Healthcare

Responsibility

Government- 1.98% of GDP

Out of Pocket – 0.32% of GDP

Other Private – 2.20% of GDP

Using a poverty line measure of $1.08 per day, out-of-pocket health expenditures increased poverty rate in China to 16.2 percent from 13.7 percent

3.7% of GDP

5.6% of GDP

1995 2007

$315

2001 2007

$183

Health Expenditure as % of GDP (China), 1995-2007

Per capita Health Expenditure (China), 2001-2007

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Russia

USA

Mexico

BrazilChina

India

China - Healthcare Expenditure

•China’s Government health expenditure spending low by international standards

•Per capita health expenditure low

INERNATIONAL COMPARISON HEALTHCARE EXPENDITURE

Health Expenditure (Select Countries), 2007

•* Bubble shows per capita health expenditure

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China - Health Condition

•United States ranked 11th

• Russia ranked 29th

Rank Country Nationa l Hea lth Index

1 F in land 0 .655

2 D enm ark 0 .655

3 Sw eden 0 .649

4 N o rw ay 0 .645

5 A u s tra lia 0 .637

13 C h ina 0 .576

Indicators 2001 2008 2010 2015

Total Life

Expectancy

72.5 75.2 75.9 77.5

Birth Rate 13.4 13.7 14.3 13.8

Death Rate 6.9 7.0 7.1 7.3

Population Growth

Rate

0.6 0.63 0.68 0.65

Infant Mortality Rate 28.9 21.2 19.4 15.6

•Between 1987-2007, China made great strides in improving health status of its population

KEY HEALTH INDICATORS

INTERNATIONAL COMPARISON

* 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

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China - Epidemiology of Diseases

Disease Profile (China), 2008

Others

35%Lower respiratory

infections

3%

Tuberculosis

3%

Self-inflicted

injuries

3%

Perinatal

conditions

3%

Trachea,

bronchus, lung

cancers

4%

Cerebrovascular

Disease

18%

Chronic

obstructive

pulmonary

disease

14%

Ischaemic heart

disease

8%

Stomach cancer

5%Liver cancer

4%

•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

•Chronic diseases, non-communicable diseases account for 80% deaths

•Cardiovascular diseases, chronic respiratory disease and cancer -leading causes of both death and burden of disease

•Exposure to risk factors is high

•Since 1998, prevalence of water and air pollution linked diseases has risen

RECENT GOVERNMENT INITIATIVES TO IMPROVE HEALTH

A GLANCE AT DISEASE PROFILE OF CHINA

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China - Demographic Profile

* Bubble size represents country's total population

Brazil

ChinaIndia

JapanUS

RussiaEU

•China’s population relatively young by international standards

•However, rapid aging will soon begin in China

•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

International Comparison- Life Expectancy, Aged Population and Total Population (Select Countries), 2007

Demographic Structure (China), 1995-2020

27.2 20.1 19.1 19.2

66.571.9 71.4 69.0

6.3 8.0 9.5 11.9

0%

20%

40%

60%

80%

100%

1995 2008 2015 2020

(%)

0- 14 years 15- 64 years 65 years and above

D a t a C o l le c t io n M e t h o d s

R e s u l t

C e n s u s A d e q u a t e

V i t a l R e g i s t r a t i o n A d e q u a t e

P o p u l a t i o n b a s e d

s u r v e y s

A d e q u a t e

D i s e a s e S u r v e i l l a n c e A d e q u a t e

A c u t e A d e q u a t e

C h r o n i c - H I V A d e q u a t e

C h r o n i c - T B A d e q u a t e

H e a l t h S e r v i c e S t a t i s t i c s P r e s e n t b u t n o t

A d e q u a t e

H M I S A d e q u a t e

H e a l t h S y s t e m S t a t i s t i c s P r e s e n t b u t n o t

A d e q u a t e

N a t i o n a l H e a l t h

A c c o u n t s

A d e q u a t e

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China - Health Information System

•In 2002, China released the Guidelines for Development of National Health InformationaizationPlanning, 2003-2010, which emphasizes resource sharing, application, market-oriented, safety and reliability and effectiveness issues related to health.

National

Household Health

Services Survey

Routine

Health Statistic

Information

System

Disease

Surveillance

System

Maternal & Child

Health Care

Surveillance

System

Health Supervision

Information

System

HEALTH INFORMATION SYSTEM

Assessment Score of HIS Data Collection Methods (Select Countries), 2007

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Severe State of PublicHealthcare System

Uninsured Population

Problem of healthcare

accessibility

Rural Urban Disparity

Critical Diseases and SAR/AIDS

Uneven Distribution of

Health Resources

Rising Healthcare Costs

Underdeveloped Health Insurance

System

Problems in rural cooperative health-

care system

Lack of funds for health care

Severe state of public finance

China - Key Healthcare Issues

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China - Health Reform

Pre-Reform Era: 1949-1978 Post-Reform Era: 1978-2000

• Centrally Planned

• Health care for all

•Reimbursement system

•Urban Health Insurance Plans-GIS and LIS

•Rural Cooperative Medical Scheme (CMS)

•“Face” of healthcare was barefoot doctor

•No private clinics/hospitals

•Merger of GIS and LIS into Basic Urban Employee Health Insurance plan

•Rural co-operative medical scheme launched

•Commercial insurers allowed to enter market

•Decentralization - Healthcare responsibility shifted to local bodies

•Collapse of traditional healthcare system

• Out-of-pocket expenditure increased drastically

• Permission granted for profit hospitals and clinics

New Reform Era: 2000-2012

2005-2012

•Healthcare for all

•Expand health insurance coverage

•Improve healthcare system

•Focus of quality in delivery of health services

2000-2005

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•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

China - Government’s Healthcare Achievements (2004-2008)

RECENT HEALTHCARE ACHEIVEMENTS IN CHINA

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China - 11th Five Year Plan (2006-2011)

Shift to Efficient Growth Model

Upgrade and Optimize Industrial Structure

Boost Rural Economy

Efficient Resource Allocation

Balanced Spatial Development

Improve Public Services

Target 1

Target 2

Target 3

Target 4

Target 5

Target 6

MAIN GOALS of 11th FIVE YEAR PLAN

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China - 11th Five Year Health Plan (2006-2011)

Spend more funds on building and upgrading clinics in rural areas

Encouragement to private sector to run non-profit health and medical institutions in counties and villages

Emphasis on introducing new facilities and training local medical staff

Efforts to tighten drug supervision and develop study of China's traditional medicine

Cover all rural residents under cooperative healthcare network by end of 2010

Health authorities to dispatch more doctors from cities to countryside to bridge medical gap

MAIN GOALS of 11th FIVE YEAR HEALTH PLAN

Increase investment in health sector

Government to encourage individuals and non-government organizations to participate in health services

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INITIATIVES TO REFORM HEALTHCARE SYSTEM

China - Government’s Healthcare Goals (2008-2012)

•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

INITIATIVES TO REFORM HEALTHCARE FINANCING

•Improve family planning programs

•Tighten government control over medical fees in public hospitals

•Encourage private medical institutions

•Entrusting of domestic and overseas organizations to conduct independent research on medical reforms

•Government inviting public opinions on medical reform

•Establish universal basic health care system

• Ensure medical access in both urban and rural areas

•Key areas for investment - public health, rural health, city community health services, basic medical insurance and primary care

•Implement policies and measures to prevent and treat major diseases

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China - Demographic Challenge and Government Policies

Government Initiatives To Meet Elderly Society Challenge

• Implementation of various chronic-disease prevention programs at national level

•Local government agencies training laid-off workers in long-term care

• 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

Other Government Initiatives Supporting Elderly Society

•In 2007, Government spending on social security was $3.3 billion more than the year before.

•Eligible beneficiaries of basic social security plan have increased from 18.6 % of the population in 2000 to 90% in 2008.

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China - Expected Impact of Healthcare Initiatives in China until 2012

Healthcare Initiatives

Efficiency in Service Delivery

Expensive Medical Treatments

Eliminate

corruption

Public Assistance to Poor

Eliminate Over medication by doctors

Basic

Healthcare

for All

Increase inGovernment

Responsibility

Rise in Type of

Diseases

Increased

Insurance

Enrolment

Rural Areas

Increased Insurance Enrolment Urban

Areas

Bridge Rural Urban Disparity

Private

Insurance

Prevention and Primary Care

Urban Healthcare System

Cover even non-employees under insurance plan

Healthcare System Healthcare System

Components Components Ongoing Change Initiative Ongoing Change Initiative

Rural Healthcare Systems

Opportunities Opportunities

Pharmaceuticals, Biotechnology, Drug Discovery and Medical Devices

Companies

Cover all rural citizens by 2010Health Infrastructure, Telemedicine,

Pharmaceuticals, Biotechnology, and Medical Devices Companies

Private HealthInsurance

Healthcare Financing

Healthcare InformationSystems

Encouragement to commercial healthcare insurance

Increased government participationin healthcare financing

Establish e-healthcare system

Pharmaceuticals, Biotechnology, Drug Discovery and Medical Devices

Companies

Healthcare IT Companies

Commercial Health Insurance

China - Health Reform and Opportunities in Health Industry Segments

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China Health Reforms and Opportunities for Healthcare Industry

Long Term Elderly Care Centers

Demand for Medical Devices

Demand for Health

Personnel

Demand for Healthcare

Infrastructure

Demand for Advanced

TechnologiesImproved

Rural Health Services

Demand for Innovative

Drugs

Improved Healthcare Management

2008

2012

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