Challenge No. 2: When Pills Paid the Bills

Another major challenge concerned the financial model of hospitals. Born in the 1950s from necessity, the old mechanism allowed hospitals to add a 15% markup on every medicine sold, simply to keep their lights on. But as decades passed, that surcharge morphed into a systemic issue: a 15% markup on a cheap pill was pocket change, but on an expensive drug, it generated substantial revenue. 

This led to a cascade of undesirable consequences. Some hospitals assigned medicine sales quotas to their departments. Pharmaceutical companies joined the game, inflating factory prices while handing out kickbacks. Doctors overprescribed to meet hospital quotas and illegally supplement their income. As a 2015 Xinhua News article put it, a single doctor was pocketing over RMB 32,040 (approximately €4,000) in monthly drug kickbacks (Li et al., 2015). 

These layers of markups were burdened onto patients’ shoulders, resulting in large medical bills. For Uncle Chen, his scans and medications might have been necessary. But the system inherently incentivized over-testing and the prescription of expensive, unnecessary drugs that served the hospital’s financial bottom line rather than the patient’s health. 

Challenge No. 3: Insurance That Didn’t Cover Enough

The third major challenge was a fractured insurance system. By 2016, China covered over 1.3 billion people with basic medical insurance,  accounting for 95% of its population. In itself, this was a remarkable achievement. Unfortunately, actual reimbursement levels remained significantly lower compared to those in many developed countries*. 

For example, in 2014, in the Netherlands, public spending on healthcare and long-term condition (LTC) accounted for 87% of total spending in this sector, while out-of-pocket (OOP) payments and voluntary health insurance (VHI) accounted for 5.2% and 5.9%, respectively (Maarse H, 2016). In other developed countries like France and Germany, approximately 70–85% of medical expenses are reimbursed immediately, with remaining costs typically covered by supplementary private insurance or paid out of pocket. 

In China, however, actual public coverage was around 38% for rural residents, 44.9% for urban residents, and 53.8% for urban workers, while the role of VHI was negligible (Shu, 2017). The experience of going broke from a hospital visit was not unique to Uncle Chen. For millions of families, receiving care often meant recovering their health, but facing the real risk of losing their lifetime savings or their home. 

Furthermore, health insurance was not portable. Seeking care outside one’s registered home region often meant reduced or entirely denied reimbursement. Even though filing a claim upon returning home was possible, all sorts of added conditions – which drugs qualified, what type of hospital care was covered, and at what percentage – proved cumbersome. 

This was a massive issue. On one hand, people naturally gravitated towards major cities for better care, needing to cover most costs upfront. On the other hand, the National Health and Family Planning Commission (2013) reported that China’s total ‘floating’ (migrant) population had reached 236 million. This meant tens of millions of people had to deal with non-portable insurance regularly. As a 2015 People’s Daily commentary remarked, fragmented regional funds, unbalanced aging profiles, and inconsistent local policies turned ordinary workers into ‘drifting dandelions’ with no portable safety net (Jiang, 2015). 

Now weigh those numbers against household income. In 2015, the National Bureau of Statistics of China (2016) reported that the median annual disposable income of urban residents was about RMB 30,000, and just RMB 10,000 for rural residents. A single hospitalization in a provincial capital could easily exceed these amounts, compounded by travel, accommodation for family members, and lost wages.