Challenge 2: When pills pay the bills

Another major challenge lay in the revenue model of the hospitals. This model was born in the 1950s out of bitter necessity and allowed hospitals to charge a 15% margin on each drug sold, just to keep the lights on. But over the decades, this surcharge turned into a perverse incentive: a 15% margin on a cheap pill hardly yielded anything, but on an expensive medicine the money poured in.

This led to a chain of undesirable side effects. Some hospitals imposed hard sales quotas on their medical departments. Pharmaceutical companies responded by artificially raising factory prices and offering kickbacks. Doctors structurally prescribed too many medicines to meet the hospital’s quota and supplement their own income – illegally. A 2015 article by Xinhua news agency reported that a single doctor pocketed more than RMB 32,040 (about €4,000) in bribes for medicines every month (Li et al., 2015).

All these accumulated margins ended up directly on the patient’s plate, resulting in sky-high medical bills. Uncle Chen may have had his scans and medications, but the system at the time encouraged overtreatment: prescribing expensive, unnecessary medications and tests that served the hospital’s financial balance sheet more than the patient’s health.

Challenge 3: Health insurance that fell short

The third major challenge was a fragmented insurance system. By 2016, China had more than 1.3 billion people covered by basic health insurance, accounting for 95% of the population – which in itself was a huge achievement – but the actual reimbursements were significantly lower than in many Western countries*.

By way of comparison with the Dutch situation: in 2014, public funding of health care and long-term care accounted for 87% of total expenditure in the sector. Personal contributions and voluntary supplementary insurance accounted for only 5.2% and 5.9% respectively (Maarse, 2016). In countries such as France and Germany, about 70 to 85% of medical costs are reimbursed directly.

In China, however, actual public coverage at the time was only about 38% for rural residents, 44.9% for city dwellers without work and 53.8% for city dwellers with work. The role of supplementary private insurance was negligible (Shu, 2017). Financially ruining from hospitalization was therefore no exception. For millions of families, harsh medical treatment meant that you might be cured, but at the same time you lost your entire life insurance, savings, or your home.

In addition, the health insurance did not ‘travel’ with them at the time. Seeking care outside the region where you were officially registered meant that the reimbursement dropped drastically or was even refused completely. And although it was possible to file a claim afterwards when you returned home, the bureaucracy surrounding the conditions – which medicines did or did not count and in which type of hospital – turned out to be an impenetrable jungle.

This was a problem of gigantic proportions. On the one hand, people logically went to the big cities for better care, where they had to advance the costs in cash. On the other hand, the National Health and Family Planning Commission reported in 2013 that China’s total “floating population” (migrants and domestic trekkers) had risen to 236 million people. They constantly ran into these walls. A 2015 commentary in the People’s Daily aptly compared this group of workers to “dandelions floating around”: vulnerable and without a portable social safety net (Jiang, 2015).

Now compare those medical costs with income: in 2015, the median disposable annual income for a city dweller was about RMB 30,000, and for someone in rural areas only RMB 10,000 (National Bureau of Statistics of China, 2016). A single hospitalization in the provincial capital immediately missed out, not to mention the travel costs, the stay for family members and the lost wages.