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The need to fix rural health care in China
May 12, 2006
By Richard Daniel Ewing
The brief but deadly outbreak of severe acute respiratory syndrome threw the spotlight on the critical role of health care - or the lack of it - in rural China. The countryside incubated the SARS virus and might be the place where an avian-flu pandemic breaks out. So more than just the inhabitants have a stake in improving health care and prevention.
The system in the countryside is marked by under-investment and limited access to care. It stands in contrast to increasingly higher-quality care in China's relatively more affluent urban areas. In an effort to prepare for future epidemics and seeking to address growing economic divisions, the government has launched several major programs to improve the quality of health care in the countryside.
A yawning division in care has emerged between urban and rural areas. Affluent coastal cities enjoy high-quality medical care, while much of the countryside remains woefully under-served. These disparities in service are causing serious health and social problems. Infectious diseases are on the rise in rural areas, and life-expectancy rates are lower than in urban centers. Yet it has not always been so. A few decades ago, China's rural health-care system was the envy of the developing world.
After the communist victory in 1949, Mao Zedong built an extensive health-care system in the countryside based on agricultural communes. The government controlled all health-care provision in the country, from local clinics to specialized facilities. "Barefoot doctors" ventured deep into the countryside to help the poorest citizens. Ninety percent of the population enjoyed life-long, government-subsidized health care under this system. Although the quality was limited, China's national health improved markedly. Infant mortality fell, life expectancy rose and infectious diseases were brought under control.
The rural health-care system started to unravel in 1979, the year Deng Xiaoping introduced sweeping economic reforms, reforms that have transformed the country. While these changes unleashed growth widely throughout the economy, they wrought unintended havoc on the health system. As the communes were dismantled and replaced with private enterprises, the commune-based rural health-care system disappeared.
The government created no alternative system to replace it. Subsidies evaporated, and local hospitals were sold to the private sector. The medical infrastructure virtually collapsed, leaving the majority of rural residents without access to care. As a result, the proportion of rural residents covered by the government's medical cooperative system fell from 90% to 9.8% by 1985, where it remains today.
The current problems affecting rural health care also have their roots in China's continuing poverty. Despite years of sizzling economic growth and industrialization on a national level, much of country remains rural, agricultural and poor - ranking 110th in per capita income. Of the country's 1.3 billion people, nearly 900 million live in the countryside.
Deng's economic programs unleashed a major productivity boom in the countryside in the 1980s as township and village enterprises spurred growth. But by the 1990s, attention focused mainly on growth in the manufacturing sector along the coast. As a consequence, urban incomes skyrocketed and created a widening income gap between urban and rural residents.
Today, annual per capita income in rural areas is only about US$317, about one-third that of urban areas ($1,023). More than 120 million rural Chinese live below the World Bank's poverty line of $1 per day. These arduous conditions have steadily taken a toll on the area's health-care infrastructure.
Beyond the tough economic environment, the rural health system faces additional challenges. Improper training of medical personnel, inadequate investment and unaffordable care are the primary challenges facing rural areas. Medical professionals are scarce and often poorly trained. Demand for doctors in rich urban areas has siphoned off many physicians, leaving fewer to serve rural patients. As a result, while the majority of Chinese live in the countryside, only about one-third of medical professionals work there.
China has a national average of about two doctors per thousand people, but the ratio of doctors in Beijing, for example, is more than three per thousand residents - more than three times the ratio in rural Anhui province. As a result, rural patients must often travel long distances to receive treatment in larger cities.
Low levels of investment result in obsolete equipment and poor patient facilities in the countryside. While overall spending on medical services has risen considerably, government budget allocations for health care fell to 10% in 2000, a 30% decline from 1997 levels. The government focuses the majority of its spending on urban centers, leaving only one-fifth for rural areas.
Consequently, government spending per capita is about seven times as high in cities as in the countryside. The United Nations' 2000 World Health Report evaluated 191 national public-health systems for equitable funding of medical services. China ranked 188th, behind poverty-stricken Ethiopia and Honduras. Beyond government funding, total health-care spending varies widely by location. Spending per person in Beijing is more than ten times that in remote Guizhou province.
The lack of government funding has caused rural hospitals to raise fees, further limiting the ability of rural residents to afford care. China's official media report that 70% of rural hospitals are losing money or are on the verge of financial collapse. These facilities are desperate for revenue. As a result, clinics and hospitals tend to over-prescribe drugs, as they can raise as much as 40% of their revenue through pharmaceutical sales. The resulting rush for high fees also leads many doctors to ignore cheap preventive care, further compounding the poor conditions.
With rapidly rising prices for medical treatment and stagnant wage growth, most rural residents are unable to pay for even routine medical care. Fewer than 10% of rural residents have health insurance, compared with about one-half in urban areas. The Ministry of Health reports that 87% of rural patients pay for all of their hospital care out-of-pocket, while 60% leave early because they are unable to afford the bills.
One government survey reports that more than two-thirds of rural Chinese said they would not seek medical care if they fall ill because the price is too high. Average hospital bills, at 2,236 yuan, are nearly equal the average annual rural salary 2,622 yuan. These high medical bills often contribute directly to poverty by driving 5% of low-income families into bankruptcy each year.
Besides having few doctors, low funding and high fees, the rural hospital system faces additional problems. Monitoring and communication abilities are impeded by tangled jurisdictions, the expanding elderly population is starting to burden already scarce resources, and the nearly 120 million migrant workers have virtually no access to medical care.
The unholy combination of low incomes and poor access to medical services has created rising health problems for rural residents. Preventable afflictions such as hepatitis and tuberculosis are increasing, infant morality rates are double those in cities, and commonplace maladies such as cancer, cardiovascular disease and diabetes are becoming more frequent. Infectious diseases also pose a grave danger to rural residents.
Four-fifths of all infectious diseases occur in rural areas, a disproportionately high rate. AIDS, for example, is fast becoming a major problem, with a million Chinese currently infected with the human immunodeficiency virus (HIV). That number may rise more than tenfold by 2010. This vulnerability to infectious disease is a matter of grave concern for government officials, particularly given the fears raised by the SARS epidemic and a possible avian-flu outbreak.
China pushes for change
The poor state of rural health care is a major concern for President Hu Jintao and the rest of China's political leadership. The SARS epidemic highlighted the critical role of the rural health-care system and the economy's vulnerability to epidemics. These concerns have prompted the leadership to launch one of the most significant government efforts to improve rural health care in decades. At the National People's Congress in March, Premier Wen Jiabao pledged to increase rural health-care funding greatly as part of the "New Socialist Countryside".
Vice Premier Wu Yi has been tasked with improving health care and has launched a battery of initiatives over the past two years. With limited resources, the government is focusing on cost-effective solutions. In particular, the government is aiming to improve primary care, increasing immunization rates, preventing infectious diseases and creating a national medical-monitoring network.
The government's most ambitious rural health project is the Cooperative Medical Service program. This system is designed to make health care affordable to rural Chinese through subsidized care. Under it, the government will pay 10 yuan per person annually into a medical insurance fund matched by contributions from rural residents. The fund will then reimburse patients for as much as half of serious medical treatment (medical bills over 600 yuan).
This pre-payment program pools risks and allows for cross-subsidization of medical expenses. Notably, however, the program will not pay for common illnesses or preventive care. Launched in 2002, the program is still in a pilot phase for several provinces, but it has already raised more than 3 billion yuan ($365 million) for 70 million residents.
Startled by its inability to track or identify SARS outbreaks, the government is also committed to improving its capability to monitor infectious diseases. Beijing will spend 1 billion yuan to build the rural public-health infrastructure, including tracking systems, isolation wards and intensive-care units. These capabilities should prove invaluable in preventing or responding to any new infectious outbreak in rural China.
Finally, the government mandated an increase in rural health-worker training several years ago. Officials estimate that about one-third of rural medical personnel lack a professional medical education. The new regulations require all rural doctors to have the appropriate qualifications by 2010. While the program's tightened requirements have marginally decreased the number of doctors in rural areas, the quality of medical training is rising.
The future of China's health care
The development of the rural health-care sector in the coming years will be driven by three main factors - economic growth, continued government action, and increasing private investment. To start, economic development in the countryside will play a primary role in determining the amount of resources available for medical care. Income growth has stalled in recent years as the agricultural sector has slowed. As a result, incomes and investment have flattened or dropped.
Efforts to attract investment into rural areas and continued reform may help reignite growth. Rising incomes will give rural Chinese greater access to services and the ability to improve public infrastructure such as water and sewage systems. If the rural economy stagnates, however, conditions are unlikely to improve without major government intervention.
Second, the Chinese government will play a primary role in shaping and regulating the system over the coming decade. Increasing health-care coverage in rural areas is a major priority. Without coverage assistance, services will remain too expensive, and there will be limited incentives for investment. While the government already is working to improve the quality of service, it needs to do more.
The government has announced plans to raise the level of spending, but it should also review its investment priorities. For example, the government could spend less on pharmaceuticals and more on expanding the scope of its cooperative medical program to include immunizations and preventive medicine. The government could also seek to engage private companies by offering tax incentives or other programs to encourage their involvement in the health-care market.
So far, the private sector has played a limited role in developing rural health care. This must change. Private companies can boost health care in two main ways. First, they can help supply affordable hygiene and health-care products. They can also directly offer health benefits to their rural employees, as some larger multinationals are doing in countries such as Indonesia. Although rural Chinese have limited disposable income, the total market is large. In aggregate they spend billions of dollars annually on medical products and services.
The market is clearly under-served, and demand for cost-effective treatment is high. This combination of high demand and low supply in developing economies spells opportunity for certain corporations. Such firms as Hindustan Lever (part of Unilever), Aravind and Voxiva have already reaped profits serving the bottom of the economic pyramid in such countries as India and Peru. Innovative companies should consider replicating this kind of success in mainland China.
Improving China's rural health-care sector is critical to raising the quality of life for rural residents and to the nation's continued economic growth. While serious public-health problems are emerging as a result of the poor quality of care, social tensions are increasing, and a new outbreak of infectious disease could impact the national economy.
The government is working to fix the system, but it needs help. Private investment, international aid and a national commitment to rectifying the problems in the countryside area also needed. With those resources, China may once again have a rural health system enviable by the rest of the world.
Richard Daniel Ewing is a non-resident fellow at the Nixon Center in Washington, DC.
May 12, 2006
By Richard Daniel Ewing
The brief but deadly outbreak of severe acute respiratory syndrome threw the spotlight on the critical role of health care - or the lack of it - in rural China. The countryside incubated the SARS virus and might be the place where an avian-flu pandemic breaks out. So more than just the inhabitants have a stake in improving health care and prevention.
The system in the countryside is marked by under-investment and limited access to care. It stands in contrast to increasingly higher-quality care in China's relatively more affluent urban areas. In an effort to prepare for future epidemics and seeking to address growing economic divisions, the government has launched several major programs to improve the quality of health care in the countryside.
A yawning division in care has emerged between urban and rural areas. Affluent coastal cities enjoy high-quality medical care, while much of the countryside remains woefully under-served. These disparities in service are causing serious health and social problems. Infectious diseases are on the rise in rural areas, and life-expectancy rates are lower than in urban centers. Yet it has not always been so. A few decades ago, China's rural health-care system was the envy of the developing world.
After the communist victory in 1949, Mao Zedong built an extensive health-care system in the countryside based on agricultural communes. The government controlled all health-care provision in the country, from local clinics to specialized facilities. "Barefoot doctors" ventured deep into the countryside to help the poorest citizens. Ninety percent of the population enjoyed life-long, government-subsidized health care under this system. Although the quality was limited, China's national health improved markedly. Infant mortality fell, life expectancy rose and infectious diseases were brought under control.
The rural health-care system started to unravel in 1979, the year Deng Xiaoping introduced sweeping economic reforms, reforms that have transformed the country. While these changes unleashed growth widely throughout the economy, they wrought unintended havoc on the health system. As the communes were dismantled and replaced with private enterprises, the commune-based rural health-care system disappeared.
The government created no alternative system to replace it. Subsidies evaporated, and local hospitals were sold to the private sector. The medical infrastructure virtually collapsed, leaving the majority of rural residents without access to care. As a result, the proportion of rural residents covered by the government's medical cooperative system fell from 90% to 9.8% by 1985, where it remains today.
The current problems affecting rural health care also have their roots in China's continuing poverty. Despite years of sizzling economic growth and industrialization on a national level, much of country remains rural, agricultural and poor - ranking 110th in per capita income. Of the country's 1.3 billion people, nearly 900 million live in the countryside.
Deng's economic programs unleashed a major productivity boom in the countryside in the 1980s as township and village enterprises spurred growth. But by the 1990s, attention focused mainly on growth in the manufacturing sector along the coast. As a consequence, urban incomes skyrocketed and created a widening income gap between urban and rural residents.
Today, annual per capita income in rural areas is only about US$317, about one-third that of urban areas ($1,023). More than 120 million rural Chinese live below the World Bank's poverty line of $1 per day. These arduous conditions have steadily taken a toll on the area's health-care infrastructure.
Beyond the tough economic environment, the rural health system faces additional challenges. Improper training of medical personnel, inadequate investment and unaffordable care are the primary challenges facing rural areas. Medical professionals are scarce and often poorly trained. Demand for doctors in rich urban areas has siphoned off many physicians, leaving fewer to serve rural patients. As a result, while the majority of Chinese live in the countryside, only about one-third of medical professionals work there.
China has a national average of about two doctors per thousand people, but the ratio of doctors in Beijing, for example, is more than three per thousand residents - more than three times the ratio in rural Anhui province. As a result, rural patients must often travel long distances to receive treatment in larger cities.
Low levels of investment result in obsolete equipment and poor patient facilities in the countryside. While overall spending on medical services has risen considerably, government budget allocations for health care fell to 10% in 2000, a 30% decline from 1997 levels. The government focuses the majority of its spending on urban centers, leaving only one-fifth for rural areas.
Consequently, government spending per capita is about seven times as high in cities as in the countryside. The United Nations' 2000 World Health Report evaluated 191 national public-health systems for equitable funding of medical services. China ranked 188th, behind poverty-stricken Ethiopia and Honduras. Beyond government funding, total health-care spending varies widely by location. Spending per person in Beijing is more than ten times that in remote Guizhou province.
The lack of government funding has caused rural hospitals to raise fees, further limiting the ability of rural residents to afford care. China's official media report that 70% of rural hospitals are losing money or are on the verge of financial collapse. These facilities are desperate for revenue. As a result, clinics and hospitals tend to over-prescribe drugs, as they can raise as much as 40% of their revenue through pharmaceutical sales. The resulting rush for high fees also leads many doctors to ignore cheap preventive care, further compounding the poor conditions.
With rapidly rising prices for medical treatment and stagnant wage growth, most rural residents are unable to pay for even routine medical care. Fewer than 10% of rural residents have health insurance, compared with about one-half in urban areas. The Ministry of Health reports that 87% of rural patients pay for all of their hospital care out-of-pocket, while 60% leave early because they are unable to afford the bills.
One government survey reports that more than two-thirds of rural Chinese said they would not seek medical care if they fall ill because the price is too high. Average hospital bills, at 2,236 yuan, are nearly equal the average annual rural salary 2,622 yuan. These high medical bills often contribute directly to poverty by driving 5% of low-income families into bankruptcy each year.
Besides having few doctors, low funding and high fees, the rural hospital system faces additional problems. Monitoring and communication abilities are impeded by tangled jurisdictions, the expanding elderly population is starting to burden already scarce resources, and the nearly 120 million migrant workers have virtually no access to medical care.
The unholy combination of low incomes and poor access to medical services has created rising health problems for rural residents. Preventable afflictions such as hepatitis and tuberculosis are increasing, infant morality rates are double those in cities, and commonplace maladies such as cancer, cardiovascular disease and diabetes are becoming more frequent. Infectious diseases also pose a grave danger to rural residents.
Four-fifths of all infectious diseases occur in rural areas, a disproportionately high rate. AIDS, for example, is fast becoming a major problem, with a million Chinese currently infected with the human immunodeficiency virus (HIV). That number may rise more than tenfold by 2010. This vulnerability to infectious disease is a matter of grave concern for government officials, particularly given the fears raised by the SARS epidemic and a possible avian-flu outbreak.
China pushes for change
The poor state of rural health care is a major concern for President Hu Jintao and the rest of China's political leadership. The SARS epidemic highlighted the critical role of the rural health-care system and the economy's vulnerability to epidemics. These concerns have prompted the leadership to launch one of the most significant government efforts to improve rural health care in decades. At the National People's Congress in March, Premier Wen Jiabao pledged to increase rural health-care funding greatly as part of the "New Socialist Countryside".
Vice Premier Wu Yi has been tasked with improving health care and has launched a battery of initiatives over the past two years. With limited resources, the government is focusing on cost-effective solutions. In particular, the government is aiming to improve primary care, increasing immunization rates, preventing infectious diseases and creating a national medical-monitoring network.
The government's most ambitious rural health project is the Cooperative Medical Service program. This system is designed to make health care affordable to rural Chinese through subsidized care. Under it, the government will pay 10 yuan per person annually into a medical insurance fund matched by contributions from rural residents. The fund will then reimburse patients for as much as half of serious medical treatment (medical bills over 600 yuan).
This pre-payment program pools risks and allows for cross-subsidization of medical expenses. Notably, however, the program will not pay for common illnesses or preventive care. Launched in 2002, the program is still in a pilot phase for several provinces, but it has already raised more than 3 billion yuan ($365 million) for 70 million residents.
Startled by its inability to track or identify SARS outbreaks, the government is also committed to improving its capability to monitor infectious diseases. Beijing will spend 1 billion yuan to build the rural public-health infrastructure, including tracking systems, isolation wards and intensive-care units. These capabilities should prove invaluable in preventing or responding to any new infectious outbreak in rural China.
Finally, the government mandated an increase in rural health-worker training several years ago. Officials estimate that about one-third of rural medical personnel lack a professional medical education. The new regulations require all rural doctors to have the appropriate qualifications by 2010. While the program's tightened requirements have marginally decreased the number of doctors in rural areas, the quality of medical training is rising.
The future of China's health care
The development of the rural health-care sector in the coming years will be driven by three main factors - economic growth, continued government action, and increasing private investment. To start, economic development in the countryside will play a primary role in determining the amount of resources available for medical care. Income growth has stalled in recent years as the agricultural sector has slowed. As a result, incomes and investment have flattened or dropped.
Efforts to attract investment into rural areas and continued reform may help reignite growth. Rising incomes will give rural Chinese greater access to services and the ability to improve public infrastructure such as water and sewage systems. If the rural economy stagnates, however, conditions are unlikely to improve without major government intervention.
Second, the Chinese government will play a primary role in shaping and regulating the system over the coming decade. Increasing health-care coverage in rural areas is a major priority. Without coverage assistance, services will remain too expensive, and there will be limited incentives for investment. While the government already is working to improve the quality of service, it needs to do more.
The government has announced plans to raise the level of spending, but it should also review its investment priorities. For example, the government could spend less on pharmaceuticals and more on expanding the scope of its cooperative medical program to include immunizations and preventive medicine. The government could also seek to engage private companies by offering tax incentives or other programs to encourage their involvement in the health-care market.
So far, the private sector has played a limited role in developing rural health care. This must change. Private companies can boost health care in two main ways. First, they can help supply affordable hygiene and health-care products. They can also directly offer health benefits to their rural employees, as some larger multinationals are doing in countries such as Indonesia. Although rural Chinese have limited disposable income, the total market is large. In aggregate they spend billions of dollars annually on medical products and services.
The market is clearly under-served, and demand for cost-effective treatment is high. This combination of high demand and low supply in developing economies spells opportunity for certain corporations. Such firms as Hindustan Lever (part of Unilever), Aravind and Voxiva have already reaped profits serving the bottom of the economic pyramid in such countries as India and Peru. Innovative companies should consider replicating this kind of success in mainland China.
Improving China's rural health-care sector is critical to raising the quality of life for rural residents and to the nation's continued economic growth. While serious public-health problems are emerging as a result of the poor quality of care, social tensions are increasing, and a new outbreak of infectious disease could impact the national economy.
The government is working to fix the system, but it needs help. Private investment, international aid and a national commitment to rectifying the problems in the countryside area also needed. With those resources, China may once again have a rural health system enviable by the rest of the world.
Richard Daniel Ewing is a non-resident fellow at the Nixon Center in Washington, DC.
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