Reform Will Benefit Key Healthcare Players

BMI View: Private healthcare spending as a percentage of total healthcare expenditure in emerging markets will decrease over the medium term. Governments in these countries increasingly appreciate the benefits of a healthy population, and are boosting investment in medical services such as pharmaceuticals, diagnostics, doctors, nurses, clinics and hospitals. However, it is important to note that not all emerging markets follow this trend and private sector spending is still increasing in absolute terms.

China's General Office of the State Council has released a notice entitled 'Deepening of the Medical Reform - Key Tasks in 2014', outlining major health-related objectives for 2014. It seeks to further improve the healthcare system through the 'China way', which involves reforming the private healthcare sector, and strengthening the link between medical care, health insurance and pharmaceuticals.

Forecast Maintained

Strong Growth Potential
China Healthcare Expenditure (CNYbn)

BMI View: Private healthcare spending as a percentage of total healthcare expenditure in emerging markets will decrease over the medium term. Governments in these countries increasingly appreciate the benefits of a healthy population, and are boosting investment in medical services such as pharmaceuticals, diagnostics, doctors, nurses, clinics and hospitals. However, it is important to note that not all emerging markets follow this trend and private sector spending is still increasing in absolute terms.

China's General Office of the State Council has released a notice entitled 'Deepening of the Medical Reform - Key Tasks in 2014', outlining major health-related objectives for 2014. It seeks to further improve the healthcare system through the 'China way', which involves reforming the private healthcare sector, and strengthening the link between medical care, health insurance and pharmaceuticals.

Strong Growth Potential
China Healthcare Expenditure (CNYbn)

Forecast Maintained

The progressive implementation of these plans are positive for the healthcare sector, as they seek to improve the population's access to pharmaceuticals and healthcare - targeting various aspects of healthcare management, pharmaceutical procurement and distribution, epidemiology and health insurance. However, BMI highlights that these objectives have been repeatedly stated by the government and we therefore maintain our forecast for China's healthcare sector. Between 2013 and 2018, the healthcare sector will grow at a local compound annual growth rate (CAGR) of 13.4% (13% in US dollar term) to reach a value of CNY6,063bn (USD970bn).

Given the government's aim to introduce and improve a variety of healthcare programmes, BMI projects that government health expenditure as a percentage of total spending will increase from 56.1% in 2013 to 58.6% in 2018. However, these plans also point to a more 'rational' use of pharmaceuticals through pharmacoeconomics and a crackdown on illegal rebates and corruption in the pharmaceutical sector, and therefore also represent a negative risk to our pharmaceutical market forecast.

Key Healthcare Reform Objectives
Objectives Details
1 Reform public health sector The plan aims to introduce more county-level hospitals across 700 counties, so that the hospitals will cover at least 50% of all counties, increasing health access for over 500mn people in rural China.
2 Establish health economics mechanisms Hospitals are required to cease profiteering from the prescription of medicines. To compensate hospitals for this 'loss of additional income', local governments are required to invest more in hospitals, make use of pharmacoeconomics to evaluate the fair pricing of medicines and draw up policies to improve hospital management and cost control.
3 Rationalise prices of medical services Increase the cost of medical services such as that for surgery, hospital beds, consultations and medical professionals' salaries, while at the same time reducing the overprescription of drugs and excessive use of unnecessary medical procedures.
4 Enhance compensation packages for medical professionals Study how best to improve wages and working conditions for medical professionals, and establish ways to prevent corruption by preventing medical professionals from receiving rebates from pharmaceutical firms.
5 Improve drug procurement in county-level hospitals Drugs used in each county are to be procured from a centralised procurement system established by each province. Encourage multiple provinces to procure drugs together in order to lower drug prices while ensuring drug effectiveness and safety. The drug procurement system must be transparent and open.
6 Improve hospital management systems Improve corporate structure in public hospitals
7 Establish a classification system for health facilities Encourage patients to consult doctors in grassroots-level clinics or health centres for minor ailments to prevent overcrowding in larger hospitals.
8 Develop policies and mechanisms to promote traditional Chinese medicine (TCM) Improve TCM services and use. Encourage further developments in TCM.
9 Liberalise foreign investments in the private health sector Allow foreign entities to hold more stakes in their joint venture health facilities with local companies. In particular, allow companies based in Taiwan, Hong Kong and Macau to set up 100% foreign-owned health establishments across China. Speed up approvals and reduce bureaucracy in allowing foreign companies to enter the Chinese private health sector.
10 Optimise policies regarding socially run hospitals Ensure equal market access for both private and public hospitals. Formulate policies regarding the flow of medical professionals, financing, demand for land and other considerations to support social-run hospitals.
11 Speed up the process to allow doctors to practice in more than one health facility This is to encourage a more efficient flow of doctors across public and private health institutions.
12 Promote liaisons between socially run hospitals and the government and the pilot reform of public hospitals Relationships to be encouraged through various initiatives, including human capital flow, land, investments and other financial assistance.
13 Integrate the basic medical insurance systems of both urban and rural residents, and improve financing mechanisms In addition to integration, there is also a need to raise awareness among citizens regarding the sense of shared responsibility and ensure timely premium contributions from each individual.
14 Reform the health insurance premium system Speed up the reform of the premium system. Actively establish payment mechanisms in health insurance agencies, medical institutions and pharmaceutical suppliers.
15 Enhance protection against catastrophic health bills due to major diseases Encourage individuals to sign up for insurance against major illness and allow commercial insurance agencies to introduce such policies.
16 Enhance medical management and billing services for patients who have requested healthcare services in other provinces Accelerate the improvement of the overall level of basic healthcare. Standardise the cross-provincial medical billing platform. Various health insurance agencies can also commission independent consultations and commercial insurance agencies to resolve any issue arising from cross-provincial health billing.
17 Develop commercial health insurance Allow commercial health insurance agencies to set up different types of insurance such as personal accident insurance, paediatric insurance and insurance for retirees.
18 Strengthen the essential drugs system Fully implement the National Essential Drugs List (NEDL) in the country, regulate the addition of new drugs into provincial essential drug lists. Strengthen the procurement, distribution and reimbursement of these essential drugs.
19 Establish mechanisms to prevent drug shortages Establish reserve systems to prevent drug shortages, particularly focusing on drugs for the treatment of infectious diseases and emergency drugs.
20 Improve personnel distribution Increase salaries and other incentives to motivate medical professionals. Introduce independent reviews and the assessment of medical professionals, and reward their work on a merit basis.
21 Maintain the number of doctors in rural areas There is a severe shortage of doctors in rural regions due to harsher working conditions. As part of its aim to ensure that 40% of all health needs are taken care of by grassroots-level clinics, the government will allocate funding to these clinics after ensuring that the funds will not be misused. In addition, it will create policies to improve the working conditions of doctors in rural regions.
22 Regulate the pharmaceutical distribution sector Through the crackdown on counterfeit drugs, commercial bribery, forgery and false invoices, the government hopes to regulate the operating environment of the pharmaceutical distribution sector.
23 Enhance efficiency in the drug distribution sector Build a national pharmaceutical market by abandoning practices that have affected fair competition within the pharmaceutical distribution sector. The government will take various measures to develop retail pharmacies and chain operations and enhance the supply of drugs to remote areas.
24 Improve drug pricing mechanism Improve the drug price information monitoring system. Establish an information-sharing system to improve information collection, analysis and disclosure.
25 Equalise public health services across the population Increase per-capita funding for basic health services to CNY35 (USD5.62) per person. Focus on improving healthcare services for the elderly and migrant population. Maintain national child immunisation rates at above 90% and ensure that treatment for diabetes and hypertension reaches more than 80mn and 25mn patients respectively.
26 Strengthen health information technology Promote the use of electronic health records and strength the use of telehealth in remote areas. The government aims to initially establish e-health records as a pilot project in 45 hospitals in 15 provinces.
27 Develop a talent programme to attract medical professionals Deepen the reform of medical education by establishing the current medical needs of patients and restricting the size and structure of the medical profession.
28 Improve regulation of the healthcare sector Unify all health establishments, allowing local departments of health to provide unifying supervision. Improve regulations with regards to supervision and law enforcement to prevent illegal practices. Accelerate the development of an independent medical dispute mediation to improve the handling of medical malpractice and illegal activities.
29 Establish a mechanism to evaluate the impact of medical reform Do a mid-term review of the healthcare reform plan and strengthen the monitoring, assessment and guidance for any pilot projects.
30 Strengthen the link between science and technology and the healthcare sector Promote research and development of high-value biotech drugs, vaccines and medical devices, and increase the use of health medical innovative products at grassroots level.
31 Enhance cooperation and leadership between various organisations Enhance cooperation between the state council, provincial health departments and other related organisations to implement the various aspects of medical reform.
Source: State Council

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Related sectors of this article: Pharmaceuticals & Healthcare, Healthcare
Geography: China
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