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Turning Research Into Practice: Health Reform in China

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September 2009
 Adam Wagstaff

World Bank researchers spend between a third and a half of their time directly supporting colleagues elsewhere in the Bank. Their ‘cross-support’ is varied. It can entail collaborating on a Poverty Assessment or a Public Expenditure Review (PER). It can involve helping prepare a new project, or evaluating an ongoing one. Sometimes the work is a one-off—a chapter in a PER, for example. Often, though, the work involves a sustained engagement over months if not years and the researcher works on multiple activities in a particular sector in a particular country. Cross-support allows Bank researchers to bring their knowledge and skills to Bank operations. But it also enables them to see at first hand the challenges that governments and the Bank face on the ground; this often gives them ideas for research they might not otherwise have had. 

Adam Wagstaff reflects below on his experience working with the East Asia Human Development (HD) group on health reform in China.

When in 2003 China’s government asked the World Bank to study its rural health system and propose ideas for reforming it, the request probably seemed much like similar requests the Bank had received before, and which had resulted in two previous reports. As my Operations colleagues and I got into the assignment, however, it became clear that because China was eager to shift toward policies based on "balanced development", and because the Bank was being looked to for ideas rather than its money, China was not looking for "just another report".

China’s health system challenges and the government’s initial response

As we took stock of China’s health sector in late 2003, it was clear that challenges abounded. While economic growth had continued apace, classic indicators like child mortality had improved only marginally—far more slowly than in slower-growing neighboring countries. Health inequalities were apparent, and according to some studies were growing. Out-of-pocket spending on health was large—both as a share of health spending, and relative to per capita income. China’s English-language newspaper was full of stories of financial hardship caused by illness and injury, and of people not getting care who needed it because of the cost.

The collapse of the rural health insurance scheme after the de-collectivization of agriculture was widely blamed for these problems, and the vice-premier’s first task was to set up and pilot a new scheme. Initially, the scheme was limited in scope in terms of both numbers covered and generosity of coverage. Quickly, though, it expanded along both dimensions. The program marked a departure from the past in that central government injected increasingly large earmarked subsidies for the program, with local governments being required to find matching amounts. These subsidies worked to offset the inequalities in fiscal capacity across China’s local governments—inequalities that persist despite a fairly redistributive system of intergovernmental fiscal transfers and revenue-sharing.

Research papers prompted by unanswered policy questions

Nobody expected health insurance to fix all China’s health system’s problems. One thing it didn’t do was to reduce the high-powered and perverse financial incentives that China’s health care providers have faced since the 1980s when dwindling revenues forced local governments to allow them to earn revenues from charging patients. The need for providers to generate revenues was exacerbated by the way the government regulated prices—setting the price of basic care below cost and the price of drugs and tests above cost. Providers inevitably tried to shift demand from basic care to drugs and tests, and were apparently quite successful in doing so—the share of health spending accounted for by drugs is higher in China than anywhere else in the world.

With such an incentive structure in place, it seemed possible that insurance might not actually reduce out-of-pocket payments. Providers might be encouraged to induce demand for more costly services, and patients might end up receiving care further up the provider ladder—an urban hospital
instead of a rural health center. By contrast, policy interventions that blunted the incentives of providers to deliver unnecessary care might do a better job at containing costs and lowering out-of-pocket spending.

Two research papers (coauthored with Operations colleagues) tried to test these hypotheses. One looked at the impacts of China’s urban health insurance scheme—that had emerged more or less unscathed from the economic reforms of the 1980s—on the risk of large out-of-pocket spending; it found that insurance coverage did indeed do little to reduce financial risk [1]. A second looked at the impacts of a World Bank project in rural China that focused at the time on reducing the strength of financial incentives facing health providers at village and township level; this project did indeed seem to dampen out-of-pocket spending [2].

Analytic and advisory activities (AAA) in a fast-moving policy environment

As we developed our AAA, the policy landscape was forever changing. The government began rapidly rolling out other new programs: a safety net scheme to help poor households with their health expenses; some limited reorganization and regulation of health providers; and some initiatives and extra spending for the public health system whose weaknesses were exposed by the SARS epidemic of 2003.

While these changes were widely welcomed, it was clear that further—and more radical—reforms were needed. We contracted six multinational teams of academics to review different aspects of China’s health system and its reforms in the light of international experience. Each reported at a workshop with an audience from several ministries at national and local level; their reports were transformed into briefing notes. We set up an informal interministerial working group to brainstorm and share ideas about health reform. We collaborated with statisticians from the health ministry on an impact evaluation of the new rural health insurance program; this work resulted in a report in Chinese to the government whose conclusions were accepted and helped shape subsequent modifications to the scheme, as well in as a journal article [3].

Our report [4]set out the background to the reforms that started in 2003, reviewing their impacts, and setting out ideas for future reforms that build on the reforms to date.

Watching the government assemble ideas was perhaps the most fascinating part of the AAA process. In 2006, the State Council (China’s cabinet) set up a formal interministerial health reform commission (with 16 ministries represented) to draft the government’s health reform plans. In 2007, to help it identify options, it convened an off-the-record consultation at which six organizations—including the World Bank—were invited to present ideas. In 2008, the government published its reform proposal, and invited members of the public to comment online; over 30,000 people took the trouble to do so. I learned subsequently there were two separate teams working around the clock to read through and classify the comments, and pass the promising ones on the drafters of the reform document. The government has now set up an interministerial health reform commission—nationally and locally—that has the task of turning the broad principles of the reform document into practical policies.


ADAM WAGSTAFF is Research Manager of the Human Development & Public Services team in the Development Research Group. Much of his recent work has been on health insurance, health financing, vulnerability and health shocks, and provider payment reform. He has extensive experience of China and Vietnam, but has worked on countries in Africa, Latin America, S Asia, and Europe and Central Asia, as well as other countries in E Asia.

References

1. Wagstaff, A. and M. Lindelow, Can insurance increase financial risk? The curious case of health insurance in China. Journal of Health Economics, 2008. 27(4): p. 990-1005.
2. Wagstaff, A. and S. Yu, Do Health Sector Reforms Have Their Intended Impacts? The World Bank's Health VIII Project in Gansu Province, China. Journal of Health Economics, 2007. 26 3: p. 505-35.
3. Wagstaff, A., M. Lindelow, G. Jun, X. Ling, and Q. Juncheng, Extending health insurance to the rural population : an impact evaluation of China ' s new cooperative medical scheme. Journal of Health Economics, 2009. 28(1): p. 1-19.
4. Wagstaff, A., M. Lindelow, S. Wang, and S. Zhang, Reforming Rural China’s Health System. 2009, Washington DC: World Bank.

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