(State Council Office Document # 16)
(February 16, 2000)
State Development and Planning Commission; Ministry of Finance; State Economic and Trade Commission; Ministry of Labour and Social Security; Ministry of Health; State Drug Administration; Chinese Medicine Administration Bureau;
In order to implement the "Decision of the Central Party Committee and the State Council on Healthcare System Reform and Development" (ZHONGFA 1997 No. 3) and the "Decision of the State Council to Establish Basic Medical Insurance System for Urban and Township Employees" (GUOFA 1998 No. 44), increase morale of medical personnel, improve medical resources allocation, raise professional conduct, improve medical service quality, rectify drug production and distribution practices, and curb the rapid increase of medical expenses, the State Council has decided to undertake healthcare system reform in urban and townships simultaneously with establishing a basic medical insurance system for urban and township employees. The goal of the reform is to establish a healthcare system in urban and township areas which satisfies the needs of the socialist market economy, promotes healthy development of medical institutions and the pharmaceutical industry, provides people with good quality and reasonably priced medical services.
(1) Implementation of a Complete Healthcare Industry Administration
The function of healthcare administration authorities shall change, government and hospital administration should be separated. The affiliated relationship type status between government and medial institutions shall be broken with clear delineation of ownership interests. This will enable regional healthcare plans to be implemented and reinforced through macro administration by legal, administrative and economic methods to gradually raise administration throughout the healthcare system. The government shall further develop relevant regulations and technical standards for medical services. The responsibilities of healthcare supervision and technical services shall be clarified to streamline and improve the healthcare supervision system so that administration duties are performed in accordance with laws and regulations. All illegal medical practices are prohibited.
The relevant authorities shall establish and improve standards systems for key elements of the healthcare system such as medical institutions, medical personnel, application of medical treatment techniques and large medical equipment.
(2) Establishment of a New System of Medical Institutions Classification Administration
Medical institutions shall be classified and managed as non-profit and for profit. The State shall promulgate and implement relevant policies concerning finance, taxation and pricing according to corresponding types, social functions and responsibilities of the medical institutions. Non-profit medical institutions shall play a leading role in the healthcare system and enjoy corresponding favorable taxation policies. Non-profit medical institutions operated by the government shall be granted reasonable subsidies by the government financial department at the same level and the price of medical services shall be set according to cost, having deducted the subsidies and income earned from the margin on the sale of drugs. Other non-profit medical institutions shall not enjoy government subsidies and the prices of medical services shall be set according to government price guidelines. Health, finance and other authorities shall strengthen financial administration of non-profit medical institutions. A "for profit" medical institution may freely price medical services, have full authority to manage its operations and pay taxes according to law.
(3) Establishment and Improvement of a Healthcare System with Appropriate Division of Responsibilities between Community Healthcare Service Organizations, Comprehensive Hospitals, and Special Hospitals
Community healthcare organizations shall be mainly engaged in prevention, healthcare, health education, family planning, treatment and rehabilitation of common diseases, frequently occurring diseases and chronic diseases which have been clearly diagnosed. Comprehensive hospitals and special hospitals shall mainly undertake diagnosis and treatment of diseases, with large scale hospitals handling emergencies, critical and serious situations, those diseases which are difficult to diagnose and treat, and engaging in education and research work based on clinic situations. A standardized system shall be established so that patients treated in community healthcare organizations may be transferred to comprehensive hospitals or special hospitals for further treatment, and vise versa. People shall have the right to select medical institutions, employees may receive treatment and purchase drugs in designated medical institution of basic medical insurance or purchase drugs in designated drugstores of basic medical insurance with a doctor's prescription. Medical institutions located in urban areas and affiliated to enterprises shall be gradually transferred to the administration of local government where they will be incorporated into the urban and township healthcare service system.
(4) Strengthening Macro Administration of Medical Resources Allocation
Implementation of regional healthcare plans shall be accelerated. Various measures shall be adopted to adjust and control the surplus resources and addition of medical resources. In regions with surplus resources, additional medical institutions shall not be established and existing institutions shall not be expanded. Surplus beds shall be reduced, part of which may be transferred for nursing and rehabilitation uses. The structure of medical personnel shall be adjusted so that surplus personnel are guided toward basic level medical services, community healthcare organizations, administration departments and regions where health services are insufficient. Professional training shall be organized to enhance the quality of medical personnel and the development of general practitioners. The allocation of large equipment and facilities shall be under strict examination and approval, and the distribution of the existing facilities shall be adjusted to increase efficiency. Medical institutions which are short of patients and cannot be operated under normal conditions shall be guided to develop other services, such as care for the elderly, merged or closed. All classes of medical institutions shall be encouraged to cooperate, merge, or to form medical service groups.
(5) Reform of Preventative Healthcare System
The principle of "prevention first" shall always be insisted upon. A comprehensive system of prevention and healthcare shall be established to handle the business and technical issues regarding hygiene, disease prevention and control, and healthcare, which system also provides technical consultation, investigation and the handling of healthcare emergencies such as infectious disease epidemics, poisoning, etc. Medical institutions shall actively launch prevention and healthcare activities closely related with their own business operations. Community health organizations shall be given their full play concerning prevention, healthcare, health education and psychological consultations.
(6) Operational Mechanisms for the Transformation of Public Medical Institutions
Public medical institutions shall enjoy more operational autonomy so as to be self managed, and establish internal incentives and disciplinary mechanisms. Hospital presidents shall be appointed through various methods giving priority to open competition and merit-based selection, etc. The system of goals and responsibilities shall be implemented for a president's term of office. Various internal regulations shall be promulgated with a professional responsibility system at the center. The standards of medical technical services shall be strictly implemented to regulate medical practices and ensure the quality of medical services.
Economic administration of medical institutions shall be strengthened. Cost accounting shall be implemented to better utilize resources of labour, materials, and capital, etc., increasing efficiency and reducing costs. Regarding outsourcing hospital support functions, any support functions which can be more efficiently outsourced shall be gradually outsourced, and consideration shall be given to collective outsourcing by hospitals.
The system of reform of personnel, including their compensation, shall continue. The number of personnel and the duty of each position shall be determined according to the principle of "simplicity and efficiency". The criteria of each position shall be made public and competition for positions is encouraged. Staff and hospitals shall each have the right to contract with each other. Personnel for each level of position shall be appointed by the direct leader of the position and an employment contract shall be signed. Medical institutions shall strictly implement the regulations of "internal assessment of employees" and "patient feedback". The income of a staff member shall be decided according to his technical level, service attitude, and achievement, etc. Medical institutions shall also become efficient by reducing redundant personnel, and the matters regarding laid-off personnel shall be handled according to relevant State regulations.
(7) Implementation of Separate Accounting and Management on Drugs and Medical Treatments
In order to solve the problem of revenue from drug sales constituting too large a portion of total revenue, relationships involving direct financial interests between medical institutions and drug sales must be severed. Concurrent with the gradual standardization of financial subsidies and price adjustments for medical services, hospital pharmacies shall be replaced by designated retail drugstores with independent accounting system and tax paying responsibility. Income from the sale of drugs shall be separated into revenue and expenditures with all revenue transferred to the health administration departments to be managed in special financial accounts with appropriate amounts returned to the hospitals mainly to be used to cover medical treatment costs and subsidize other healthcare operations such as community health services, disease prevention etc. Financial or health administration departments at different levels may not keep or divert such money for other purposes. A certain number of hospitals in each region shall be chosen as pilot units, their hospital pharmacies replaced by retail drug stores. Based on these experiences, this process should be widely implemented.
Community health organizations, clinics and private clinics shall not be involved with drug purchases and distribution, except for commonly used and first-aid drugs that are approved by provincial health and drug administration departments.
(8) Standardization of the Scope and Methods of Financial Subsidies
According to the requirements of public financial system and classified financial system, government at each level shall standardize the methods of granting financial subsidies. Subsidies granted to medical institutions and other health organizations shall be mainly used for public health services such as healthcare administration and prevention, important medical research projects, basic medical services, basic construction and purchase of facilities that conform with regional health plans. Subsidies for large and medium scale medical institutions shall be mainly granted and used for projects such as pensions for personnel who retired from institutions before the reform of "Insurance System for Elderly People", research in key disciplines, hospital development and construction and the provision of basic medical services, etc. The main subsidies for medical institutions at grass roots level shall be limited to certain amounts and used to cover the costs of community health services, preventive healthcare, etc. Separate management of income and expenditure shall be implemented for institutions for disease control and woman and child healthcare, the income from which shall be submitted to special government financial accounts. The financial department at the corresponding level shall grant subsidies according to the responsibilities it undertakes and the quantity and quality of the medical services it provides. Revenue received by health administration departments shall be included with the government's financial budget and all necessary operating costs shall be included in the financial budget.
(9) Adjustment of Medical Treatment Prices
The total amount of income of non-profit medical institutions shall be controlled and the income structure shall be adjusted. Taking into consideration factors such as treatment cost, financial subsidies, drug income, etc., inappropriate prices of treatment shall be adjusted to reflect the value of technical services provided by medical personnel. Fees for diagnosis and treatment, nursing and registration shall be charged or raised. Fees for surgery and beds etc. shall be raised appropriately. High examination fees resulting from the use of medical equipment shall be reduced. The prices of specially required medical treatments shall be raised appropriately. The prices of treatment shall be classified according to different classes of medical institutions, in order to regulate the flow of patients according to their needs. In adjusting the prices of medical services consideration shall be given to special characteristics of community health organizations, and prices of TCM and national minority medicines shall be raised appropriately, so as to promote development of community health organizations, TCM and national minority medicines.
(10) Reinforcement of Structure Adjustment of Drug Manufacture
According to the State industrial policy and the development plan for pharmaceutical industry, approval of new drug manufacturers should be strictly controlled so as to control the increase of new production capacity, stop low level production duplication and the increase of production facilities of drugs whose supply exceeds market demand. GMP shall be implemented in phases according to different dosage forms. Factories which fail to reach GMP requirements within a prescribed time period will not be permitted to manufacture. A scientific system for examination and evaluation of new drugs shall be established so as to reduce cost of research and development and approval of new drugs. Drug manufacturers shall be encouraged to increase investment in science and technology to develop new and unique products and develop large economic entities integrating "production, education and scientific research".
(11) Promotion of Reforms of Drug Distribution System and Rectification of Drug Distribution Practices
Drug manufacturers shall be encouraged to break the limitations of regionalism, sectors, organizations and ownership so as to establish standardized companies of appropriate scale by bringing property rights, products and market network together to form large enterprise groups with integrated production, commercial operations and technology. Large distribution (wholesale) enterprises shall be encouraged to cross geographical borders and merge with wholesale enterprises of urban and township levels to form regional supply centers. The marketing of drugs by chain retail stores and OTC drugs by supermarkets and independent drug stores or, in other ways, shall be deveolped. Recently, the approval and registration of new wholesale enterprises has been temporarily halted.
Drug purchasing by medical institutions shall be standardized. Under the leadership of the Ministry of Health, in cooperation with the State Economic and Trade Commission and State Drug Administration, uniform drug purchasing shall be implemented on a trial basis according to the PRC Law of Bidding, with the issues of invitation, submission, opening, evaluation, selection of bids, and legal responsibilities of parties studied and investigated to determine standardized methods to regulate uniform drug purchasing. Medical institutions shall be the implementers of uniform drug purchasing, and a medical institution may contract with an agent for bidding matters or undertake the bidding itself, if it has the ability to prepare relevant documents and conduct bidding evalution. Agents shall be approved by drug and health administration departments, and shall not be affiliated to, or have any financial interest with relevant administration departments. Uniform drug purchasing shall be conducted in a public, fair, and impartial manner. Health and drug administration departments shall strengthen supervision of agents, and the actual transaction prices of uniform drug purchase shall be filed with local price bureaus. Modern information technology networks shall be used widely in the purchase and distribution of drugs so as to increase efficiency and reduce distribution costs.
(12) Strengthening the Law Enforcement of Drug Administration
The development, production, distribution and administration of drugs shall be administered through the entire process according to relevant laws. Wholesale and retail enterprises shall be classified and administered so as to guarantee the safety and efficiency of drugs. The administration of GSP implementation shall be strengthened. Existing enterprises shall implement GSP rectification and reform within the prescribed time period, and those that fail to reach the standards may not obtain a new certificate. A "Drug Operations License" and "Medical Instrument Operations License" shall only be issued to those in strict compliance. The system of "Quality Announcement" shall be improved and the mechanism of random drug inspection shall be reformed with sanctions strictly enforced The law shall be enforced to crack down on illegal operations such as counterfeit drug production, drug production or marketing without licenses, etc. Free drug market must be banned and the specialty market of TCM must be rectified. Administration of imported drugs shall be strengthened.
(13) Adjustment of Drug Prices
The prices of drugs included in the "Drug List for Basic Medical Insurance", preventative drugs, necessary pediatric drugs and special drugs under monopoly administration shall follow the government price guidelines or government set prices. Uniform national retail prices may be established for drugs meeting certain conditions, and prices of other drugs shall be determined by manufacturers according to pricing method prescribed in relevant state regulations. The "market" mechanism shall be introduced to reduce arbitrarily high drug prices. After experience gained in some pilot projects, drug manufacturers shall gradually implement the printing of retail prices on the packages of drugs, the actual price reflected on invoices in every link of the drug distribution chain.
(14) Strengthening of Leadership
The reform of the healthcare system is closely related to people's health, involves the adjustment of benefits of many parties, is closely related to the establishment of basic medical insurance system for urban and township employees and, therefore is a very important and complex project. The government departments of each province, autonomous region and municipal city shall pay high attention to the work, giving it high priority in their work schedule, strengthen leadership, and implement it according to this Guidelines. Together with the reform of basic medical insurance system for urban and township employees and in accordance with the requirements of this Guidelines, a detailed implementation plan shall be promulgated and good ideological and political preparation made according to the respective conditions of each region and with the agreement of relevant departments and a better understanding of this Guidelines. Medical personnel shall be encouraged to carefully organize and steadily implement the plan. The relevant departments of the State Council shall reinforce guidance with the goal that a healthcare and medical service system in urban and township be established within two or three years to meet the requirements of the socialist market economy.
