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Dangerous Cuts

To lighten medical burdens and rein in unnecessary treatment, a number of provincial governments in China have performed radical surgery on the system itself – putting a limit on public hospital spending on medical consumables that prevents doctors from even performing operations

By NewsChina Updated Mar.6

Some advice to you all: eat a balanced diet, stay fit and rest well after work. You’d better not get sick. If you have to, make sure you get sick at the beginning of the year, or at least at the beginning of the month, instead of at the end of it.” So wrote Wang Guangbao, a high-profile Zhejiang-based surgeon on his Sina microblog which has a huge following of nearly 2.6 million, in the middle of December 2017. 
It was interpreted as a response to demands from the governments of Guizhou and  
Sichuan Provinces that public hospitals strictly control their expenditure on consumable medical supplies funded by China’s social medical insurance scheme. As 2017 ended and many hospitals’ budgets drew close to the red line defined by the government, doctors were reportedly told to avoid using certain expensive supplies even where they were necessary or more effective than cheaper ones. 
A leaked internal notice from the first-tier Affiliate Hospital of Guizhou Medical University that spread widely online demanded doctors stop using supplies like anastomats (automatic stitching devices), trocars (used for keyhole surgery) and certain types of bandages that stop bleeding. Another first-tier hospital in the same province even reportedly extended the ban to gauze and cotton used to control bleeding. 
The two hospitals involved told local media that the notices were taken out of context and misread, and emphasized that budget controls would not impair the efficiency and effectiveness of medical treatment. Yet many doctors have complained that they felt reluctant to perform operations that required expensive medical supplies. Experts said that given the rampant overtreatment in many hospitals, the controls were not without merit, but they would have little impact on tackling the root causes of spiraling medical costs.  

Single-handed Doctors 

“Simplistic and hegemonic” is how surgeon Zhou Qing (pseudonym) characterized the new policy. With 11 years’ experience working at a first-tier public hospital in Guizhou Province, Zhou said the latest budget measures were the strictest she had ever seen – her hospital required doctors to use domestically-made consumables as much as possible, and to use ordinary thread rather than dissolvable thread to stitch wounds. 

These rigid requirements took a toll on the quality of medical care, Zhou said. Though more expensive than ordinary thread, dissolvable protein-based thread leaves less scarring and does not need to be removed, which benefits patients, especially women who have undergone facial surgery, she said. 
According to Zhou, imported medical consumables tend to be of higher quality or longer lasting than domestically-produced ones, and some other high-cost ones greatly increase the efficiency of surgery. For example, an Endo-GIA can shorten the duration of lung surgery by a factor of two or three, by quickly locating air pockets caused by lung disease that need to be surgically removed. “Longer surgery means a longer time under anesthesia, the impact of which is hard to appraise. But it is certain that less anesthesia is better for patients,” Zhou told NewsChina. 
“It is no exaggeration to say that the [budget] control has sent our medical service back to that of five or 10 years ago,” she added.
Zhou’s peers share her concerns. Shu Nong (pseudonym), a surgeon who works at a renowned hospital in East China, told the Guangzhou-based paper Southern Weekly that they have stopped performing laparoscopic surgery – the primary method used by his hospital to remove the gallbladder, and excise fibroid tumors – because of the amount and type of consumables these surgeries consume. Similar suspensions occurred in some orthopedic hospitals in Shandong Province, the Beijing News reported. An anonymous surgeon from a first-tier hospital in Beijing also indicated that pressured by budget controls (though these were not official hospital directives as in the case of Guizhou and Sichuan), medical staff was forced to turn to low-quality materials to prevent bleeding and reduce the total number of surgeries. 
“Just depend on your luck if you get sick, or simply treat yourself with Chinese traditional medicine... Energize and warm yourself with love and spirit,” the surgeon reportedly joked on his WeChat social media account.  

Expense Control 

Government budget controls are said to be a reaction to China’s spiraling medical costs, with medical social insurance covering an increasing proportion of the population – official data showed that from 2003 to 2011, public hospital revenues grew by an average of 20 percent per year. By 2011, social medical insurance covered more than 95 percent of Chinese nationals. 
In 2012, China’s State Council issued medical reform guidelines promoting a fixed-repayment system for public hospitals. At the beginning of each year, every local government decides on a ceiling for total medical expenses to be repaid by social medical insurance, with any additional expenses borne by hospitals.
In 2016, China’s National Health and Family Planning Commission issued new guidelines requiring each municipality and province to fix medical expenses growth at below 10 percent. A year earlier, the State Council launched a pilot medical reform in urban public hospitals to control the cost of medical consumables, the upper limit of which was fixed at 20 percent in 2017. In other words, spending on medical consumables was prohibited from making up more than one-fifth of each hospital’s total spending. 
The latest restrictions from the local governments of Guizhou and Sichuan appear to have been inspired by the State-level requirements. Recent budget guidelines issued by Guizhou provincial government revealed medical spending for Guizhou’s public hospitals grew at an average of 18.5 percent from January to August. The growth in Sichuan’s public hospitals was said to be around 13 percent. Media reports said government health officials met with hospital administrators to talk about punishments, which would include deducting bonuses and giving negative performance comments to those who had crossed the “red line.”
“Some hospitals do not control their expenses throughout the year and have to put the brakes on at the end of the year,” Xu Yucai, deputy director of the local health and family planning bureau of Shanyang County, Shaanxi Province, told Southern Weekly. He revealed that some hospitals which had received government warnings may have tried to escape penalties in extreme ways, like banning the most frequently used consumables.
In fact, budget controls have been welcomed as overtreatment is rampant in many hospitals. Local media investigations have shown hospitals allegedly abusing medical insurance budgets by performing unnecessary surgeries and abusing consumables – for instance by using a hemostatic sponge when the blood can be easily controlled by ordinary cotton balls, and using Harmonic scalpel heads only once when they are often recycled in some of the world’s best health systems. 
On the Chinese social answers forum Zhihu, a poster who claimed to be an orthopedist from East China but did not reveal his real name, said that his hospital was barely impacted by the budget constraints, and he believed there was still some fat to trim when it came to medical consumable expenses. 
However, he conceded that a one-size-fits-all directive was too simplistic. As surgeon Zhou Qing said, high-cost materials and expensive imported instruments are necessary for some diseases and surgeries, and failing to use them can mean patients suffer. To reduce total medical expenses, many hospitals, including Zhou Qing’s and Shu Nong’s, opted to take on fewer patients, or worse still, asked patients to pay upfront for the necessary consumables, increasing their own medical burden.  

Who’s to Blame?  

Zhu Hengpeng, an expert in healthcare economics and head of the Center for Public Policy Research at the Chinese Academy of Social Sciences, says defining a fixed amount for medical insurance repayments is inadequate because it means the government is forcing hospitals to absorb the risk of fluctuations in medical costs. A more scientific way of cost control, Zhu says, is to set separate upper limits for each specific disease, combined with elements like patients’ age, gender and diagnosis – the so-called DRGs (Diagnosis Related Groups), a widely-accepted way to charge used in many Western health systems. 
However, Zhou Qing responded that public hospitals are technologically incapable of implementing such a policy and would be unwilling to do so. As revenue is a key criterion for hospitals to appraise the performance of each department, few doctors would be enthusiastic about adopting DRGs for a disease which will earn more if it is charged in another way. 
This is why experts say simple expense controls cannot solve the deeper problem. Hospitals have been forced to assume responsibility for their profits and losses since widespread health system reforms in the 1980s, and government funding never comes close to covering their costs. As a result, hospitals and their doctors try to make more money via gray channels such as by prescribing unnecessary, expensive drugs and abusing medical consumables. As Zhu says, no matter what upper limit the government defined for medical cost, Chinese hospitals would do their utmost to hit it. 

The Chinese government has been clamping down on hospitals’ “gray income” for many years, but analysts, including Zhu Hengpeng, believe that no measure will have an impact until the administrative monopoly over public hospitals is broken (the government holds the power to approve, distribute and even price a huge number of medical instruments, materials and drugs) and private hospitals are allowed to fully and fairly compete with public ones on the market. 
Expense controls on medical consumables, for example, will have the opposite effect, according to Zhu, since doctors will attempt to dilute consumables spending by increasing total fees, and charge more for medical tests and other items. As a result, these controls will eliminate competition among public hospitals. 
The high cost of medical consumables in China is largely down to distribution channels and commissions added on. Labor makes up only a tiny part of the total cost of surgery, so surgeons seek to supplement their income by using excess medical consumables. All these costs are transferred to patients, or to medical insurance, with the price increasing. 
Price controls on drugs are a similar case. The local government of Guizhou, for example, has since 2016 demanded a batch of expensive, essential drugs to be purchased by provincial medical departments, only to find that the drugs’ price did not drop as expected, while opportunities for official corruption rose.
“If a drug manufacturer can bribe the heads, deputy heads and doctors at several hundred public hospitals in a city and collude with the municipal officials in charge of drug bidding, why would they not also do so at the provincial level?” asked Zhu. “Unified provincial purchasing only means that discipline inspectors have to supervise more medical staff and officials,” he added.
As early as 2011, Zhu proposed a systemic program for radically reducing medical costs, which focuses on breaking the administrative monopoly and relaxing price controls. Yet government departments have barely taken notice of his proposal. During an interview with NewsChina, Zhu cited the words of Chinese Premier Li Keqiang, who called vested interests an impediment to reform, and said “touching these interests is often harder than touching one’s soul.”