Day 2 @ Peking University

Damjan Denoble, a former Duke student who lives in Beijing and who writes a blog www.asiahealthcareblog.com (I can't seem to make links work while accessing the blog in the manner I am doing so to gain access while in China) has been attending the lectures I am giving at Peking University this week, for 90 students from 44 Universities around China. This is his write up of the goings-on.


Day 2 – Health Insurance and Moral Hazard
by Damjan Denoble

Today’s lecture focused on moral hazard and health financing. Moral hazard in the context of financed healthcare beneficiaries, loosely defined, means that if people who receive a service for free or at a considerable discount will often over-utilize that service. In the context of financed healthcare providers moral hazard refers to situations where doctors and other medical personnel can be improperly incentivized to oversubscribe medicines and/or over-treat patients.

Moral hazards are a particularly difficult problem in China because the last thirty years of economic expansion have transformed the health system into a knotted web of negative incentives for both providers and beneficiaries. As the economy has grown, many Chinese have gotten materially richer and have become more demanding health consumers. Concurrently, doctors and medical personnel have not been so lucky, and their salaries have remained relatively stagnant while people employed in other professions have seen their salaries rocket skywards. Moreover, the hospital system in China is still, almost exclusively, a public funded enterprise and its infrastructure has not kept up with population growth or social demand for better health services.

The resulting situation is one where health consumers are incentivized to bypass the worst of the health system – underfunded community and provincial level hospitals and clinics – thereby bottlenecking the much smaller central level hospital and clinic system built of city based, military and university hospitals. Within the hospitals, doctors and medical personnel further bottleneck this system by 1) shunning work at low pay, low prestige jobs in rural areas for the better work environments of bigger hospitals, and 2) by engaging in a number of practices that maximize their income through a complex system of under the table payments, while simultaneously making it harder for patients to access care if they are not lucky enough to be able to afford the secondary, under the table costs of medical provision. Admittedly, the former behavior is a characteristic of doctors anywhere.

So, creating a proper incentive scheme is one of the biggest puzzles that Chinese healthcare system architects are going to have to solve if they expect to construct both a health dispensing and a health financing infrastructure which can accommodate all of China’s 1.2 billion people.

I came to class today interested to find out if (and if yes then how) this question would be addressed. What I found is that very little attention was paid to the moral hazards associated with improper incentivizing of medical doctors. Rather, the bulk of discussion surrounding moral hazard focused on disincentivizing health beneficiaries from overusing health services through various systems of co-pay.

There was a telling exchange after one of the students, a medical doctor with prior work experience in a rural Chinese hospital, suggested that the current way doctors are paid is flawed. She proceeded to explain how the payment structure could be altered for the benefit of the entire healthcare system. Currently, doctors in China get a combination of salary, allowance, and kickbacks from drug companies. Salary is provided for by the hospital. Allowance is a percentage pay out from a department pool which collects a percentage of the proceeds of each patient payment received. Kickbacks from drug companies are self explanatory, and though technically illegal under Chinese law, they are tolerated by officials.

The plan she proposed called for the elimination of ‘allowance’ and the legalization of drug kickbacks so that these transactions could be better regulated. The proposal, unusual for its frank acknowledgement of under the table payments, drew quite a bit of mirth from he colleagues. Few took offense to the abolition of allowances, but almost all those present thought it much too radical of an idea to legalize drug kickbacks.

The bulk of the pushback seemed to be directed at the idea of legitimizing the role of a private market enterprise directly built into a government administered health system. The passionate objection presented by some of the students indicated that this is likely more than a mere policy dispute, but a matter of differing ideological principle. Without foreshadowing the next article too much, there would be a similar clash of ideas on day three when the class was asked to consider the idea of institutionalizing private health insurance. One way to think about this is that, ideologically and politically, China’s healthcare system architects face the opposite problem of their counterparts in the United States – in China, capitalism is a dirty word when talking about the healthcare system.

Under the circumstances, however, the plan proposed by the young doctor is very close to what actually needs to happen in order to unclog and strengthen China’s hospitals.

For a summary of their responses please go to Asia Health Care Blog where a summary of the day’s events has been posted.
www.asiahealthcareblog.com
http://www.asiahealthcareblog.com/