Will hospitals go bankrupt as drug commissions are banned?

A letter in Lancet Global Health this week from urologist Dr Guan Xiao and colleagues at the Xiangya Hospital, Changsha, Hunan:

On Jan 15, 2016, the National Health and Family Planning Commission of China reported its work plan for 2016 at a press conference in Beijing, mentioning that it will expand the public hospital reform to 200 cities in China. The core part of the reform is to ban the price increase of drugs and materials, reduce the cost of medical examinations, and appropriately raise the price of medical services provided by physicians, such as surgery.

However, under this circumstance, public hospitals in China are now in the dilemma of whether to choose reasonable hospital operational costs or public welfare. With the increasing demand for health-care services, the operational cost of hospitals will inevitably increase. For public hospitals, drug sales account for about 40% of their revenue, and medical income (eg, from examinations, laboratory tests, and operations) brings in about 49%.² With the ban on charging extra for drugs and materials, as well as the reduced cost of examinations, hospitals' revenue is likely to reduce. Although the income from medical services will increase, this factor is far from enough to offset the operational cost, which will result in a great reduction in many public hospitals' gross revenue, even leaving some hospitals at a financial loss. According to some health insurance policies, there are limits on how much a patient can spend on their treatment. If the total cost exceeds the limit, then the hospital might not get the balance from the health insurance department. Because of these health insurance issues, hospitals have no choice but to reduce the use of expensive but effective drugs and materials. However, this move could compromise the quality of medical services.

The government's subsidy accounts for only about 8% of public hospitals' revenue, putting these institutions under great pressure. Public hospitals have to seek new ways to make a profit instead of only sticking to their public welfare goals. The government has lowered medical costs in response to public demand; however, the subsidy remains the same. To solve the dilemma hospitals are now facing, the government should increase the subsidy to a level that is enough to cover operational costs without damaging the medical staff's initiative. Investment in health-care services takes up only about 6% of finance expenditure in China, compared with about 15% in developed countries. Additionally, the adjustment of the prices of medical services is lagging far behind the market prices. The mechanism of adjustment for these prices should be revisited.

People could benefit a lot from the launch of the public hospitals reform. For public hospitals, it is not a simple choice of choosing survival of the organisation or public welfare. We should find balance between them.