Governing the healthcare market: regulatory challenges and options in the transitional China

During the transition from a planned economy to a decentralized, market socialist economy, the Chinese healthcare system has evolved from a centralized, egalitarian public system (1949-1979) to one which is largely self-governed and can be characterized as 'public identity, private behavior' healthcare system (1980-1999). With blurring of the distinction between public and private governing systems, and a shift in norms towards profit orientation, major concern has arisen about the extent of high cost, high volume services being offered through excessive entrepreneurial practices. This thesis is concerned with the regulatory strategies and options to reach 2010 health reform objectives of equity and efficiency under a mixed public/private market. While possible lessons can be drawn from established economies and transitional economies, China faces some unique challenges, given the diverse market structures and fragmented healthcare system across the country, and the underdeveloped framework for the rule of law. The thesis reviews policy documents from 1949 to 2004 and draws from interviews with senior health policy-makers and hospital directors in three different locations, in order to explore the role of the state in market regulation, the effectiveness of technical and social regulations, and how policy implementation and regulatory compliance occur. The research has found that the dynamics of the healthcare system are shaped by the financing arrangements for healthcare and the absence of arms-length governance of hospitals by health departments. Without an effective state health financing tool, nor mature market institutions, China is not able to use neither performance-based regulation nor technology-based regulation. China has adopted a management-based regulatory strategy but the absence of effective governance structure hinders effective regulation. If the reform objectives of improving healthcare quality while costs are to be attained, China will need to develop purchasing tools to alter the current perverse incentives for provider behavior. Government will also need to work with civil society organizations to develop tools for clinical governance, such as clinical audit for risk management and hospital accreditation programs. To do so requires establishing arms-length governance mechanisms between health departments and hospitals, and appropriate corporate governance structures within hospitals. Specifically, MOH needs to establish a technical policy think tank to investigate all the policy issues arising from the announcement of the 1997 health reform, including coordination with other line ministries and provincial authorities, and formulation and implementation of a policy research agenda, in order to attain a market-based governance system for health by 2010.