Hu Kaihong:

Ladies and gentlemen, welcome to today’s policy briefing. The State Council recently introduced the comprehensive reform of urban and county-level public hospitals. It also issued the Plan for the Development of Traditional Chinese Medicine Health Services. In order to help you to better understand the information, I am glad to have Sun Zhigang, vice-minister of the National Health and Family Planning Commission and Yan Shujiang, vice-director of the State Administration of Traditional Chinese Medicine with us to brief you and take your questions.

Now, minister Sun, please.

Sun Zhigang:

This year marks the conclusion of China’s 12th Five-Year Plan (2011-2015) on healthcare reform. It is also an important year for comprehensively deepening reform. The State Council’s healthcare reform leadership team has asked personnel to summarize the development of healthcare reform, results and major problems uncovered during 2014; fully implement the central government’s requirements; meet the requirements of the five-year plan on healthcare reform and this year’s government work report and propose major tasks to deepen the reform. Therefore, the State Council’s health reform office has worked with related member units to decide on major tasks, responsible departments and work development. A total of 27 major reform tasks in seven areas were put forward.

Deepening public hospital reform is front and center and key to its success. We should accelerate public hospital reform to achieve a substantive breakthrough. The State Council’s General Office issued the Opinions on Comprehensively Carrying Out County-Level Public Hospital Reform and the Instructions on Urban Public Hospital Comprehensive Reform’s Pilot Work. We will follow the State Council’s guidance and launch urban public hospital reform in 100 cities at prefecture level or above.

Sun Zhigang:

President Xi Jinping hosted the 11th plenary session of the central government’s comprehensive in-depth reform leadership team on April 1. The session pointed out that public hospital reform is the main part of China’s medical service system, and deepening the reform is an important measure to safeguard and improve people’s livelihood and tackle problems in medical services for the public. The meeting asked all

parties to ensure public welfare at public hospitals, as well as equal access to them during the reform. It called for government responsibilities in hospital development, innovation and the elimination of systems where hospital revenue and staff income were closely tied to drug prescriptions. The meeting placed the reform focus on management and operations mechanism, service price adjustment, medical insurance payments, personnel management and income distribution. It urged all to build a new public hospital mechanism that maintains public welfare, gives incentives to medical personnel and is sustainable. The meeting stressed that public hospital reform covers a wide range of parties and government leaders should live up to their responsibilities and speed up reform based on China’s national conditions.

Now, I am open to questions, thank you!

Hui Kaihong (host):

Now, let us the give the floor to Mr Yan.

Yan Shujiang:

Good morning, friends from the press. The State Council has recently issued the Plan for the Development of Traditional Chinese Medicine Health Service (2015-2020). The plan provides a comprehensive outlook for TCM health service development for the present and future, which is the specialized planning for carrying out and implementing Several Opinions of the State Council on Promoting the Development of Health Service Industry, as well as the first national planning about TCM health service development. The plan puts forward the development goal: to establish a TCM health service system by 2020, making it an essential component of the health service industry as well as an important force for transforming the economic mode.

Yan Shujiang:

In order to achieve the development goal, the plan clearly stresses seven main tasks.

First; promoting the development of TCM health cultivation services

Second; accelerating the development of TCM medical services

Third; supporting the development of TCM featured rehabilitation services

Fourth; developing TCM health pension services

Fifth; cultivating and developing the TCM culture industry and health care tourism sector

Sixth; promoting the development of relevant supporting industries for TCM health services

Seventh; promoting TCM health services going global by attracting overseas consumers

Yan Shujiang:

The plan clearly puts forward 9 subjects with a total of 14 key construction projects. The main tasks of the plan can be effectively put into practice by the guidance and implementation of these key construction projects.

In the next step, the State Administration of Traditional Chinese Medicine will play a leading role in drafting a detailed working plan and work actively with other relevant government bodies to achieve the goals.

Hu Kaihong(host):

Now questions, please.

China Daily:

It is general practice for public hospitals in China to sell drugs at a 15 percent premium on the price they pay to pharmaceutical companies. According to a policy issued by the State Council earlier this month, this practice will be banned in all county-level public hospitals across China this year. So in the future, such hospitals will mainly rely on medical fees and government subsidies as sources of income. Will the loss of revenue from selling drugs at inflated prices lead to an increase in medical bills? If so, how will the government ensure people will not have to pay much more than before when seeing doctors? And with economic growth slowing, how can we ensure that governments at all levels honor their obligations to hospitals?

Sun Zhigang:

The purpose of reforming county-level public hospitals is to establish a new mechanism that maintains the non-profit nature of hospitals and ensure their sustainable development. The first step is to stop hospitals from relying on selling drugs at higher prices, which is one of the three major sources of income for public hospitals. Hospitals’ revenues will decrease because of that, and their sources of income will be reduced from three to two -- fees for medical services they provide to patients and government subsidies.

Hospitals’ loss of revenue from drug sales will be compensated by a number of other ways, including revising charges for medical services, increasing government subsidies and reducing operation costs of hospitals. Current pilot programs have shown such compensation leads to normal operations at hospitals even after they stop selling drugs at higher prices.

Sun Zhigang:

Prices of medical services will be revises. Clinic and treatment fees, surgery fees and nursing fees will be increased, but fees for medical check-ups using advanced equipment will be reduced. We will ensure the revision of medical service fees will not pose a burden to people’s medical bills through measures such as increasing the share of medical insurance in medical bills.

Besides, hospitals can reduce operation costs by more sophisticated and scientific management. We will also demand governments at various levels to increase subsidies to hospitals. Besides, governments must bear their responsibility by investing in public hospitals, including investing in infrastructure, purchase of advanced equipment, talent cultivation and pensions for retired personnel. With these efforts we expect public hospitals will be able to run normally and the economic burden on patients will not be increased.

China Central Television:

I have a question for Mr. Sun, what is the current situation regarding eliminating the ties between hospital revenue, staff income and drug prescriptions? Especially when it comes to service prices and government compensation. How can governments in less developed regions fulfill this? As for traditional Chinese medicine, how can professional associations and organizations help to boost the development of traditional Chinese medicine?

Sun Zhigang:

In 2012, we started a pilot reform program in 311 counties. We evaluated the program in 2013 and issued a guideline for reform based on the results we got. We used that guideline in another 700 counties in 2014 and we found it correct and feasible based on our in-depth research. We decided to implement the guideline to all counties in the country this year.

Sun Zhigang:

Eliminating the ties between hospital revenue, staff income and drug prescriptions at all county-level public hospitals is the first step. It aims at reform in the compensation mechanism, personnel, distribution, management and supervision systems, among others. So what we are talking about is a comprehensive reform, not just focused on drug prices. As a matter of fact, most hospitals did this but there are also exceptions. In this year, we will enhance our supervision to ensure the central government’s plan be implemented. We also encourage innovation to show regional differences, but first it should meet the requirements of the policy.

Sun Zhigang:

As for less developed regions, the guideline of the State Council also said that the revenue and the expenditure of a hospital could be divided to make sure that government compensation goes to the right places.

Yan Shujiang:

Thank you for asking about the development of traditional Chinese medicine. As a matter of fact, the plan did mainly emphasize the roles of the government and market. The government plays its part at establishing a rule, giving out policies to guide the development and supervising the industry. The market should play the decisive role in allocating resources to fully mobilize the initiative and creativity of social forces, so as to provide better services to the people. Currently, the TCM health service is at its beginning stage, there are only a few professional associations and organizations such as the China Association Of Health-Protection Food and the China Health Care Association and they could hardly meet the need of the development of this industry. First, we should set up a number of newly qualified organizations.

Yan Shujiang:

Second, we should fully implement these organizations in consultations, making industrial standards, enhancing self-regulation, training staff and doing third party evaluations.

Third, we should use these organizations to better serve our enterprises. As the government is streamlining administration, more enterprises were set up in the TCM health service sector. Many of these are small ones and at the beginning stage. Professional associations are non-substitutable as they can help these enterprises by providing market information, management consultations and personnel training. The government will also delegate some powers to these professional associations for them to develop better and help the TCM health service industry better.

Bloomberg:

I want to ask a question about the reform’s influence on hospital revenue, especially on foreign medicine manufacturers. Because as we all know, the ongoing reform will cancel the profit margin of prescription drugs. How will this influence hospital revenue, the medicine manufacturers, especially the foreign ones?

Sun Zhigang:

As mentioned, the public hospital reform we are deepening is set to break the hospitals’ profit-oriented mechanism. The new operating mechanism will safeguard public interest, motivate initiative and ensure sustainability. The first one that needs to be broken is compensation for hospitals through drug-selling profits, canceling the profit margin of drugs. The cancellation will definitely influence hospital income in terms of drug-selling. The affected income will be shouldered by various parties, including adjusting medical service costs, increasing government subsidies and lowering the operating costs of hospitals. At the same time, we compensate the hospitals for their costs in drug storage, maintenance, and so on. Therefore, if we look at the reform policies and the pilot reforms that have been conducted, hospital income has not been greatly affected.

Sun Zhigang:

About the influence on the foreign enterprises, we will continue to buy the drugs that we’re currently purchasing from foreign drug-makers. We won’t stop purchasing them. The key is how to buy them and at what price. The State Council recently issued a document about optimizing drugs in centralized procurement for public hospitals. The guideline summarized years of experiences and lessons. We decided on four principles. First, it must help to end compensation for hospitals through drug-selling profits, and promote public hospital reform. Second, it must help to reduce the overly high price of drugs as well as ease the burden of healthcare and patients. Third, it must help to eradicate corruption in the drug-making and drug-selling areas. Fourth, it must help to promote the optimization, restructuring and healthy development of drug-making and drug-circulating enterprises.

Sun Zhigang:

Therefore, the interests of drug-making and drug-circulating enterprises have been taken into consideration during the reform, not only the foreign enterprises, but also the Chinese ones. The drugs have been divided into five categories for the hospitals to purchase. The first category is generic drugs, manufactured by many enterprises and widely used. We adopt mass drug purchase by public bidding with a province as a unit. This is different from purchasing by public bidding that the public hospitals used to adopt. There are several features of the method. First, the bidding is open to drug-makers, not the enterprises that circulate drugs. Bidding combined with purchasing, getting a relatively lower price through a large amount of purchasing, is in line with economic rules and is common practice in many developed countries.

Sun Zhigang:

The second category is negotiating purchasing for some patented and exclusively-produced medicine by launching negotiations with a province as a unit, or a group of several provinces. This is another way to seek a lower price through a large amount of purchasing. The prices of such drugs are often overly high, while the demand for them is huge in China. Through negotiations, we hope to see a lower and reasonable price in exchange for the massive market in China. This is also a widely used method around the globe. When I visited Australia and New Zealand last month, I found it were the two countries’ governments that negotiated with foreign enterprises that produce patented medicine to lower the price. Now, we aim to establish an open and transparent negotiation mechanism, involving many parties, to ensure the price is reasonable.

Sun Zhigang:

The third category targets the clinically-necessary drugs whose application is limited and supplies are short. The country will organize bidding for a designated manufacturer to ensure the enterprises’ profits and avoid them from quitting the market because of limited demand or low prices.

The lists of the drugs, including the generic ones for women and children, will be made public on websites and purchased by hospitals themselves. The specific scope will be decided by provinces and cities. The procurement method for the specialized drugs remains the same, falling into the fifth category. Foreign and domestic enterprises are treated fairly and equally according to this category. We won’t issue a separate method for the foreign enterprises. Everybody is treated equally. When you fall into a category, you just join a certain kind of procurement, bidding or through negotiation. I think the reform of drug procurement is in line with international common practice and economic rules. This benefits drug-makers and help to gradually regulate drug circulating orders.

Economic Daily:

I have a question for Mr Sun. The tiered system of medical care services are being promoted in many places to improve the utilization of medical resources. We know many people seek medical services in big hospitals while few go to hospitals at the local level. What will ministries do to make more patients go to these hospitals? How can big hospitals help to achieve the goal?

Sun Zhigang:

To establish a tiered system of medical services is one of the key issues of healthcare reform this year. We should gradually build up a tiered system of medical care services, where patients with minor ailments will be encouraged to go to local community-level medical institutions for treatment to allow the higher-level hospitals to concentrate on the diagnosis and treatment of serious illnesses with multi-tier diagnosis and treatment trials in urban public hospitals. To achieve this goal, we should first improve community-level institutions. We should not only improve their equipment and facilities but more importantly, we should enhance expertise and especially focus on the cultivation of general practitioners. In the past few years, we have explored many systems and service patterns concerning general practitioners. We have achieved some results and they will gradually be seen. We require General Practitioner (GP) teams to sign agreements with local residents, a service pattern which is the same as those in developed countries. After that they should go to the residents’ homes to provide services. Some places have done well in this aspect, such as Zhengzhou in Henan province. Zhengzhou city is divided into several parts which are taken care of by several GP teams. Fangzhuang community in Beijing where the local GP provides pretty good services to local residents. When some residents moved to other places but found the previous treatment better, they actually moved back. Residents can also choose the GP team according to their services. GPs can increase their income through providing good services to residents signed up with them. It has achieved good results in the pilot cities.

Sun Zhigang:

We should also gradually change people’s mindset when seeking treatment. Many illnesses can be treated well at community-level GPs, so there is no need to go to big hospitals. More convenient services are provided by the GPs, so there is no need to always queue up at big hospitals.

Sun Zhigang:

We should strengthen guiding, promotion and policy support to achieve the transformation. We should guide rather than force. Besides, we are also applying the same mode to deal with chronic diseases such as the management of high blood pressure and diabetes. More convenient services can be enjoyed at local communities.

Sun Zhigang:

We are promoting the reform of public hospitals in cities and require higher-level hospitals to be totally clear about their functions - to treat difficult and serious illnesses. After operations patients should be taken care of at local communities; daily control of high blood pressure after diagnosis should also be carried out at local communities. In this way higher-level hospitals can transform service patterns and fully play to their advantages. Apart from guiding we should apply some policy measures to help patients choose better.

Sun Zhigang:

The tiered system we are promoting now is the same as those in many developed countries. But it takes time - it cannot be changed instantly. We hope the time will be shorter and the process quicker through our work. As long as we make efforts in this direction, we will definitely establish a reasonable tiered medical service system in the near future.

Wall Street Journal:

My question concerns online retailers’ role in “separating the clinic from the pharmacy”. In respect to changing the existing mechanism of hospital revenue and staff income, which are closely tied to drug prescriptions, do we have a timetable of how and when the online retailers will play a bigger role?

Sun Zhigang:

Online retailing has developed rapidly in China, and I think, it will maintain this momentum. I believe the boom is quite positive to push the reforms in the hospital system, as well as the separation of prescriptions from clinic treatment.

Being a relevantly new mode, it poses challenges in managing, regulating and supervising the whole process.

Every coin has two sides. We’ll try to minimize online retail’s negative effect and enlarge its positive influence. And we’re researching and exploring a sound way of management in this respect.

Sun Zhigang:

However, a detailed timetable is not certain so far. We support the mode of Internet Plus Healthcare and have studied the topic. I believe, as both online retailing develops and the informatization of healthcare fastens, we’ll get a clearer picture of how online retailing will integrate with the healthcare system, and how it will bring about more positive changes.

We’ll definitely take effective measures to make sure the integration is following a right and healthy path.

Hu Kaihong:

That is the end of the policy briefing, thank you!