January 2020

When we discussed the contents for the very first 2020 new year issue of our newsletter, I was naturally being asked by my colleagues, as the company’s expert on China, to write something about “what’s going on in China that our MedTech customers would be interested in”. My short answers are: “Price reduction” and “DRGs”. Something that I touched upon in previous newsletters, which will continue to haunt the industry players and shape the industry landscape as the Chinese government’s reform advances.

But before I report the progress on those fronts, I’ve noticed an official statistical report of the 2018 national social health insurance fund, which provides high-level data for an outsider to try to grasp the essential characteristics of China’s healthcare funding and delivery system and understand the challenges an industry player as well as the Chinese government payer are facing with in terms of the funding constraints.

A Brief Overview of China’s Evolving Social Health Insurance Scheme

China’s government-led, national social health scheme (called Basic Medical Insurance, BMI) was introduced approximately 20 years ago in the late 90s.

Understandably the employee scheme has always been the main cornerstone of the BMI and the most well-funded scheme given that the contributions are coming from both the individuals and their employers. But that only covers less than 1/3 of the total population in China as there is a huge rural population who do not have any formal employment arrangements for various reasons, plus those unemployed city residents such as the dependent family members.

Similar to the Obamacare, one of the healthcare reform goals, which started from 2009 in China, is to ensure that every Chinese would have access to affordable care. The focus, since then, has been switched to look after the previously ignored or poorly-insured populations such as the farmers as the government is trying to tackle the inequality issue in health care.

And starting from 2016, the government has taken a more aggressive approach to integrate the rural scheme with the city resident’s scheme in the context of eliminating the inequalities between urban and rural residents. The structural change has resulted in a sharp increase in the number of covered lives whereas the BMI funding source itself has remained the same.

It is now not difficult to understand why the Chinese government is not really interested in the industry’s lobbying messages to try to improve coverage and be friendly with newer but often more expensive medical technologies when they are struggling with allocating the same amount of health care budget with 1.3 billion people instead of 300 million.

Now let’s look at the 2018 BMI statistics.

Takeaway 1: Although China appears to be achieving its universal coverage goal, the coverage levels are still different between the Employee Scheme and the other two schemes

Table 1 shows the covered lives and the Fund balance by the three public schemes. One could clearly see the Employee scheme are better funded than the other two, especially if one tries to calculate and compare the Fund balance on a per-capita level.

Table 1: covered lives and account balances of different BMI schemes

Employee Basic Medical Insurance (hereafter referred to as EBMI) is mandatory health insurance for urban employees of state-owned or private enterprises, funded by employers and employees.

Resident Basic Medical Insurance (RBMI) is the health insurance scheme for residents not covered by UEBMI, e.g. seniors, unemployed, children, students, disabled, etc. Before 2016, only urban residents are included in this scheme, known as the URBMI.

New Rural Co-operative Medical Care Scheme (NRCMS) is a medical scheme designated for the rural residents. Funding is a mix of voluntary contribution from individuals and government subsidies. From 2016, NRCMS has been merged with URBMI.

Total medical insurance claims and claims per insured person are increasing steadily over the years, resulting in 6.2 average claims per insured person in the EBMI scheme in 2018 (Figure 1). However, the number is much lower for the resident scheme as the average number of claims is only 1.7 per insured person in RBMI.

Medical Insurance Claims (100 Million) and Claims per Insured Person EBMI

Takeaway 2: The average inpatient care spending per admission is 11,181 yuan in 2018 for the EBMI insured population and 6,577 yuan for the RBMI population. Within that, 28% and 43% are patients’ out-of-pocket expenses, respectively.

The report also provides valuable national statistics in terms of the average BMI spending per hospital admission as well as patient’s OOP spending.

Although the better insured population have more frequent outpatient visits, the admission rates are on par with each other as shown by Figure 2 between EBMI (18.3%) and RMBI (15.2%). Yet the average inpatient care spending per admission of EBMI, 11,181 yuan is almost twice of that of RBMI with the average spending of 6,577 yuan.

Inpatient Care Spending and percentage of inpatient care ebmi rbmi claims
inpatient expenditure paid by bmi and oop, ebmi, rbmi

Out of that 11,181 and 6,577 yuan average inpatient spending, patient’s out-of-pocket costs account for 28% and 43% respectively for people covered by EBMI and RBMI.

Takeaway 3: Despite the government’s efforts to promote a tiered care delivery system in China, the concentration of care delivery in the Tier III hospitals has only increased.

It is also interesting to observe that despite the government’s efforts to establish a tiered care delivery system in China, patients still prefer to go to Tier III hospitals (highest hospital ranking) to seek medical care (Figure 4). The BMI statistics over the period of 2012 and 2018 revealed that the percentage of inpatient admissions in Tier III hospitals has been increasing steadily and in contrast the percentages of patients going to Tier I and II hospitals are fairly flat or even decreasing over the same period of time.

Percentage of Inpatient Admission

Takeaway 4: Diagnostics and treatments account for 51% of the inpatient care spending and medicine, 35%.

Expenditure of outpatient care accounts for about 40% and inpatient care about 60% of overall expenditure of EBMI in 2018.

Diagnostics and treatments accounted for half of the inpatient care spending and medicine, 35%.

Impatient Breakdown PNG

Implications for Innovators

Boston Healthcare’s clients, especially those that have operations in China, typically target and service the more affluent populations covered by the Employee Scheme. The national health insurance data only confirms the importance of this target population as well as the importance of Tier III hospitals in care delivery.

The analytical exercise is also intended to help our clients understand the practical challenges from the payer’s perspective and prepare our clients for the ongoing attempts and activities from the Chinese governments at all levels to cut prices.

— Authored by Betty Su, Vice President and Managing Director at BHA Asia-Pacific.

Boston Healthcare has a deep understanding of the evolving healthcare landscape in China. Our in-market experts closely monitor the policy and market trends on the strategic markets like China to help clients stay ahead of industry trends. Please contact us if your team needs help developing strategies and action plans to identify opportunities or tackle the issues.