Can zero-markup policy for drug sales in public hospitals resolve the problem of ‘seeing a doctor is too expensive’ in China? A case study of four municipal general tertiary hospitals at H City in Z Province

The Chinese government launched its New Health System Reform in 2009 aimed at achieving the target of universal health coverage and resolving the long-standing problem of ‘seeing a doctor is too difficult and expensive.’ The Chinese government attributed the origin of this problem to the 15%-markup policy for drug sales in public hospitals from the mid-1990s and began the zero-markup reform as its main solution in 2013. Through a case study of four municipal general tertiary hospitals in H City in eastern China, we found that the zero-markup policy reduced the cost of patients’ drug spending and the income of hospitals’ drug sales, but did not reduce the average expense and out-of-pocket spending of patients. On the contrary, the average expense for medical inspection and examination is rising rapidly every year. Against the background of zero-markup reform for drug sales, public hospitals have gradually shifted from ‘feeding the hospital with drug sales’ to ‘feeding the hospital with medical inspection and examination’ by adding unnecessary services or overtreatments, having to find new ways to meet their costs. Some of this may represent supply-induced demand for services, replacing the supply-induced demand for drugs, which the former markup policy encouraged. We have also found that although the government adjusted the price of medical services to a degree when introducing the zero-markup reform of drug sales, the deficit in medical service funding has risen sharply in the public hospitals. This indicates that the medical service is priced significantly lower than actual costs of the service and that the related social insurance support is also inadequate, therefore continuing high levels of out-of-pocket costs are inevitable. To resolve the problem altogether, the Chinese government must promote a market-oriented reform of pricing mechanism of medical services and adjust the social insurance support accordingly. The key to New Health System Reform is to build a public negotiation mechanism between the government, social health insurance, representatives of hospitals/doctors, and citizens for medical service purchasing to determine the commonly accepted price of quality medical services and the amount patients should contribute themselves, through negotiation and compromise.