Elsevier

The Lancet

Volume 375, Issue 9720, 27 March–2 April 2010, Pages 1120-1130
The Lancet

Review
Realignment of incentives for health-care providers in China

https://doi.org/10.1016/S0140-6736(10)60063-3Get rights and content

Summary

Inappropriate incentives as part of China's fee-for-service payment system have resulted in rapid cost increase, inefficiencies, poor quality, unaffordable health care, and an erosion of medical ethics. To reverse these outcomes, a strategy of experimentation to realign incentives for providers with the social goals of improvement in quality and efficiency has been initiated in China. This Review shows how lessons that have been learned from international experiences have been improved further in China by realignment of the incentives for providers towards prevention and primary care, and incorporation of a treatment protocol for hospital services. Although many experiments are new, preliminary evidence suggests a potential to produce savings in costs. However, because these experiments have not been scientifically assessed in China, evidence of their effects on quality and health outcome is largely missing. Although a reform of the provider's payment can be an effective short-term strategy, professional ethics need to be re-established and incentives changed to alter the profit motives of Chinese hospitals and physicians alike. When hospitals are given incentives to achieve maximum profit, incentives for hospitals and physicians must be separated.

Introduction

“That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair of political humanity. But that is precisely what we have done.”1

Physicians play a unique and central role in medical care. What physicians do and how they render medical services determine the quality and efficiency of health care, health and wellbeing of patients, and the nation's health-care costs.2 Many factors—training, education, professional ethics,3, 4 altruism,5, 6, 7 practicing norms,8 regulation, and financial incentive structure—affect how physicians practice. How physicians respond to these factors is often dependent on the organisational context, including the practice setting and market conditions.2, 9, 10 The number and complexity of forces that affect how physicians practice, and the different emphases of the sources of information make the formulation of a unified theory for behaviour change difficult.11, 12 Figure 1 provides a schematic representation of these forces and their association with the health-policy goals.

How can a government or insurance fund motivate physicians to do their best for patients and society? To change professional ethics and practice norms would undoubtedly have an effect but would be difficult to achieve, especially in the short term. However, modification of financial incentives is a policy option that can be introduced quickly, and can induce a fast behavioural response from physicians.

After nearly two decades, the changes introduced in the mid-1980s in China have been recognised as creating an incentive system for hospitals and physicians that is not appropriate.13, 14 These incentives had powerful effects on the behaviour of providers and their treatment decisions. China's fee-for-service payment and a price schedule that overpaid for drugs and high-technological diagnostics tests and underpaid for basic primary health care, and led providers to overprescribe drugs and diagnostic tests, resulted in a rapid increase in health expenditure and inappropriate treatment (panel 1).15, 16, 17 With little availability of insurance coverage, rapid increase in health costs made access to care difficult, leading to major public discontent over unaffordable health care and impoverishment because of medical expenses. In response, the Chinese Government committed to a new reform, promising an additional 850 billion Renminbi (US$123 billion) during the next 3 years to provide universal and affordable basic health care for its 1·3 billion population.13, 19

The incentive system has also seriously eroded professional ethics and practice norms in China, abetted by the changed status of physicians after 1949. Physicians became employees of hospitals, with hospital administrative control replacing professional self-regulation when the Communist Party came to power. Independent professional organisations were abolished. After the economic reform in the early 1980s, when public hospitals became underfunded and were given inappropriate incentives, they set their goals to garner revenues, pursue expansion of their facilities, and increase the sophistication of their medical technology. To generate profits to fund expansion in beds and technology, physicians working in hospitals were rewarded with bonus payments and promotions on the basis of the profits they produced. Physicians adopted increased earnings and improved medical sophistication as their personal goals. Thus the profit motives and incentives for hospitals and physicians became closely aligned. Professional ethics and norms that made the patient's benefit the highest goal were compromised as a result. This change in hospital and physician norms affected low-ranked health practitioners (eg, community health practitioners and village doctors) because they tend to do what physicians do.

The Chinese Government recognised that substantial new spending for health care alone would not necessarily provide accessible, affordable, and reasonable quality care to the Chinese citizens unless it reformed the incentive structure. The question is how to incentivise hospitals and physicians to practise medicine with the wellbeing of the patients as the main goal.

Unsure of which incentive reform would be viable and most effective, a strategy to experiment with several incentive reform programmes was initiated in China since the early 2000s. The central government encouraged city and local governments to design their own schemes and experiments, and various experiments have been launched. Local governments have designed their experiments to incorporate the lessons learnt internationally and also to address the particular challenges of China's health-care system. Overall, many experiments have three features in common.

First, the most innovative payment experiments in China, drawing on international lessons, changed from fee for service to payment methods that are aggregated and prospective, but include companion incentives, such as pay for performance and treatment protocols to assure that quality is improved, or at least not compromised. Although international experience shows that there is no single method of provider payment that is perfect, some generalisable lessons have been learnt.20, 21, 22 Fee for service, in which providers are retrospectively reimbursed for each service rendered, is inflationary. Methods of increased aggregated payment (eg, case-based payment per visit or admission, capitation per person covered, or global budget or salary per period) provide improved incentives to reduce cost, because providers' incomes do not increase with provision of more services within the payment unit. Payment methods with prospectively set rates are more likely to produce cost savings than are retrospective payment methods because financial risk is shifted from the payers (government, insurance, or individuals) to the providers. However, the unintended effects of aggregated and prospective payment methods are that providers will reduce quality, underprovide, and exclude sick patients. More recently, pay for performance, which links payment directly to quality of performance, has gained acceptance.23, 24, 25, 26, 27

Second, many experiments address difficulties that are unique to China as a result of the inappropriate incentive structure adopted in the 1980s, including providers' entrenched behaviour in overprescription of drugs and antibiotics, overuse of high-technological diagnostic tests, and a treatment pattern of expensive curative rather than basic primary care. In particular, not only is the overprescription of drugs costly, but it also has long-term negative health effects—eg, antibiotic resistance.28, 29

Third, like in many high-income and middle-income countries, an epidemiological transition is happening in China. While infectious diseases, such as tuberculosis, have not been completely eradicated in China, chronic diseases have already become the major disease burden.30, 31 China's top five disease burdens are cardiovascular disease, cancer, chronic respiratory diseases, diabetes, and other chronic diseases.30 Therefore, an incentive structure that encourages curative care is not suitable. Thus, incentives are being developed to motivate providers towards working on prevention and primary care of chronic diseases.

Here we review the experimental incentive reforms in China and the early experiences with improvement of efficiency and quality of health care, and control of health expenditure increase. Since many experiments are still being developed, this review can be neither exhaustive nor definitive. Additionally, the fundamental difficulty of eroded medical professional ethics has not been tackled in any of the experiments so far (table 1).

Section snippets

Overview

The Chinese Government explicitly set the goal of building a strong primary-care-based delivery system in community health centres in cities, and in township health centres, and in village clinics in rural areas.13 Panel 2 describes the background and functions of different facilities within China's health-care delivery system. However, with the traditional payment system, primary-care providers have incentives to focus on profitable activities such as prescribing diagnostic tests and drugs,

Pilot reforms in payment incentives for hospitals

The case-based payment method was most commonly used in Chinese provider payment experiments for inpatient services,41 whereby payment rates were set for each disease on the basis of its International Classification of Diseases code. In 2004, the Ministry of Health urged local governments to experiment with a case-based payment system.42 By 2007, such a scheme had been implemented in nearly 22% of 19 852 hospitals in China.41

There are several variations of this system with different incentives

Overview

In China, innovative methods have been used to control the widespread overprescription of drugs and diagnostic tests caused by the present payment system, and to confront the rising disease burden of chronic conditions like hypertension and diabetes mellitus. Although the many provider payment experiments that are in progress in China are encouraging, definitive conclusions cannot be drawn about how well these experiments have improved the quality and efficiency of health care because many are

Conclusions

In China, like in many countries, the inappropriate incentives embedded in the provider payment system have been recognised as creating inefficiencies, waste, and poor-quality health care, and compromising the goals of ensuring access to affordable, quality health care.31, 32, 33, 34, 57, 58 Rather than prescription of a new national policy, a strategy of experimentation with different payment methods for providers was chosen in China, accompanied with organisational changes to counteract the

Search strategy and selection criteria

We based our Review on reports (international and domestic), official documents, and our own work, and selected those experiments that are innovative in addressing the incentive issues in China. We searched PubMed, Google Scholar, and China Knowledge Resource Integrated Database for articles and research published mainly in the past 5 years; we also included cross-references, landmark or highly regarded references, and references on the basis of comments from peer reviewers. We restricted

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