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UPDATED: May 12, 2014 NO. 20 MAY 15, 2014
Should Medical Price Controls Be Relaxed?


Recently, China's National Development and Reform Commission issued a notice in conjunction with the National Health and Family Planning Commission as well as the Ministry of Human Resources and Social Security, announcing the decision to relax price controls on private hospitals so as to encourage the private sector's involvement in the building of health institutions. The move is also hoped to bring market-based pricing mechanisms into play, so that private organizations will be given more leeway to charge what they want for medical services.

Official figures show that public hospitals, which totaled 13,440 by the end of October 2013, provided 90 percent of China's medical services. There were about 10,877 private medical institutions, including clinics and hospitals, on the Chinese mainland by the end of October 2013, which provided the remaining 10 percent.

The announcement has led to speculation among the public. Is it a signal that private hospitals will be able to inflate their prices? If so, it may make medical services even more difficult to access. The following are excerpts of opinions:

Liu Guo'en (China Economic Weekly): There are now two major problems facing the Chinese public in terms of medical services: one is the insufficient supply and the other is public hospitals' practice of subsidizing their services with overly expensive drug prescriptions. The best solution to these problems is to relax control over medical services and let the market play a larger role in deciding prices.

The government interferes less in private hospitals concerning the pricing of medical services, doctors' salaries and the price of drugs, in comparison to public hospitals. In spite of the fact that China is not yet home to a large number of private hospitals, a relaxation of price controls in private hospitals can also have an impact on society. The small numbers of private medical institutions in China are actually a result of tight control over the market and pricing. Relaxed controls and more flexible policies can encourage the development of private medical institutions.

For example, in public hospitals, a surgical operation on the appendix is priced at 2,000 yuan ($317.5), and due to tight price controls, private hospitals often choose not to do this operation. As a result, patients have to queue up outside public hospitals when they need this procedure. After the price controls are relaxed, if the same operation costs 4,000 yuan ($634.9) in non-public hospitals, there will be an explanation from these hospitals as to why it is set at this price. Maybe they provide a better environment and shorter waiting times for example.

Li Yin (Science and Technology Daily): In recent years, patients have had difficulties in accessing good medical services at public hospitals. The fundamental reason is a shortage of medical resources, as almost all of the best resources are controlled by the largest public hospitals. As a result, patients have to rush to these hospitals if they have ailments of any kind.

Relaxing price control over private hospitals' medical services means encouraging private capital to invest in the building of medical institutions, so as to increase the medical resources available to the public. It also means promoting the reform and development of public hospitals.

The relaxing of price controls will help to stimulate the development of mid-range and high-end medical markets. Nowadays, many patients are eager to use good medical services, which are in most cases still unavailable. When price controls are relaxed, private hospitals will be encouraged to offer better medical services.

It is reasonable to assume that the relaxed price controls will not lead to price hikes for medical services at private hospitals in the short term, because they are still unable to compete with big public hospitals in terms of sophisticated medical techniques. For them, raising service prices would turn away many potential customers.

As far as patients are concerned, when choosing which hospital to go to, they will first compare the credibility of hospitals and then examine the cost. Therefore, if private hospitals want to compete with public hospitals, they have to improve their services, instead of first raising service prices.

Of course, relaxing price controls at a time when overall medical resources are still limited is risky. Therefore, every step must be taken carefully.

Zhuang Yiqiang (China Economic Weekly): In response to the relaxing of price controls, some private hospitals may raise their prices, but surely not all private hospitals will do so. If prices are beyond the public's affordability, no one will come.

Besides, most private hospitals are now not strong or competitive enough in terms of medical technologies, so they will not risk losing patients through increasing prices. If these hospitals want to make more money, they have to offer more customized services of higher quality. It's natural for patients to pay more for better services.

If all hotels charged the same, then all people would all rush to five-star hotels, which would become overcrowded and then suffer from a decline in services. However, when hotels at different levels are free to charge differently, different groups of people can decide what hotels to reside in according to their economic capability.

Chen Guangjiang (Shandong Business Daily): To relax controls over private hospitals' medical services means encouraging private capitals to get involved in the building of medical institutions. This means market rules will play a bigger role in distributing resources. This is undoubtedly a well-intended policy, but what the public is most concerned with is whether this policy will really make it easier for them to get treatment.

The concern for hospitals scrambling to introduce arbitrary price increases is groundless. So far, it is the authority's excessive interference that has led to various conflicts and problems. The market is not given enough of a chance to play a role in balancing relations and interests. Big public hospitals have a near monopoly over medical resources. Once private medical institutions become involved, medical resources won't be monopolized by certain groups and the market will be able to play a bigger role in distributing resources more evenly.

At the end of 2013, public hospitals and non-public hospitals in China stood at 13,440 and 10,877, respectively. However, the proportion of patients received by the two is nine to one. As a result, public hospitals are "overly fed," while private hospitals feel "starved," which inevitably leads to the difficulty for the public in getting good medical services.

The biggest concern now is whether the policy of encouraging private investment in medical institution building can be put into tangible practice. This reform, like any other practices, will surely affect vested interest groups, and thus the difficulty is predictable.

To relax price control is only the first step and there is still a long way for the market to play a big role in distributing medical resources.

Email us at: zanjifang@bjreview.com

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