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Reforming China’s Rural Health System
Not all supply-side subsidies should, however, be redirected to the “demand side,” or at least not to NRCMS. It is important that institutions with public health responsibilities have sufficient resources to deliver or purchase key interventions. Currently, around Y 15–20 per person is spent by government on public health in rural areas, with nearly the same amount financed out of pocket.49 Chapter 7 discusses government expenditures on public health in some depth; suffice it to say for the moment that a reasonable share of the government’s total health expenditure ought to be put aside for public health, and not transferred directly to NRCMS. Arguably, supply-side subsidies for equipment purchases and construction—that is, capital expenditures—also should be kept, at least for the time being. In the United States, it took a decade for capital costs to be included in Medicare’s DRG system (Eggleston and Hsieh 2004), and countries with advanced social health insurance systems like the Netherlands are still struggling with how to do it. This is coupled with the fact that policy makers are naturally nervous about closing facilities. The fact that recurrent and capital budgets cannot rationally be divorced from one another altogether probably explains, at least in part, why redirecting supply-side subsidies toward the demand side, in practice, takes time. In Colombia, for example, despite the fact that such a shift was an explicit policy objective of the 1993 reform, the shift has been slow. A final reason often given for retaining supply-side subsidies is to cover fixed costs that cannot be avoided. The obvious example is the cost of paying the salaries of retirees. Ideally, however, proper pension arrangements will be made to handle these costs, which can then be passed on to another government budget. Clearly, in such cases, if the costs are passed on to other budgets, it is likely there will need to be at least some contribution from the health budget. Ideally, however, these would be one-off payments, perhaps subsidized by central government.
Converting NRCMS into a “Purchaser” Expanding the NRCMS budget is a necessary condition for making health care more affordable in China. But it is not a sufficient one. NRCMS needs to do more to address a key reason why health care is becoming unaffordable, namely the tendency of providers to think more about financial returns than patient needs in deciding what kind of care to deliver. Schemes need to change how they interact with providers,