Healthcare Reform Case Study: Learning from Shenzhen's Bold but Stalled Personnel System Overhaul
Generally speaking, the direct cause for reform is that the old system is ill-suited to the new environment. As the executor of the old system, if the government remains conservative or short-sighted and fails to shift its mindset, reform becomes difficult—much like a train: if the locomotive does not move, the entire train remains stalled. Precisely for this reason, the government also becomes the scapegoat; when reforms stumble, public opinion is quick to cast blame.
The leadership is undoubtedly of paramount importance; however, the old system is by no means a castle in the air. The existing interest structure has encompassed countless members across all levels of society. Since losses are often accompanied by gains, there are calculations, concerns, and attachments. When reforms require self-inflicted cuts, the collective resolve to advocate for change may waver. Seeking stability and muddling through have become deeply entrenched mindsets that are difficult to alter.
For reforms to succeed, they require policy support, vigorous government implementation, and concerted efforts from all sectors of society. In 2015, Shenzhen took the lead in abolishing the public institution staffing system (shiye bianzhi) for public hospitals, thereby driving reform of the personnel management system. What were the specific challenges involved? Starting today, our official WeChat account is launching a new column titled “Healthcare Reform Case Studies.” Let’s listen to the insights gathered by our team members following their on-site research.
Central government documents on healthcare reform have repeatedly called for “the establishment of a personnel and compensation system tailored to the characteristics of the healthcare industry.” Achieving this goal hinges on core reforms to the personnel system. Without a freely mobile healthcare workforce and a physician labor market that allows for flexible entry and exit, it is difficult for the government to establish clear benchmarks for setting salaries for physicians who remain tied to their employing institutions (“danwei”). Meanwhile, the fact that the vast majority of physicians are still affiliated with public medical institutions as “danwei” employees constitutes the biggest barrier to the development of privately run healthcare services and to driving further reform of public hospitals.
Although the central government has introduced the concept of “multi-site practice for physicians,” allowing doctors to practice outside their primary employing institutions in hopes of transitioning toward “independent practice,” the entrenched identity of physicians as “institutional employees” continues to hinder progress. Consequently, most physicians still opt for illicit “moonlighting” rather than engaging in lawful multi-site practice.
Shenzhen’s personnel system reform plan, introduced in May 2015, took the lead in abolishing the public institution staffing quotas (shiye bianzhi) for public hospitals, setting a precedent nationwide. It represented the most substantial effort within the scope of local government authority to support physicians’ multi-site practice and even free practice, with relevant mechanisms established across multiple systems to provide safeguards. However, due to the lack of relaxation in central government policies and the difficulty in reconciling entrenched interest structures, the implementation of this otherwise sound reform plan faced significant obstacles. During our field research in Shenzhen in early November 2015, we learned that the reform had been temporarily suspended owing to substantial opposition.
How Shenzhen’s Reforms Stumbled: A Case for Careful Examination, Reflection, and Summary. Local governments’ exploratory efforts provide empirical experience for the central government’s top-level design, while the central government’s supportive measures are even more critical for localities.
Although it is widely recognized across various sectors and regions that a core factor hindering the reform of public hospitals and the development of private healthcare is the staffing quota system for public institutions, few regions have dared to introduce policies to abolish this system and advance reforms over the past six years.
On the one hand, physicians are constrained by their status within the public institution staffing system (bianzhi) and remain attached to the suite of benefits and protections associated with this status, which hinders their mobility and prevents them from serving as a primary force in driving reform. On the other hand, the entrenched interest structures have led the medical community to become a source of opposition to these reforms.
In 2013, more than 80% of physicians across China practiced in public medical institutions. Even in Shenzhen, a city with a relatively open policy toward privately run healthcare facilities, nearly 70% of physicians were concentrated in public medical institutions. The absolute dominance of public institutions within the healthcare system is self-evident.
Some regions, such as Beijing, have proposed transitional measures—for example, exploring a mechanism whereby the authorized staffing quota is reduced as incumbent staff retire, with no new quotas added—but these measures have not yet been formally implemented. Shenzhen’s current reform package is notably more robust compared with those adopted elsewhere. According to the “Implementation Plan for Deepening Comprehensive Reform of Public Hospitals in Shenzhen,” issued in May 2015, in addition to freezing the existing authorized staffing quotas at public hospitals and denying newly hired physicians any established-staff status, the plan also introduces regional physician registration (abolishing the previous requirement that physicians register with a specific institution), discontinues the use of authorized staffing quotas in public hospitals, and eliminates administrative rank classifications.
Under this policy, physicians licensed to practice in Shenzhen are permitted to legally provide medical services at any healthcare institution across the city, adhering to the principle of “unified registration, citywide validity.” The relationship between physicians and healthcare institutions is no longer bound by the traditional “institution-affiliated” model; instead of being required to work full-time for a single institution, physicians can negotiate specific terms with institutions, including working hours, scope of practice, compensation, and allocation of medical liability.
Regarding the specific compensation system, Shenzhen aims to promote a model in which public hospital physicians are rewarded based on workload and performance quality. Through contractual and flexible appointment mechanisms, hospitals are permitted to determine physician compensation flexibly, thereby enhancing personnel incentives. Compensation distribution plans are no longer required to comply with the pay structure for public institutions; instead, they adhere to the national principle of “separation of regulation and operation.” Under this framework, hospitals submit their compensation plans to the Public Hospital Management Center (hereinafter referred to as the “Medical Management Center”) for review, followed by approval and implementation by the hospital’s council. The president’s compensation is formulated by the Medical Management Center, with actual earnings linked to the center’s performance evaluation of the president.
Corresponding supporting measures for this reform have also been introduced successively, covering multiple areas such as fiscal policy, old-age security, promoting the development of privately-run medical institutions, establishing a new industry evaluation system, and strengthening regulation.
First, fiscal funding is decoupled from the staffing quotas of public hospitals. The previous method of calculating fiscal compensation based on personnel quotas has been completely abolished. The government no longer provides “unconditional financial support” to public hospitals; instead, it has adopted a fiscal subsidy mechanism that combines activity-based funding, service purchasing, and special-purpose subsidies. This approach incentivizes hospitals to deliver more and higher-quality services while reducing the psychological dependence of permanently staffed personnel on fiscal compensation.
Secondly, to align with the national pension policy for public institutions, public hospitals nominally continue to implement the current national post-based performance wage system for public institutions, thereby facilitating pension insurance contributions and helping public hospitals smoothly navigate the transitional phase.
Third, vigorous efforts should be made to encourage the development of non-public medical institutions. This includes gradually lifting restrictions imposed by regional health planning on the number and location of non-public medical facilities starting from 2013, enhancing the autonomy of social forces in establishing medical institutions, promoting the development of social healthcare models such as chain clinics, and even providing fiscal subsidies to non-public medical institutions to foster fair competition between public and non-public entities. For social capital investing in tertiary hospitals that meet specified investment scale requirements, the government will allocate medical land through tender, auction, or listing processes, and provide one-time fiscal subsidies based on hospital tier and bed count. Meanwhile, starting from 2016, the government plans to provide fiscal subsidies to non-public hospitals for basic medical service volumes comparable to those provided by public hospitals, effectively constituting a government purchase of services.
Fourth, establish a “Technical Grade Evaluation Index System for Clinicians” to serve as a reference standard for physician recruitment, position appointment, and performance-based salary distribution. In contrast to the rigid professional title evaluation and appointment systems prevalent in other regions across China, this system prioritizes the assessment of clinicians’ practical medical proficiency. By taking into account factors such as job responsibilities, technical complexity, liability risks, work quality, and workload intensity, it seeks to genuinely develop a performance appraisal and compensation distribution framework that is “adapted to the characteristics of the healthcare industry.” Furthermore, it encourages physicians to build their personal reputation, practice self-regulation, and uphold professional self-discipline within the industry.
Fifth, in terms of strengthening supervision, a system of medical insurance physicians shall be established. Regardless of where a physician practices, any violation will result in the revocation of their individual qualification to issue medical insurance prescriptions, thereby creating strong regulatory oversight and deterrence for physicians.
Given the Shenzhen Plan’s distinct features and robust measures, we conducted a field study in Shenzhen in November 2015, six months after its introduction, to assess its implementation progress and identify practical challenges. Our findings revealed that despite extensive coordination efforts to facilitate on-the-ground execution, the plan still faced significant implementation hurdles.
The difficulties mainly stem from the following aspects.
First, the implementation of the policy triggered a relatively pronounced “talent depression” dilemma in the short term. Although Shenzhen is an economically developed region, it has failed to establish a top-tier medical school for many years. The city has only one local institution, the Medical School of Shenzhen University, which was founded in 2008 and remains underdeveloped. Consequently, Shenzhen’s healthcare workforce has primarily relied on recruitment from other regions. Given that other regions retain public institution staffing quotas (bianzhi) while Shenzhen does not, outstanding medical students are more inclined to choose Guangzhou and other similarly economically developed areas over Shenzhen. Furthermore, healthcare professionals who have already secured staffing quotas in other regions find themselves without channels or quota security when attempting to transfer their positions to Shenzhen.
During the survey, directors of public hospitals generally reported that the abolition of the bianzhi (staffing quota) system has increased the difficulty of hospital recruitment this year. Some talents who had already confirmed their relocation to Shenzhen withdrew their acceptance upon learning that no bianzhi would be offered, and are no longer willing to practice medicine in Shenzhen. Although Shenzhen’s social security system is relatively well-developed, it will take time for non-local professionals to accept the absence of the bianzhi system.
Secondly, in accordance with Shenzhen’s own positioning and planning, the city is currently in a period that requires the large-scale introduction of medical talent. The absence of established public institution staffing quotas (shiye bianzhi) has significantly reduced its appeal to talent, thereby hindering the implementation of Shenzhen’s health development plan. The Shenzhen Municipal Government believes that although Shenzhen’s population structure is currently young, in the long term, given the city’s level of economic and social development, it is still necessary to cultivate high-quality, high-level clinical medical services. Specific measures include funding from the Shenzhen municipal finance to build several Grade 3A hospitals, which will be placed under the management of top-tier medical universities and their affiliated hospitals from other regions of China. Under this plan, Shenzhen must add at least ten thousand hospital beds over the next five years. However, once these hospitals are built, where will the doctors come from? This concern has led some government officials to lean toward rolling back the reforms.
Third, policy adjustments can be implemented overnight, with new regulations taking effect immediately; however, shifts in mindset require a transitional period and cannot yield instant results. For example, when the finance department decoupled fiscal appropriations from staff headcount quotas, it calculated the purchasing standards for converting personnel expenses into service procurement fees based on historical funding levels, and allocated funds to hospitals accordingly. However, our interviews revealed that management teams at public hospitals generally believe that these funds, labeled as “service procurement,” are essentially no different from the previous per-capita staffing-based appropriations—they are merely a change in nomenclature. As long as there are still staff members with established headcount quotas, the government should remain fully responsible for their funding.
For another example, once doctors become mobile “market players” with the right to choose their healthcare institutions, it poses a challenge to hospital directors’ management capabilities. How to improve hospital management, enhance attractiveness to talent, and prevent the loss of existing staff has become an issue that every director must consider. However, this is precisely the “knowledge blind spot” for most public hospital directors, leading many of them to firmly oppose such changes.
Opposition from the medical community also exists. Previously, public hospitals in Shenzhen already employed a certain proportion of non-tenured staff. The implementation of the reform means that tenured and non-tenured personnel must move toward equal status and equal pay for equal work, which some find unacceptable.
Fourth, top-down administrative reforms often require coordination and cooperation across multiple departments. Even at the central level, it is no easy task for multiple ministries to work in concert to advance a specific reform, let alone at the local level. Particularly when central policies have yet to be adjusted, local departments are naturally fraught with concerns.
As a special economic zone city under the jurisdiction of Guangdong Province, Shenzhen has limited administrative authority. The current reform plan involves changes to the compensation system in public hospitals, which naturally raises the issue of how the human resources and social security departments should adjust their regulations on total wage bills. However, this aspect has been deliberately left vague by local authorities due to concerns about being held accountable for violating national regulations. Furthermore, allowing medical institutions to set flexible salaries based on physicians’ performance and competencies also hinges on whether flexible pricing can be applied to services of varying quality at the point of care. The authority to determine whether specialists with annual salaries of RMB 500,000 and those with RMB 300,000 can charge different fees rests with the National Development and Reform Commission; Shenzhen lacks the jurisdiction to implement reforms in this area.
It can be said that, despite Shenzhen’s design of multiple supporting policies, it remains largely constrained by existing national policies, which has prevented local authorities from taking bold steps and exploring innovative approaches. Amidst these overlapping dilemmas, Shenzhen ultimately decided to “suspend” the reform. In November 2015, personnel recruited through public hiring at municipal public institutions such as Shenzhen People’s Hospital and Shenzhen Children’s Hospital still included those with “bianzhi” (state-established staffing quotas).
Regarding Shenzhen’s current reform plan, the city enjoys uniquely favorable conditions for reform. With a robust local economy and ample fiscal resources, its social security fund faces no operational burden or sustainability pressure, thanks to a relatively young demographic structure. This fiscal strength allows the government to increase investment—without diminishing existing vested interests—to support privately run medical institutions and physicians’ independent practice, thereby driving reforms of the existing system through incremental changes.
In terms of its design, the plan can be said to be quite comprehensive within the limited scope of local administrative authority. Whether it is the promotion of hospital directors’ professionalization and doctors’ socialization driven by the plan itself, or the supporting measures from relevant departments such as finance and human resources and social security, every effort has been made to reduce resistance to reform. While minimizing disruption to vested interests, the plan incentivizes all parties to improve and refine their practices, thereby sharing the dividends of reform. Its evaluation system for physicians, based on clinical competence, is leading nationwide and demonstrates far-sighted vision.
If this framework is successfully implemented, a significant structural shift will naturally emerge: diversified incentive and performance assessment mechanisms, coupled with intensifying market-driven competition, will enable the government to implement classified management of healthcare resources, thereby liberating it from previously rigid and burdensome administrative control. For hospitals, the external competitive environment will heighten their awareness of improving management and attracting talent, prompting them to proactively deliver better services to both physicians and patients. For physicians, a transparent evaluation system will incentivize continuous improvement in clinical expertise, allowing them to receive market-based compensation commensurate with their professional value, thus establishing a “personnel and compensation system adapted to the characteristics of the healthcare industry.”
However, in practice, new hires at local public hospitals are still granted bianzhi (state-approved staff quotas), meaning the reform plan remains unimplemented and its original objectives unfulfilled. This is not an issue confined to Shenzhen alone. More importantly, the central government should consider how to provide robust support to regions that are boldly exploring and pioneering reforms during the current period of economic and social transition. Such support would help alleviate the layered concerns of local officials who are willing to take initiative, perform well, and accomplish more, thereby creating new space for reform and transformation.
First, the central government should explicitly encourage Shenzhen to continue boldly advancing reforms based on its existing plans, allowing local authorities to make innovative attempts to adjust certain current central regulations (such as price controls and total wage bills) as needed for reform, thereby strengthening local confidence in persisting with deepened reforms despite short-term challenges such as “talent depressions.”
Second, dynamically track the progress of reforms in Shenzhen and proactively guide public opinion to gradually foster a social consensus that emphasizes “innovating personnel mechanisms” as an alternative to “abolishing public institution staffing quotas.”
Third, summarize the experiences and issues encountered in the ongoing reform process in Shenzhen. The central government should also coordinate and improve existing regulations that pose significant obstacles to local reforms, as appropriate. Only when personnel system reform is implemented nationwide can pioneer regions avoid pitfalls such as becoming “talent depressions.” This represents the ultimate significance of local explorations driving national reform.
Source:Center for Public Policy Research, Chinese Academy of Social Sciences(WeChat ID: publicpolicycass)
Authors: Zan Xin, Lin Qiqing