New Directions in China's Latest Public Hospital Cost-Control Guidelines: A Shift Toward Precision, Digitalization, and Systemic Reform

On November 6, 2015, the National Health and Family Planning Commission, the National Development and Reform Commission, the Ministry of Finance, the Ministry of Human Resources and Social Security, and the State Administration of Traditional Chinese Medicine jointly formulated and officially issued the “Notice on Several Opinions Regarding the Control of Unreasonable Growth in Medical Expenses at Public Hospitals.”

In accordance with the notice requirements, the national phased targets for cost control are as follows: by the first half of 2016, all regions shall, based on local conditions, preliminarily establish a monitoring system for medical expenses in public hospitals, thereby initially curbing the unreasonable growth trend of such expenses; by the end of 2017, sound mechanisms for monitoring and assessing the control of medical expenses in public hospitals shall be progressively established and improved, and the proportion of out-of-pocket expenditures in the total medical expenses of insured patients shall be gradually reduced.Cost control in public hospitals is moving toward greater depth, granularity, and stringency, leveraging social forces and information technology.

Comprehensive measures adopted to control medical costs mainly include:

Standardizing the Clinical Practice of Medical Personnel—Implement tracking and monitoring of antibiotics, adjuvant drugs, traditional Chinese medicine decoction pieces, conventional pharmaceuticals, and medical consumables; specify the number of drug varieties and specifications subject to key monitoring; improve the comprehensive clinical medication evaluation system with essential medicines as the focus; strictly enforce clearly marked pricing and transparent itemized billing for medical expenses; and establish a personnel compensation system aligned with the characteristics of the healthcare industry. It is strictly prohibited to set revenue-generation targets for medical staff, and individual compensation for medical personnel must not be linked to hospital business revenues derived from pharmaceuticals, consumables, or diagnostic and therapeutic services involving large-scale medical equipment.

Strengthening Internal Control Systems in Healthcare Institutions——Strengthen budget constraints, enhance cost accounting in public hospitals, and explore the establishment of a cost information database for medical institutions. Leverage information technology to improve refined management in public hospitals across areas such as medical records, clinical pathways, pharmaceuticals, consumables, expense audits, finance, and budgeting. By 2017, aim to reduce the consumption of sanitary materials per RMB 100 of medical revenue (excluding pharmaceutical revenue) in pilot-city public hospitals to below RMB 20.

Strictly Control the Scale of Public Hospitals—Reasonably control the scale of beds in public hospitals, and strictly prohibit the unauthorized addition of beds. Strictly implement the planning for the allocation of large-scale medical equipment. Public hospitals are strictly prohibited from incurring debt for construction, and construction standards must be strictly controlled.

Reducing the Inflated Prices of Pharmaceuticals and Medical Consumables——Implement classified drug procurement. Leverage the advantages of bulk purchasing through tendering and procurement conducted by provincial-level drug procurement agencies. Establish an open, transparent, and multi-stakeholder price negotiation mechanism for certain patented drugs and exclusively manufactured drugs. Implement transparent (“sunshine”) procurement for high-value medical consumables, and encourage the procurement of domestically produced high-value medical consumables while ensuring quality. Strictly investigate and punish commercial bribery in the purchase and sale of drugs and medical consumables.

Advancing the Reform of Health Insurance Payment Methods—Strengthen the budgeting for the revenue and expenditure of medical insurance funds, establish a composite payment system dominated by diagnosis-related group (DRG) or disease-based payments, supplemented by capitation and per-service-unit payments, and gradually reduce fee-for-service payments. Encourage the implementation of Diagnosis-Related Group (DRG)-based payment. On the basis of standardizing day-case surgeries and non-pharmacological Traditional Chinese Medicine (TCM) diagnostic and therapeutic techniques, gradually expand the scope of medical insurance coverage to include more day-case surgeries, in-house TCM preparations developed by medical institutions, acupuncture, and therapeutic tuina massage, among other non-pharmacological TCM techniques.

Transforming the Compensation Mechanism for Public Hospitals——Abolish the mechanism of subsidizing healthcare institutions with drug profits, streamline medical service pricing, reduce prices for examinations and treatments using large-scale medical equipment, and reasonably adjust and increase medical service prices to better reflect the technical and labor value of medical personnel. Establish a dynamic price adjustment mechanism based on changes in cost and revenue structures. Create fiscal space for adjusting medical service prices by reducing costs of drugs and consumables and strengthening cost control.

Building a Tiered Diagnosis and Treatment System——Optimize the structure and distribution of medical resources, promote the decentralization of high-quality medical resources to grassroots levels, enhance primary care service capacity, rationally define the functional roles of medical institutions at all levels and of various types, and improve mechanisms for division of labor and collaboration. Develop patient-centered guidelines for tiered diagnosis and treatment, and comprehensively employ administrative, health insurance, pricing, and other measures to establish a tiered healthcare delivery model characterized by initial consultations at the primary care level, two-way referrals, separate management of acute and chronic conditions, and coordinated care between upper- and lower-level institutions. This approach aims to guide patients toward appropriate healthcare-seeking behavior and improve the efficiency and overall effectiveness of medical resource utilization.

Implementing Nationwide Health Promotion and Health Management——Strengthen the prevention and control of chronic diseases, improve the performance of basic public health services and major public health service programs, implement a national health promotion strategy, and control the growth of disease prevalence and medical expenses from the source.

The above outlines the recently proposed guidelines on controlling healthcare institution costs. In fact, as early as February 2011, the General Office of the State Council issued the “Arrangements for Pilot Reforms of Public Hospitals in 2011” (Guo Ban Fa [2011] No. 10), which set forth explicit requirements for cost containment. Subsequently, in December of the same year, the Press Office of the Ministry of Health held a regular press conference to summarize the progress of cost control measures in public hospital reforms. At that time, in response to the demands of deepening reforms, various regions across China primarily adopted the following approaches:

Set Cost-Control Targets and Assign Responsibility for Cost Containment——First, incorporate cost-control performance into the annual comprehensive target assessment for medical institutions. Second, sign responsibility agreements on cost control with hospitals to ensure the implementation of cost-control tasks. Third, link cost-control efforts to the performance evaluation, rewards and penalties for hospital directors, as well as subsidies provided to medical institutions.

Strengthening Internal Hospital Management——First, education and training are conducted. Across the country, enhancing the professional ethics and conduct of medical personnel is widely regarded as a priority. Extensive training on laws and regulations is provided to strengthen awareness of lawful practice. Second, in accordance with the unified deployment of the Ministry of Health and considering local conditions, clinical pathway management is implemented, prescription reviews are carried out, medical practices are standardized, and unnecessary diagnostic and therapeutic activities are controlled. Third, the system for public disclosure of healthcare service information is improved by regularly releasing outpatient and inpatient cost data to the public and proactively accepting social oversight. Fourth, service delivery models are innovated by optimizing service processes, promoting day surgery, and guiding patients to utilize outpatient services, thereby reducing average length of stay and lowering medical expenses. Fifth, building on the implementation of the new financial accounting system, cost accounting is strengthened, cost control is reinforced, resource utilization efficiency is improved, and waste is reduced.

Reducing the Cost of Healthcare Service Factors——First, advance and refine the centralized volume-based procurement system, strictly investigate and address misconduct in pharmaceutical purchasing and sales, and reduce the procurement costs and prices of drugs and medical devices. Second, strictly enforce the access approval system for large-scale medical equipment. Third, promote the use of appropriate technologies and prioritize the use of essential medicines to enhance the appropriateness of medical services. Fourth, on the basis of strengthening quality control, gradually implement mutual recognition of examination and test results among medical institutions at the same level to reduce redundant testing.

Improve the Incentive and Constraint Mechanism——In terms of strengthening regulatory oversight, first, inspection and supervisory management will be reinforced. Second, an early-warning monitoring system will be implemented to conduct dynamic monitoring and issue alerts for abnormal patterns in drug utilization by medical institutions and healthcare professionals, with focused monitoring on the quality and costs associated with key departments and major disease categories. Third, the promotion of rational drug use and appropriate treatment will be advanced. Fourth, oversight of financial revenues and expenditures in public hospitals will be strengthened, requiring that all financial transactions and accounting be centrally managed by the finance department. Regarding reforms in payment methods, approaches such as diagnosis-related group (DRG) payment, capitation, and global budgeting are being explored to encourage hospitals and healthcare professionals to proactively control costs. In improving incentive and constraint mechanisms for healthcare professionals, various regions are actively exploring reforms in internal hospital distribution systems, emphasizing that internal compensation should reflect the principles of “more pay for more work” and “higher pay for better performance.”

Transforming the Healthcare Delivery Model——Across various regions, efforts have been widely made to strengthen the hardware and software capabilities of primary healthcare institutions through support in talent, technology, and equipment. Concurrently, medical insurance reimbursement policies have been adjusted, and standards for two-way referrals have been established to promote initial diagnosis at the primary care level and implement a tiered healthcare system, thereby reducing medical and pharmaceutical costs.

What are the key areas of focus compared to previous iterations?

Controlling costs in public hospitals has long been a key focus of healthcare reform. In recent years, relevant ministries and commissions have issued guidance documents emphasizing key performance indicators for cost control in public hospitals. VCBeat compared the latest 2015 guidelines on cost control with the initial indicators released in 2011, as well as previous policy information, revealing changes in several areas that reflect policy trends and warrant careful consideration.

Emphasize the role of information technology in cost control.In terms of cost accounting in public hospitals, greater emphasis will be placed on leveraging information technology to achieve refined management of medical records, clinical pathways, pharmaceuticals, consumables, expense auditing, finance, and budgeting. Previously, the focus was solely on key monitoring and unified management, without proposing the adoption of information technology for implementation.

Controlling the scale of public hospitals means encouraging private capital to invest in healthcare.Propose strict control over the scale of public hospitals. Strictly regulate the bed capacity of public hospitals and prohibit unauthorized expansion of beds. Rigorously implement planning for the allocation of large-scale medical equipment, and forbid financing healthcare operations through debt.

Emphasize the abolition of the drug-revenue-subsidized medical practice mechanism and rationalize medical service pricing,Reduce the prices of medical equipment examinations and treatments, lower the costs of pharmaceuticals and consumables, increase the pricing that reflects the labor and technical expertise of medical personnel, and adjust medical service prices.

Place greater emphasis on controlling disease occurrence at its source.Emphasize strengthening the prevention and control of chronic diseases, and implement national strategies for health promotion and health management.

Current enforcement of medical cost-control measures has been strengthened; in terms of internal hospital management, such practices are no longer merely subject to warnings but are strictly prohibited.For instance, while previous efforts relied on education and training to enhance the professional ethics of healthcare workers, strengthen their legal awareness, and promote self-regulation of conduct, current policies explicitly mandate strict adherence to clearly marked pricing and transparent itemized billing for medical expenses, and strictly prohibit the establishment of revenue-generation targets for healthcare personnel.

Current medical cost-control guidelines have become more detailed, with the generalized requirements from four years ago now highlighted separately for emphasis.For instance, it emphasizes the implementation of provincial-level centralized drug procurement through bidding, the adoption of transparent procurement practices for high-value medical consumables, and the establishment of an open, transparent, and multi-stakeholder price negotiation mechanism for certain specialty drugs. Additionally, it specifically proposes the construction of a tiered diagnosis and treatment system.