Dr. Eric Chong: Incentivizing Hospitals Is Key to Successful Tiered Diagnosis and Treatment Reform

Author Profile: Professor Zhuang Yiqiang (Dr. Eric Chong) was one of the earliest Hong Kong professionals to enter the Chinese pharmaceutical market in the 1980s. He previously held senior management positions, including National Marketing Director, at internationally renowned pharmaceutical companies such as Merck & Co., Novartis, and AstraZeneca. He currently serves as President of iBerry Management Consultants Ltd. This article is published with the author’s authorization.

Difficulties in registering for medical consultations, excessive work pressure on physicians, limited doctor-patient communication, and violence against healthcare workers… Many of the current problems in China’s healthcare system are closely linked to disordered patient-seeking behavior. This disorder is not isolated; it has caused nationwide chaos. Patients who can access tertiary hospitals never stay at county-level hospitals, and those with the means to seek care in major cities invariably flock to Beijing, Shanghai, and Guangzhou to consult specialists. Some have even jokingly summarized the phenomenon as “the entire nation rushing to Peking Union Medical College Hospital for medical care.” The tiered diagnosis and treatment reform, repeatedly emphasized since the launch of the new healthcare reform, aims to address this very issue.

Currently, many regions are exploring the implementation of tiered diagnosis and treatment, but their reform initiatives differ in rationale, leading to varying outcomes and challenges.

In some regions, reforms are patient-centered, aiming to alleviate the difficulty ordinary people face in accessing medical care and enabling them to receive high-quality treatment close to home. When implementing tiered diagnosis and treatment from the patient’s perspective, it is essential to avoid two potential scenarios: first, that patients encounter greater inconvenience in seeking medical care after the implementation of tiered diagnosis and treatment due to issues in the planning and configuration of medical institutions; second, that although patients receive care locally, primary healthcare facilities lack the capacity to provide effective treatment. Should either of these situations arise, the reform plan would need corresponding adjustments and refinement.

Some regions have approached the implementation of tiered diagnosis and treatment primarily from the perspective of hospitals, aiming to reduce the enormous workload at large hospitals caused by disordered patient flows and to break the vicious cycle of continuous expansion at large hospitals alongside shrinking outpatient services at smaller ones. Indeed, this is one of the intended goals of tiered diagnosis and treatment. Disordered healthcare-seeking behavior has led to an unbounded increase in physicians’ workloads at large hospitals, resulting in excessive fatigue, compromised medical safety and service quality, declining patient satisfaction, and frequent doctor–patient conflicts. However, in practice, the current pricing mechanism for public hospital services is not conducive to advancing the tiered diagnosis and treatment model. Because prices for public hospital services are set excessively low, public hospitals are compelled to adopt a “low-margin, high-volume” operational strategy, which depends on maintaining very high patient volumes. If public hospitals do not shift their operational mindset, the substantial reduction in patient numbers following the implementation of tiered diagnosis and treatment would significantly impact the revenue of large hospitals, potentially turning them into obstacles to the successful rollout of the tiered system.

Of course, it cannot be ruled out that some local government departments, driven by officials’ performance metrics, treat tiered diagnosis and treatment as a “vanity project” for reformers. Reforms undertaken with such a mindset tend to be mere formalities, lacking substantive impact.

The characteristics of China’s social governance dictate that the government is often the primary driver of reform. Specifically, in the case of the tiered diagnosis and treatment system reform, the government (including relevant governmental departments) is likely the sole driving force. As the exclusive promoter of this reform, the government wields three key instruments: administrative measures, market-based mechanisms, and price levers.

From practices across various regions, administrative measures are clearly the most “convenient” tool employed by reformers. However, it is important to note that local officials should avoid rushing for quick results and pursuing grandiose achievements in their drive for political performance. This tendency often manifests in the issuance of numerous administrative orders that mandatorily restrict patients to initial consultations at primary care facilities. When the capacity of primary healthcare services has not been correspondingly enhanced, it objectively fails to meet patients’ medical needs, and the forced implementation through administrative means tends to produce adverse consequences.

In addition to administrative measures, the government can also leverage market-based mechanisms by enabling patients to “vote with their feet” through competition among hospitals. Furthermore, the government can utilize price levers, in coordination with medical insurance authorities, to guide patient triage by finely adjusting reimbursement rates across healthcare institutions at different levels. These three approaches must be implemented in a coordinated manner, as each is indispensable.

Promoting tiered diagnosis and treatment requires mobilizing the enthusiasm of hospitals. The goal of tiered diagnosis and treatment is to benefit the public, with the ultimate aim of adjusting the healthcare delivery landscape. Therefore, it is crucial to motivate hospitals and secure their support by listening to their voices and respecting their demands. Notably, the demands of large hospitals differ from those of small hospitals in the reform of tiered diagnosis and treatment.

For large tertiary hospitals, the current challenge is not a lack of patients but rather severe overcrowding. This results in excessive work pressure for physicians, difficulties in improving service quality, and growing public dissatisfaction. The implementation of tiered diagnosis and treatment is expected to facilitate the “upgrading and transformation” of these major hospitals. Instead of accepting all cases regardless of severity, they will focus on managing complex and critical conditions, thereby increasing the proportion of patients with high medical value. This shift aims to break away from the previous model of “small profits but quick turnover,” alleviate excessive operational burdens, and allow more resources to be dedicated to management, patient services, teaching, and research.Conversely, primary care institutions face the challenge of a “double siphon effect” exerted by large hospitals, where both patients and skilled physicians migrate upward. As a result, media outlets often describe the operational status of primary healthcare facilities as “deserted,” with their survival largely dependent on government fiscal subsidies and funding guarantees. For these institutions, if tiered diagnosis and treatment successfully retain patients at the grassroots level, their patient volume and clinical capabilities will correspondingly improve. However, it is essential to adjust the existing compensation mechanisms and salary structures so that increased workload translates into greater economic returns. Only through such adjustments can the enthusiasm of primary care institutions for reform be genuinely mobilized; otherwise, they may prefer to maintain the status quo.

To mobilize hospitals' enthusiasm, it is essential to fully leverage the role of four key linkages.

First, economic ties serve as the driving force. Through reforms in tiered diagnosis and treatment, large urban hospitals can control their scale and improve efficiency by reducing staff, while smaller hospitals, represented by county-level hospitals, can increase patient volume, thereby enhancing technical capabilities and economic benefits, which also helps retain talent.

Secondly, technological linkage is the core. The primary reason patients flock to large hospitals for medical care is their lack of confidence in the technical capabilities of primary healthcare institutions. Therefore, enhancing the technical proficiency of primary care is urgently needed to implement a tiered diagnosis and treatment system. Large urban hospitals can provide technical support to primary care facilities through various means, such as medical consortiums, expert-led on-site training and consultations at the grassroots level, and shared use of medical equipment. Through these technological linkages, tertiary hospitals can also promptly screen and identify complex and difficult cases, thereby accumulating clinical experience and strengthening their specialized disciplines.

Third, IT serves as the connecting link. Current technological advancements and policy directions have made the application of IT technology in hospitals widespread and mature. In the future, it will play a crucial bridging role in the division of labor and collaboration within tiered diagnosis and treatment systems. By leveraging the internet to enable telemedicine, remote consultations, and two-way patient referrals, IT can significantly enhance the overall efficiency of healthcare resource utilization.

Finally, administrative ties serve as the guiding direction. As public hospitals constitute the mainstay of medical service delivery in China, it is essential for government departments—such as those overseeing health and medical insurance—to promote division of labor and coordination among healthcare institutions through administrative measures, and to leverage medical insurance mechanisms to facilitate orderly patient flow. However, it is important to note that administrative ties must ultimately function in conjunction with the other three types of ties. Overemphasizing administrative promotion while neglecting other approaches would undoubtedly put the cart before the horse.

(Source: WeChat Official Account “Ai Li Bi Observation”)