rural cooperative medical scheme (RCMS) and specifically through subsidies for hospital delivery may have been associated with cost inflation, limiting the reduction in absolute out-ofpocket payments per intervention (figure 10 showing the development in cost and out-of-pocket expenditures per hospital delivery in absolute terms – on left axis – and as a share of annual income per capita – on right axis -- by urban and rural typology).

# _Some inequities are closely related to the existing inefficiencies_

Since the early 1980s, China’s public resources have facilitated rapid improvements in availability of advanced care in specialized urban hospitals. As public resources are biased toward higher-level facilities, they disproportionately benefit higher-income households. (12) A similar bias in the allocation of public resources toward higher-level facilities and higher-income population groups is also seen in the education sector, where “key schools” at each level benefit from higher levels of public funding, and are more easily accessed by the children of the higher income households.

In China’s cities, advanced care is available at levels comparable with advanced economies (for example, the availability of advanced technologies per person in large Chinese cities matches the levels in most OECD countries since the mid- to late-1990s (13) and various life-cycle indicators match or exceed those of the developed world). Beijing and Shanghai, for instance, report prevalence of magnetic resonance imaging machines and other advanced medical equipment – funded partially by public resources – exceeding levels common in European cities. (14) Primary care in urban areas, however, has been unnecessarily expensive, often delivered by hospitals and specialized doctors instead of health centers and general practitioners with qualified nurses. (12) By contrast, the fraction of public resources that benefits rural (township) health centers is disproportionately small (figure 11), while poor quality of care, over-servicing and irrational use of drugs remain serious problems there, as well as in urban areas. (1) Poor rural households still face financial obstacles in accessing cheap effective care (such as management of newborn and respiratory illnesses that remain common causes of young child mortality). A government-UN review in 2006 found that during 2000-2004, preventable conditions accounted for about 70% of neonatal deaths, particularly in poor rural areas. (15) A more recent Lancet review of under-five deaths in China (16) also infers that a majority of these would be preventable with interventions that are commonly available and cheap to provide. For China’s HSR, inefficiency and inequity in the distribution of financial, human and physical resources (17) (18) are an area of focus.

China’s HSR framework includes many appropriate elements to promote cost-effectiveness and overall operational efficiency in public resource allocation in health. Efforts to allow costrecovery in primary care, implement the list of essential medicines, reduce the dependence on service fees in provider payment mechanisms, strengthen health centers and enhance the management of public hospitals are all included.

The bias toward advanced care, however, continues to surface in the process of HSR implementation at the local level. The detailed design and implementation of most of the social protection schemes in health, including the RCMS, Medical Financial Assistance (MFA) and Urban Residents’ Basic Medical Insurance (URBMI), occurs at county/district level, and for the most part excludes outpatient care. Research in 2008 estimates that only 15% of counties cover 4