metadata: authors: 0: author: HOSSAIN, SHAIKH I.
count: China
docna: 0: docna: Tackling health transition in China
docty: Policy Research Working Paper
subtopic: Health Care Services Industry,Public Health Promotion,Reproductive Health,Early Child and Children's Health,Health Service Management and Delivery,Law and Justice Institutions
teratopic: Gender
abstracts: cdata!: Over the past three decades, China has
            made commendable strides in improving the health status of
            its population. Between 1965 and 1995, its infant mortality
            rate declined from 90 per 1,000 live births to 36. During
            the same period, life expectancy at birth rose from 55 to 69
            years and the maternal mortality rate fell from 26 to 15 per
            100,000 deliveries. This performance compares favorably with
            that in similar Asian economies. China's infant
            mortality rate, for example, was less that half the rate
            predicted for its income level, Similarly, life expectancy
            at birth was higher than that in many comparable Asian
            countries. These favorable results conceal more recent
            trends, however. Since the early 1990s, mortality rates have
            increased in many provinces, particularly among infants and
            children under age five. And health status and
            health-related process indicators have improved more slowly
            than in the mid -1980s. What accounts for relatively
            stagnant, even deteriorating health indicators, and what
            strategies should be designed to address them as China
            enters the 21st century? Overall, the author argues, the
            recent erosion in health gains stems from three factors: a)
            changes in government financing of the health sector have
            increased inequity, inefficiency, and costs for medical
            treatment; b) the main contributors to the burden of disease
            have shifted from maternal conditions and infectious disease
            toward noncommunicable diseases and injuries, the prevention
            of which has not been a tradition part of China's
            public health programs; and c) the shift to a more
            market-oriented economy has changed environmental and
            behavioral risk factors, thus diversifying the types of
            disease across regions. The author suggests strategies for
            mitigating China's current and emerging health problems.
geo_reg_key: 517198,119225,517191
repnme: repnme: Tackling health transition in China
display_title: Tackling health transition in China
listing_relative_url: /research/1997/08/438461/tackling-health-transition-china
topicv3: Infant and Child Mortality m1326544 1446,Health Services Delivery m1327294 1305,Public Health m1327519 635,Mortality m1504365 3661,Health m1504661 3480
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Gender
origu: Rural and Social Development Division
no_of_pages: 40
author_keys: 0: author_key: 91661
model_extractions: > POLICY RESEARCH WORKING PAPER 1813

# Summary findings

Over the past three decades, China has made commendable strides in improving the health status of its population. Between 1965 and 1995, its infant mortality rate declined from 90 per 1,000 live births to 36. During the same period, life expectancy at birth rose from _55_ to 69 years and the maternal mortality rate fell from 26 to 15 per 100,000 deliveries.

This performance compares favorably with that in similar Asian economies. China's infant mortality rate, for example, was less than half the rate predicted for its income level. Similarly, life expectancy at birth was higher than that in many comparable Asian countries.

These favorable results conceal more recent trends, however. Since the early 1990s, mortality rates have increased in many provinces, particularly among infants and children under age five. And health status and health-related process indicators have improved more slowly than in the mid-1980s.

What accounts for relatively stagnant, even deteriorating health indicators, and what strategies should be designed to address them as China enters the 21st century? Overall, Hossain argues, the recent erosion in health gains stems from three factors:

* Changes in government financing of the health sector have increased inequity, inefficiencies, and costs for medical treatment.

* The main contributors to the burden of disease have shifted from maternal conditions and infectious diseases toward noncommunicable diseases and injuries, the prevention of which has not been a traditional part of China's public health programs.

* The shift to a more market-oriented economy has changed environmental and behavioral risk factors, thus diversifying the types of disease across regions. Hossain suggests strategies for mitigating China's current and emerging health problems.

- - This paper a product of the Rural and Social Development Division, China and Mongolia Department appeared in an earlier version as chapter 2 of World Bank, "China: Social Sector Expenditure Review, 1996," China and Mongolia Department, Washington, D.C., 1996. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Clydina Anbiah, room T7-015, telephone 202-458-1275, fax 202-522-1778, Internet address shossain@worldbank.org. August 1997. (35 pages)

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent._ Produced by the Policy Research Dissemination Center
# **Tackling Health Transition In China**

by

# **Shaikh I. Hossain**

An earlier version of this paper appeared in Chapter 2 in,"China: Social Sector Expenditure Review, 1996". I am grateful to Jere Behrman, Jagadish Upadhyay and Nicholas Prescott for helpful comments. Comments from participants in a seminar held in Beijing are also appreciated.
2

# **Introduction**

Over the period of three decades, China has made commendable strides towards improving the health status of its population. Between 1965 and 1995, China's infant mortality rate declined from 90 per 1,000 live births to 36, during the same period, life expectancy at birth rose from 55 to 69 years, and maternal mortality rate fell from 26 to 15 per 100,000 deliveries. When compared with similar Asian economies, China's performance has also been favorable as its infant mortality rate for example was less than one-half of the rate predicted for its income level (fig 1). Similarly, life expectancy at birth was higher than many Asian comparators (fig 2). These impressive gains in health status have been the direct products of the government's political resolve and imperative in the early 1970s, when the proliferation of public financed community and preventive health programs rapidly expanded access to basic health care and broadened its coverage.

However, these positive indicators conceal more recent trends. Since the early 1990s, mortality rates have increased in many provinces, particularly among infants and children younger than age 5. Moreover, the countries whose mortality rates among these two groups were already low in 1965--Malaysia, South Korea, Thailand and Sri Lanka--continued to show larger percentage declines in these indicators than did China. Likewise, these countries have showed larger percentage gains in average life expectancy and they have made greater progress in such process indicators as coverage for immunization and births attended by trained personnel (Annex 1, Table 1). In China itself, improvements in health status and health- related process indicators have been slower than similar advances made in the mid-1980s. What accounts for these relatively stagnant and sometimes deteriorating health indicators, and what strategies should be designed to address them as China enters 21st century? Overall, as this paper argues, the recent erosion in gains stems from three factors. One, changes in government financing for the health sector have created greater inequity, inefficiencies and raised the costs of medical treatment. Two, the major contributors to burden of disease have changed from maternal and infectious toward non-communicable diseases (NCD) and injuries, the prevention of which has not been a traditional part of public health programs (PHP), and three the shift to a more market oriented economy has changed environmental and behavioral risk factors, thus diversifying the types of disease across regions.

The paper has three sections. In section I, the current problems in health sector are discussed, while section II presents emerging health problems of China and the final section provides strategic directions to mitigate both current and emerging health problems of China.
Figure 1 <!-- Start of picture text --> Relationship Between Infant Mortality Rate and GNP per capita, 1994<br>Infant mortality rate<br>(per thousand live births)<br>140<br>OBhutan<br>120 -<br>100 ONepal<br>* Lao PDR<br>Bangladesh<br>80 - Myanmar<br>ndia<br>60 - 0 Papua New Guinea<br>0 Mongo Indonesia<br>40 - Viet Nam * Philipl s<br>OChina OThailand<br>20 0 Sr Lanka a<br>0<br>0 500 1,000 1,500 2,000 2,500 3,000 3,500<br>GNP per capita (US$)<br><!-- End of picture text --> Figure 2 <!-- Start of picture text --> Relationship Between Life Expectancy at Birth and GNP per capita, 1994<br>Life expectancy at birth (year)<br>80<br>Sri Lanka mtys<br>70 Chinailand S-<br>Viet Nam ° China P____ThJi _____<br>60 _ r ia P rinesia<br>O Ngidepal * Papua Now Guinea<br>50_ Lao PDR<br>so p cBhutan<br>40-<br>30-<br>20-<br>10<br>0<br>0 500 1,000 1,500 2,000 2,500 3,000 3,500<br>GNP per capita (US$)<br><!-- End of picture text -->
4

# **Current Problems**

# **Equity**

_Regressive Public Health Expenditures:_ The figure 3 shows that public spending was pro-poor in 1980s, but has become increasingly regressive in the early 1990s--that greater health expenditures are made in richer provinces. A more instructive finding is that income and vital health indicators appear to have played a considerable role in budgeting decisions. Poor provinces, including Henan, Guizhou, Yunnan, and Jiangxi, in which infant mortality rates are higher than the national average, received meager budgetary resources and spent less. Contrary to pro-health risk targeting, poor and high infant mortality provinces--Hunan, Sichuan, and Guangxi--received considerably low health budgetary outlays. Chief outliers are Shangdong, Zhejiang, Liaoning, Tianjin, Beijing, and Shanghai, which have high per capita income, a low infant mortality rate, and high per capita health spending (fig 4).

During the same period, despite a rise in real government health spending, its fiscal effort for health has reduced, as evidenced by a steady decline in its spending as a percentage of GNP from 0.77 to 0.45. If the average spending levels in similar Asian economies are considered, then the fiscal effort for health in China is weaker (Table 2, Annex). Exacerbating this trend is the elimnination of communal agriculture in the 1980s which dismantled the rural cooperative medical system, and those who had been covered under this scheme have been forced to pay for public health services. The growing share of patient fees and corresponding decline in the share of rural cooperative to total health cost attest to this fact (fig 5). To a large extent these episodes, as demonstrated below, gradually led to unequal access to health services across the wealthy and poor, and between the insured and uninsured, and created widening disparity in the health status of Chinese population.

_Unequal Access:_ Table 1 presents a summary of the average number of inpatient and outpatient visits by province, ranked by per capita income from poor to rich. The usage figures indicate how public health service has been targeted. They show that the redistributive, or target, impact of public health services was highest for users in the poorest provinces. In 1980, the average number of inpatient and outpatient visits were highest among the two poorest quintiles of provinces, but these indicators are at odds with an apparent reduction in usage among poorer provinces in 1993. The elimination of the rural cooperative health scheme and the introduction of user fees prompted costs of access to health services to rise among the poor.
<!-- Start of picture text --> Fig 3: Per Capita Public Health Expenditure<br>35.00<br>30.00<br>25.00<br>20.00<br>>-15.00<br>10.00<br>5.00<br>0.00 -<br>1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28<br>Poor Rich<br>province<br>;--4 1993 -_- 1982<br><!-- End of picture text -->

**Figure** I

<!-- Start of picture text --> CHINA: Infant Mortality & Percapita Health Expenditure<br>Poor Yuan IMR (per 1,000 live births)<br>Guizhou<br>Guangxi<br>Anhui<br>Henan<br>Gansu<br>Sichuan<br>Jiangxi<br>ShaanxiYunnan _<br>Hunan<br>Tibet _<br>Ningxia<br>Qinghai<br>Shanxi<br>Inner Mongolia<br>Hubei<br>Hebei<br>Jilin<br>Xinjiang a<br>Fujian<br>Heilongjiang<br>Shandong<br>Jiangsu<br>Zhejiang<br>Uaoning<br>Guangdong<br>Tianjin<br>Beijing I<br>Shanghai _ _ _ mm<br>Rich 40 30 20 10 0 20 40 60 80 100 120<br>_ PHEXP 13 IMOR<br>Provinces are ranked by percapita income.<br><!-- End of picture text -->
Figure 5 China Source of Financing Health Expenditure (Pecentage Share) <!-- Start of picture text --> percent<br>100 ,;-_ _=_ _<br>90<br>80-<br>70 - ~ s~ ' 3⁄4~<br>60-<br>50-<br>40-<br>- 1 li 1<br>30- 10_<br>20<br>1980 1985 1990 19 3<br>Year<br>Central Goverment GIESb Rural Collective Fund<br>Local Govemment a Labor Patient Fees<br>a Local Govemment = aggregate expenditure of province + county + municipality<br>bGEIS: Govemment Employees Insurance System<br><!-- End of picture text --> _Source:_ Table 7 (Annex ).
7 _Table 1: Annual Average Number of inpatient and Outpatient Visits in Provinces by Quintiles Per Capita Income_

|_Quintiles of Per_<br>_Capita Income_|_1980_||_199_|_3_|
|---|---|---|---|---|
|_in Provinces_|_Inpatient_|_Outpati_|_ent Inpatie_|_nt Outpatient_|
|Poorest<br>I|2.9|3.7|1.8|2.8|
|II|2.6|3.5|1.7|2.7|
|III|2.7|3.4|1.9|2.4|
|IV|2.2|2.8|2.1|2.5|
|Richest<br>V|1.8|2.5|1.6|2.2|

# _Source:_ Staff Estimates from MOPH data.

Indeed, according to the 1993 National Health Survey (NHS), utilization varies positively with household income per capita. Province-wide data indicate greater under-use of service in poorer provinces is associated with economic reasons, and vice versa. Of total households, 58.8 percent in rural areas and 39.8 percent in urban areas do not use public health facilities due to economic difficulties. Another factor is the deterioration in quality of public health services due to the reduced public spending since the mid-1980s. The emergence of private sector and liberalization of pharnaceutical sales permitted users, particularly the rich, to move away from public sector to seek costly and perhaps better quality private health care providers. This is partly substantiated by the 1993 NHS. Of total households 11 percent in urban areas and 13 percent in rural areas did not seek public health provider due to poor quality, and about 7 percent used private health clinics but mostly in big cities and urban areas. A third factor may be the declining agespecific morbidity rates, requiring fewer visits to health facilities. But, age and gender-specific mortality and morbidity rates have shifted from infectious to more NCD and injuries, and not declined dramatically to warrant such marked reduction in the utilization of health services. This overall decline in public inpatient and outpatient utilization in poorer provinces indicates that the redistributive impact of public health expenditures is increasingly becoming less favorable.

_Disparity in the Health Status:_ Table 2 displays the percentage change in two health outcomes and coverage of three public health services by provinces, ranked by per capita income from poor to rich. Overall, for the period of 1983-93, disparity in health outcomes--both infant and maternal mortality rates-- has widened, as mortality declined at a faster rate in the wealthiest provinces like Zhejiang, Liaoning, Guangdong (quintile V) than in poorest provinces like Anhui, Henan and Sichuwan (quintile I). Likewise, except richest provinces in quintile V, public health services like coverage of safewater and sanitation generally varied directly with income, that is, the richer the province, the wider the coverage. Thus, except for three shots of diphtheriapertusis-tetanus (DPT3) immunization, the progressivity in the access to two basic public health services has diminished over time.
8 _Table 2: Percent Change in Health Indicators by Provinces, 1983-93 (Provinces ranked by per capita income)_

||||_P_|_ercent Chan_|_ge_|||
|---|---|---|---|---|---|---|---|
|_Quintile_<br>_of_||_Public_<br>_Health_<br>_Spending_|_Infant_<br>_Mortality_<br>_Rate_|_Maternal_<br>_Mortality_<br>_Rate_|__Covera_<br>_DPT3_|_ge_<br>_of_<br>_Sanitation_|_Safewater_|
|_Provinces_||||||||
|Poorest|I|93|-4.1|-4.3|68.8|58.6|89.1|
||II|77|-21.8|-4.4|58.9|85.4|90.2|
||III|69|-20.3|-10.7|50.2|77.4|59.9|
||IV|65|-30.1|-17.3|67.1|77.3|73.1|
|Richest|V|58|-32.5|-18.3|57.3|38.2|35.4|

**_Source:_** Staff Estimates from MOH data.

# **Costs and Quality:**

The average private out-of-pocket costs per visit to public health services vary widely across quintiles. Private expenditures on health care are shown in Table 3, ranked according to quintiles, from poor to rich in urban areas. Although the wealthiest households pay larger absolute amounts on medical items, as a proportion to non-food household spending, the poorest households spend about 1.5 times more on medical care than do richer households. Of total non-food expenditure, drugs and medicine consume about 3 times more among the poorest quintile than among the top quintile. User fees-non-food expenditure ratio--a measure of affordability--is much larger for the poorest 20 percent (2%) than for the richest 20 percent (0.60%). The top quintiles spend more on other category which mainly comprises charges for physician's home visits.

One indirect indication of quality gap is the difference in private expenditures on medical care across quintiles of household income for the same level of services. According to the findings in Table 3 the top quintile pay more in absolute amounts and buy better quality, particularly instruments and drugs. Another indicator is the quality of medical attention received by the lowincome population who use public health facilities. The 1993 NHS suggests that the poor are more likely to use Township medical centers when sick, but the probability of being treated by qualified doctor is less than 20 percent. Whereas, the rich are more likely to seek treatment in hospitals where the probability of consulting trained doctor is more than 60 percent. A third indicator is the paucity of qualified medical personnel in poorer provinces which exacerbates the quality of medical attention. The calculation of relative medical personnel ratio (RPR) in Table 4 shows a clear undersupply of qualified doctors in poorer provinces and an oversupply of such personnel in richer provinces.
9 _Table3: Affordability :Per Capita Household Expenditures on Medical and Health Care, 1992 (As percentage of Non-foodper capita expenditure)_

||_Quintile_<br>_I_|_s of house_<br>_II_|_holdper c_<br>_III_|_apita inc_<br>_IV_|_ome_<br>_V_|_Expenditure_<br>_Elasticity_|_T-ratio_|
|---|---|---|---|---|---|---|---|
|Instrument|0.04|0.04|0.31|0.41|0.44|<br>0.85|1.04|
|Primaryhealthcare|0.96|0.11|0.12|0.14|0.13|<br>1.45|1.93|
|Drugs|5.65|4.23|4.08|3.68|2.91|<br>8.11|4.56|
|Herbal medicine|0.47|0.42|0.44|0.45|0.50|<br>6.63|2.87|
|Service charges|2.05|0.92|0.62|0.76|0.60|<br>1.15|0.77|
|Othera|0.11|0.08|0.09|0.10|1.05|<br>0.94|1.23|
|Total|9.28|5.81|5.66|5.54|5.63|||

a. Home visits.

_Source:_ SSB: Urban Income Expenditure Survey, 1992.

_Table 4: Quality - Medical Personnel Input Mixes by Province (1994)_

|_Province_<br>_by quintile_<br>_ofper capit_<br>_income_|_a_<br>_Doctor_|_Special_<br>_Nurse_|_Relative_<br>_Asst._<br>_Doctor_|_Personnel Rat_<br>_Nurse_|_io(RPI)_<br>_Midwife_|
|---|---|---|---|---|---|
|I|0.81|0.77|0.82|0.67|0.74|
|II|0.94|0.95|1.07|0.90|0.61|
|III|1.34|1.23|1.34|1.26|1.05|
|IV|0.86|1.15|1.24|1.16|1.40|
|V|1.90|2.38|1.76|2.48|1.33|

RPR= (Provincial Staff/Provincial Population)/(National StafflNational Population) RPR exceeding one indicates oversupply and less ihan one indicates undersupply of medical personnel.

**_Source:_** Table 9 (Annex).
10

# **Efficiency:**

_Greater Inefficiency:_ In addition to equity problems, China is getting less incremental health improvement as a return on its expenditures than in the mid-1980s, thus creating efficiency problems. Once again, Table 2 shows how the maximum outcomes--percentage reductions in infant and maternal mortality rates--have been achieved with minimum percentage increments in public health expenditure. It is clear that the greater the percentage increase in public health spending the smaller the reduction in mortality rates in the poorest provinces (quintile I) than in the wealthiest provinces (quintile V) between 1982 and 1993. Figure 6 shows that most of the wealthy provinces are significant (negative) outliers, having lower infant mortality rates predicted for its government health spending. When regression is done with provincial data, the impact of government health spending on reducing mortality rates in 1982 was greater in poorer provinces than in richer provinces. Conversely, in 1993, a somewhat reduced effect of government health spending on health status was found in poorer provinces than in wealthy provinces (Technical Annex A).

_Relative Effects of Public Policies on Health Status._ Before eliciting future strategies in the final section, it would be useful to assess the effects of several public health interventions on the overall health status of Chinese population. For more than three decades, China has made remarkable stride in improving the health status of its population. Given the extent of this progress, it is, important to examine whether the improvement in health outcomes can be linked to specific components of public policy or, as is also possible, whether the achievement is due mainly to gains in overall income overtime. Thus, this section posits to what extent can particular government policies such as public expenditure on health, access to various public health services improve the health status of the population?

Regressions are used to assess the impacts of changing government policies and income levels on infant mortality rates and life expectancy at birth. The data used are a time-series of 198393 from cross-section of 29 provinces in China. To isolate the relative effects of each determinant of health improvement, three different econometric procedures are used, and Table 5 presents the results'.The empirical results indicate the importance of income, public health expenditures, sanitation and DPT3. Income is consistently the most important variable in reducing mortality. The OLS estimates show that provinces with coverage of safewater and sanitation facilities have had low infant mortality rates. The positive coefficient on public health expenditures reflects that more money is being spent in those provinces where infant mortality rates are high. The impact of such expenditures is manifested in the fixed and random effect columns. Indeed, the results show that overtime, greater allocation of government resources did have a favorable impact in reducing infant deaths, suggesting that higher expenditure, generally synonymous with expanded supply of drugs, consumables, and equipment, can be effective in improving health status.

I To disentangle the relative impacts of income growth and public policy variables (expenditures, sanitation, safewater, DPT3) on infant mortality rates and gains in life expectancy at birth, three methods are used, simple OLS without provincial dummies; a fixed effect model with provincial dummies, and random effect with generalized least squares (GLS).
Figure 6 <!-- Start of picture text --> Relationship Between Infant Mortality Rate and Health Expenditure, 1993<br>Infant mortality rate<br>100<br>*Oibet<br>80<br>*Ginghai O Yunnan<br>*Xinjiang<br>60 - *Guizhou Henan<br>* Jiangxi<br>uagi OHunan OSbchuan<br>40 - ONingxiaine<br>Shaanxi * -°<br>20 - Shanx# * Gunagdon<br>*Beijing Shandong<br>Tianjin<br>0 O _ ~ ~I I I II<br>0 200 400 600 800 1,000 1,200<br>Provincial health Expendiure (Yuan)<br><!-- End of picture text -->
12 _Table 5: Regression Results of Public Policies on Health Status_ _Dependent Variable: Infant Mortality Rate_

|_Right hand_<br>_side variables_|_OLS_<br>_Estimates_|_Fixed_<br>_Effects_|_Random_<br>_Effects_|
|---|---|---|---|
|log Income per capita|-0.688*|0.049|-0.509*|
||(9.828)|(1.28)|(-6.97)|
|log per capita Health|0.249|-0.114*|-0.531 *|
|Expenditure|(4.44)|(-2.20)|(-8.16)|
|Safe water|-0.234*<br>(-4.178)|.052<br>(1.3)|NC|
|Sanitation|-.154|-0.286*|-0.200|
||(-1.811)|(-3.404)|(-0.83)|
|DPT3|0.134|-0.259*|-0.242*|
||(1.13)|(-2.192)|(-3.15)|
|N|348|348|348|
|Adj. R<sup>2</sup>|_0.55_|0.96|0.20|

*Indicates significant at 5% confidence level. Numbers in parentheses are the t-statistics.

Immunization and sanitation clearly have discernible independent irnpact on improving health status in all empirical specifications. The DPT3 variable measures the percentage of one-year old children receiving a full series (3-shots) of diphtheria, pertussis and tetanus immunizations. Results also show that the efficacy of the logistical support of health system because the completion of three-shot sequence requires a fully organized personnel who interact routinely with the population. Likewise, sanitation needs community support and better coordination with health personnel. Interventions in sanitation and immunization, spearheaded by commune health system in China have attained remarkable successes to combat infectious diseases and reduce infant deaths.

But when an interactive term between income and government health expenditure is included in a separate regression, a somewhat interesting result emerges (Technical Annex A). In this case the coefficient on the expenditure variable by itself is the first derivative if income is zero that tends to counterbalance the direct effect of expenditure on infant mortality given a negative coefficient estimate on the interaction. It is difficult to disentangle autonomous government spending from implicit subsidy associated with the presence of more doctors and therefore induced by more demand and income. Other than income, such public health services as santiation and DPT3 still show strong effects on improved health status. At least this is consistent across all regression estimates, and firther justifies improved access to these basic services among rural and poor people.
13 Finally, the impact of government policy on health status is assessed with regression analysis using the cross-sectional country level data. In each country, a panel of cross-section (provinces or regions) and different time-series data were utilized. The results in several studies indicate uniformly favorable impact of immunization and water supply on health status in the Philippines, Malaysia and Viet Nam, while sanitation and immunization are more effective in China. Poor country such as Viet Nam faced stricter economic constraints than others in the sample during the period under review, and so improved health status is a result of rising income growth than public health spending. The dissimilar effects of public health spending in Viet Nam also reflects greater importance of other health promoting interventions for reducing infant deaths in a period of deteriorating health infrastructure, high incidence of infectious and water-borne diseases and poor quality of services. (See Technical Annex A).

# Emerging Problems

# Health Transition:

China is now completing its demographic transition from high fertility and mortality rates to low ones. The demographic transition has profoundly influenced the age structure of population and the cause of mortality which has set the stage for epidemiological change. As the population continues to age, the relative frequency of various causes of death changes, causing more chronic diseases to occur among the older population and fewer infectious diseases among the younger population. Figure 7 illustrates that the proportion of older population will rise from 9.5 percent in 1995 to 16 percent in 2020, and the proportion of deaths among this age group will increase from 55 to 65 percent because mortality rates from infectious and childhood diseases are decreasing disproportionately during the same period. By way of illustration, China's close Asian comparators--South Korea, Malaysia, and Thailand--will generally experience similar shifts in the age structure of their population and age pattern of mortality.

# **Changing Risk Factors**

Lifestyle choices for example, cigarette consumption, alcohol intake, as well as such factors as urbanization, environmental pollution, and differences in access to health services are changing the exposure of China's population to the risks of different diseases. As a result, the pattern of disease is becoming more diverse across the provinces and socio-economic groups. Prior to the health transition, fewer diseases were responsible for the majority of deaths; now, with progress in the fight against immunizable diseases and diarrhea, the pattern of disease is increasingly being characterized by a "dilated-polarized epidemiological" regime in which infectious diseases and malnutrition coexist with non-communicable diseases and injuries both across rural and urban areas, and among poor and non-poor regions (Table 3, Annex).

Ironically, this growing diversity has come in the face of several successful public health interventions. New diseases have emerged and have resurfaced old ones.2 Although the prevalence of sexually transmitted diseases (STD) and Acquired Immunodeficiency Syndrome (AIDS) is not yet 2 For example, AIDS is a new disease, but this has brought back tuberculosis, and malaria has become widespread with the diminished vector control programs in several provinces in China.
<!-- Start of picture text --> Figure 7<br>Population (%) 1995 Deaths (%)<br>S. KoreaChina _<br>Malaysia<br>Thailand<br>5-14<br>Populatin __ Malaysia _ D s<br>_ Thailand _ _<br>S. KoreaChina<br>m ~~~~~~MalaysiaThailand<br>70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70<br>5-4<br>2020<br>Population (%) Deaths (%)<br>_0-4<br>Malaysia<br>Thailand<br>l = === ~~~S. Khonrea<br>_ _ _ _ _~~~~ Malaysia _<br>_ _ _ ~~S. Korea __1 | | | |<br>_ _ ~~Malaysia _<br>* .Korea _ 8<br>__Malaysia i<br>_ Thailand _<br>70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70<br><!-- End of picture text -->
15 significant, incidence rates are rising each year, with a real potential for explosive growth. For example, the incidence of STD has risen to more than 13 percent in 1994, the HIV- positive cases have now reached 1,600, including about 40 cases of AIDS, and malaria has reappeared with an incidence of 5.6 percent. The incidence of other communicable diseases like viral hepatitis and dysentery have is also high (Table 4, Annex).

Overall, when the total disease burden--the sum of all disability adjusted life years lost (DALY) by the population in China--is computed in Table 5 (Annex) , it is clear that the main contributors to the burden of diseases will dramatically shift from communicable to NCD and injuries in the 21st century. The NCD will account for the bulk of the disease burden--76 percent of total DALY lost in 2020-followed by injuries (17%) and noncommunicable diseases (6%). Of total DALY lost, malignant neoplasm and cardiovascular diseases will steal more than a half of healthy life years in China. Similar dramatic increase in DALY lost will occur from chronic obstructive pulmonary (COPD) from only 4 percent in 1993 to nearly 16 percent in 2020 due to smoking the single most important factor and other new health risks including air pollution.

# **III. Strategic Directions For 21st Century**

The analysis shows that composite changes in demographic, epidemiological, and risk factors imply a growing health burden from NCD and injuries and a higher adult mortality risks which in turn will change the volume and composition of the demand for referral and curative health services. Since the prevention of these diseases has not been a part of primary health program until recently, they will pose new challenges in the design and management of public health services in the future. In addition, by emphasizing revenue-generating curative services rather than basic preventive health care, economic reforms have created inequities and inefficiencies in the health system, along with rising medical costs. As China enters the 21st century, the following strategies will be required to respond to the new health challenges and the emerging threat of diseases.

# **Resolving current problems:**

_Strengthening Public Health Programs._ China's public health program (PUP), once the envy of many developing countries, has now begun to exhibit inequities and inefficiencies. The main challenge is how to give the uninsured and the poor better access to affordable PUP without affecting the quality of services. Based on the assessment of the burden of main diseases and costeffective public health and essential clinical interventions. Box 1 proposes a basic health service package that consists of _essential_ PHP, and _minimum_ clinical services. These two packages are designed to meet externalities to which those at risk and in poverty are most exposed. Together, essential PHP and minimum clinical package would reduce the share of illness in terms of disease burden averted from 28 percent in 1993 to roughly 39 percent in 2020. These two packages can be delivered at a per capita cost about US$ 10 which would increase approximately to US$ 60 in 2020, given changes in epidemiology, age structure of the population and the costs in medical supplies. As an useful guide for China, per capita costs of combined packages in such middle-income
16 countries as South Korea, Turkey, Costa Rica, South Africa vary from US$20 to a maximum of US$ 350.3

||BO|X I||
|---|---|---|---|
|1993|(1)<br>Essential Public<br>Health Package|(2)<br>Minimum<br>Clinical Package|(3)<br>Discretionary<br>Clinical Package|
|Burden of Disease||||
|Averted (%)|14.8|14.0||
|Per capita cost (US$)|3.7|6.3|30-45|
|(Annual)||||
|2020||||
|BOD Averted(%)|18.2|25.1||
|Per capita cost (US$)|8.8|20.2||
|(Annual)||||

Note: Major interventions under each package are outlined in Technical Annex A Epidemiological and demographic data are used to calculate the benefits as disability adjusted life years saved (DALY) from interventions under essential PHP and minimum clinical package. The estimates show that interventions under (1) and (2) above packages would reduce the burden of diseases including most of the "remaining" and "emerging" diseases (Table 3 Annex 2) by about 28 percent in terms of total DALY saved observed in 1993. The itemized costs of specific interventions were provided by the MOH and Chinese Academy of Preventive Medicine (CAPM) and estimated from project preparation activities. By applying similar procedure, a rough projection shows that essential PHP and minimum clinical interventions would reduce BOD by 43 percent in 2020, an overall gain by 15 percent. If legislative measures, outside the purview of the PHP, are implemented, further reduction in the BOD from injuries and COPD would be possible.

For methodologies, see C.J.L Murray and A.D Lopez in their report, "Global Burden of Disease" Bulletin of the World Health Organization, 1990, 72 (3).

The government should increase its spending level to meet these service requirements not only because such interventions are the most cost-effective but also because of a salutary impact of government expenditure on improving health status of Chinese population, as revealed by our regression estimates with panel data. Moreover, resource requirements are modest compared with 3 These figures capture roughly 2 to 7 percent of those countries GNP. See World Development Report 1993, World Bank, Oxford.
17 overall health spending. Additional resources for targeting the uninsured poor can come from an extension in the coverage of social insurance (GIS and LIS), the passage of a basic package in social as well as future private insurance policies, and selective increases in user fees for the uninsured wealthy. The discretionary clinical package can be financed from user fees and insurance and public funds should be used only for truly poor and indigent patients.

_Redeploying_ **_Medical Personnel._** Alternative mixes of labor inputs are influenced by the allocation of public spending which in turn will influence future health outcomes. In China, indices of labor input for western medical treatments show an inegalitarian allocation across provinces. Poor provinces are deprived of more qualified medical staff. Table 4 showed the distribution of more qualified health personnel (doctors, assistant doctors) and less qualified health personnel (specialized nurses, nurses, and midwives). Computed on the basis of relative personnel ratios (RPR) the richest quintile of provinces-- Beijing, Shanghai, Guangdong, Zhejiang, Tianjin and Liaoning clearly have an oversupply of all medical staff but particularly of more qualified staff, as the value of RPR far exceeds unity. Conversely, the poorest quintile of provinces--Guizhou, Xinjiang, Anhui, Henan, Guangxi and Sichuan (Annex Table 9)--have an undersupply of all medical staff including more qualified personnel. Other less disadvantaged provinces in the second quintile--Jiangxi, Yunan, Shannxi, Hunan, and Tibet--also have an undersupply of more qualified medical personnel especially doctors.

Besides their impacts on health outcomes, the different mixes of health personnel will have important underpinnings on cost efficiency. In provinces with high morbidity and mortality rates from infectious and communicable diseases, redeploying the personnel mix toward more preventive health services staff like nurses and midwives can generate further cost savings. To attract and retain more qualified staff in poorer provinces, the government should also provide such incentives as housing, bonuses, education for dependents, and better posting after service in rural areas. To minimize future imbalance in labor input mixes, another powerful policy instrument is to upgrade training and retraining for less qualified health personnel and then substitute them for more qualified staff where feasible. To implement these policies, the government should ease its currently rigid controls on remuneration to make it more amenable to local needs. However, whether the local or the central government should be given authority to choose the structure of such benefit package remains an open question.

_Targeting of_ **_resources:_** One implication of reduced government health financing is that the poor has suffered higher morbidity and mortality. Among the poorest quarter of the rural population, infant deaths are 3.5 times greater than among city dwellers (NHS 1991). Compounding this inequity is the wide disparity in the distribution of provincial government health expenditures particularly in the past few years. Further econometric analysis with 1993 data indicates that province-level public spending on health responds more strongly to changes in GDP in high-income provinces than in low-income provinces. Moreover, a one percent growth in provincial income is associated with much greater increase in government health expenditure in richer provinces than in poorer ones. These results are disturbing, since they imply that even with equitable growth in income across provinces--an unlikely prospect--the _distribution_ of provincial government expenditure on health will become _more unequal._ If economic growth in the province alone is less likely to reduce the imbalance in provincial health expenditures, a strong case can be
18 made for the central government to target an increasing share of central government resources to the poorest provinces.

While a larger proportionate increase in government spending on health in the poorer provinces than in the richer provinces will clearly promote _equity,_ its relative effect on _efficiency is_ not immediately obvious. Indeed, the latter depends much on the _marginal_ impact of increased public health expenditure on health outcomes. Table 5 reports the impact of a 1,000 yuan increase on infant mortality rates by quintile of provinces. An increase of 1,000 yuan in per capita provincial government health spending in high-income provinces is associated with drops in infant mortality of only 0.12 percent. Conversely, similar increase in per capita health expenditure leads to a decline of infant mortality by 3.04 percent in poorer provinces. Thus, a 1,000 yuan increase in health spending yields much faster decline in infant and maternal mortality in poorest provinces. Because poorest provinces account for more than 30 percent of the total population of China, a strategy of redistribution of central government health expenditure from richer to poorer provinces will generate a larger overall decline in infant mortality, and as such will improve the overall efficiency of public health financing.

_Table 5: Impact of a 1,000 yuan increase in provincial government health expenditure on infant mortality, 1993_

|_Quintile of_<br>_Provinces_|_Percentage_<br>_ofpopulation_|_Infant_<br>_mortality_|_Maternal_<br>_mortality_|
|---|---|---|---|
|I|30.8|-3.04|-1.01|
|lI|15.6|-2.45|-0.67|
|lII|17.2|-1.05|-0.44|
|IV|24.2|-0.43|-0.23|
|V|13.9|-0.12|-0.03|

_Source:_ Staff estimate from MOPH data.

_Restructuring User Fees._ The combination of recent worsening income distribution, reduced government health spending and price decontrols (resulting in higher prices for health care and other consumable) reduced utilization of health services, consequently worsening their health status particularly in poor provinces. The government is concerned about cushioning the poorest of the poor from further higher health costs stemming from changing age pattern of diseases and greater cost recovery in public health sector. Indeed, better targeting of public expenditure to improve access of the poorest to health facilities would depend on two policy instruments: reducing user costs associated with treatment and drugs, and improving the quality of care for those who actually gain access.

- 4The implied GDP elasticity of provincial government health expenditures varies from a low of -0.098 for Guizhou, the poorest province in China, to a high of 2.56 for Shanghai, the richest province.
19 A more effective mechanism should be devised to protect the poor from user fee increases; the current mechanism in place in China to exempt the indigent from fees is not working. As household expenditure data showed there is a weak relationship between household income and the average price paid for treatment, that is, households in the bottom income quintile spend a disproportionately high share (13 percent) of their total health expenditure on one annual visit. They also spend more on drugs, which are generally not subsidized. Of total private health spending, the poorest households pay 77 percent on drugs compared with 68 percent by the richest quintile. Thus, the burden of paying for service charge and drugs is higher among the poor than the better off. Since this disproportionate burden prevents the poor from using public health facilities, then improving access for them may require selective price reductions for essential services; the poorest hard-to-reach group should be exempt from paying fees, which may be compensated for by _increases_ in public spending and other insurance fees. This needs an appropriate pricing policy that differentiates prices by the income of users Finally, improving the quality of public health services would enhance utilization. One indicator of the quality gap is the variation across income groups in the amount of household expenditure on public health, but another indicator, available from the 1993 NHS, is that 15 percent of households do not use public health facilities due to the lack of beds (4.1%) and the absence of proper services and treatment (11.3%). Interprovincial variation is even wider. Another indicator is that the poor are less likely than the better-off to receive treatment by qualified and trained doctors when they are sick. Spending on medical equipment, supplies, drugs, and physical infrastructure in township health centers and the redeployment of trained personnel in needy areas would considerably improve the quality of services available to the poor.

# **Addressing Emerging Problems:**

_Strengthening the Information. Education and Communication (IEC):_ The disease burden in China implies that about two-thirds of premature deaths and disabilities stem from such risk factors as excessive smoking, improper diet, alcohol intake, the lack of exercises, environmental abuse, or dangerous sexual practices. These factors are linked to the behavioral choices of individuals and have a combined synergistic effect. Discouraging these unhealthy choices by individuals is difficult, given the complexity of emotional, intellectual, and social influences that shape the decisions of population. One viable strategy would be to have the government join with the private sector to strengthen the IEC network and its efforts to deliver one overriding message-that eliminating or reducing exposure to risk factors via immunization, maternal weaning, waste disposal, screening of treatable diseases, and changes in life styles is more effective and less expensive than the longer-term secondary treatment. The message should be delivered by the mass media, communication technologies, post-primary school curriculum, and reinforced by teachers and community workers.

_Passing Legislation:_ The findings on the burden of diseases clearly suggest that the government should enact various legislative measures and restrictions to alleviate sufferings from NCD and injuries in the future. For example, to reduce the risks of obstructive pulmonary disease which will account for more 14 percent of total DALY lost from NCD by 2020, the government should place legislative ban on cigarette smoking in public places, and among the younger population, as well as on the advertisement and promotion of any tobacco goods and trademarks. Together, these measures would gradually reduce morbidity and mortality from smoking-related diseases. It should also consider increasing taxes on tobacco as a disincentive to smoking, to
20 provide additional revenues to be devoted to public health programs. A rough calculation of such potential is obtained from revenue buoyancy estimates. The point estimates of revenues from nontax, tax, and tobacco tax with respect to local government GDP exceed unity; and a 10 percent tobacco taxes tend to reduce cigarette consumption by 6 percent; reflecting that this levy is very buoyant revenue instrument and consumption deterrent. Other legislation and/or restrictions should targeted to reducing the risks of disability or death from injury, which will steal 16 percent of total DALY lost in 2020, up from the 10 percent figure in 1993. Transport accidents in particular should be targeted, since they account for more than a half of total DALY lost due to injury. Government transportation policy should seek to improve traffic safety by upgrading road design, traffic signals, and speed limits, and to modify drivers' behavior particularly with the imposition of higher fines for drunk drivers. Although studies on alcohol-related motor vehicle accidents and deaths in China are unavailable the U.S studies should alert the decision- makers of China.s _Reforming Urban Health Insurance._ The urban health insurance schemes i.e GIS and LIS are providing inadequate coverage and face rising costs. Because, schemes cover only the employment-based population, capturing only 14 percent of the total population of China. Their costs are escalating in real terms due to growing number of claims, and they promise to rise in the future, as the population ages and the number of claims for curative care increases (Annex Table 7). "Moral hazard" factors also escalate costs, since they create incentives for health providers to offer more care than patients actually need and to overprescribe medication and tests. These profit earning opportunities may lead to an overconsumption of newly developed and expensive technologies as a substitute for less expensive diagnostic tests and surgical procedures. To enhance coverage and contain costs, the government should pursue four options: centralize the management of health insurance, extend GIS and LIS coverage, and redesign benefit packages including prepayment system.

Centralized management would create larger risk pools and provide administrative economies of scale, and capture employees who risk losing coverage as their SOEs face bankruptcy or merger under the SOE reform. A combined pool would also give local governments greater bargaining power for negotiating contracts on capitation payments. But implementation will require vigorous inter-agency coordination because comparatively young LIS beneficiaries would naturally oppose pooling their risks with their comparatively old GIS counterparts. In this respect, it is worth highlighting the experience of Jiujiang and Zhenjiang cities, which have combined the GIS and LIS systems in order to smooth the cost of health services over time by distributing it equally across the beneficiaries.

Coverage under the GIS and LIS could be broadened, first by including the dependents of beneficiaries and then by covering all labor in the formal and informal sectors. But the experience of Shenzhen health insurance scheme suggests that private and joint venture companies will not readily participate in this social health insurance scheme. Here, an alternative policy option would be to make hospitals liable for all overspending on the capitation payments (introduced in 1991), forcing them to invest and create trust funds with profits and unused capitation money. This option would gradually elimninate the 50 percent government contribution to such over-spending. The freeup resources would give additional leverage for financing the essential package for the uninsured.

> _5_ In the U.S, more than 50 percent of all motor vehicle related deaths are alcohol-related. See for example, Anon 1990" Alcohol-related Traffic Fatalities: United States 1982-89" _Morbidity and Mortality Weekly_ Report 39.
21 To contain sosts further, the government should consider redesigning the clinical services package covered by GIS and LIS, as well as implementing a prepayment scheme for health care providers. The redesigned package could consist of several parts, based on the degree of costeffectiveness (Technical Annex A). Part A would include vaccinations, pre and post-natal care that can be reimbursed at full cost, Part B would be reimbursed at 80 percent of cost, and Part C would contain interventions that would be kept at the current level of underfinancing, with premium rates raised with inflation. This more flexible system can be adopted to and the level of copayment can be reconfigured according to the social insurance's fund position. Normally, providers will respond more to parts A and B than to part C, thereby improving the allocative efficiency of financing. Providers can collect fees from patients to cover the gap between GIS and LIS reimbursement and the full costs of the parts B and C interventions. Elsewhere among middle-income countries, such flexibility is being proposed in Brazil and Mexico.<sup>6</sup> _Strengthening the Rural Health Insurance:_ China's rural risk-coverage programs have weakened significantly due to the dismantling of the RCM insurance in the early 1980s. The rural population now relies on government subsidy and their own resources. To remedy this problem one alternative would be to reintroduce the rural community health insurance scheme with financing from household income, village social welfare funds and local government budget. Indeed, the Sichuan Rural Health Insurance Experiment should be replicated with special emphasis on a _local package_ in the proposed essential PHP and minimum clinical interventions (Technical Annex A) but can be reconfigured differently to a diversified disease pattern and diverse population. Many villages have started to reestablish such insurance programs and they currently cover more than 10 percent of total rural population. Greater efficiency can be built into the scheme by allowing households to purchase an annual health card that would entitle the purchaser to a fixed number of treatmnents for curative care and an unlimited number of visits for such preventive services as maternal and child health care and inmmunizations. The card would be priced at less than the armual average household expenditure.

_Developing Private Insurance:_ As the economy continues to grow, people may need supplementary insurance or individuals not covered by social insurance would like to purchase private insurance policies. The government should encourage the development of private insurance thus promoting greater diversity and competition in the supply of health services. In several middle-income Latin American countries the absence of competition in the provision of health care inhibited corruption and inefficiencies in their social security schemes, and even in countries like Korea and Japan, several semi-independent insurance firms compete over a single large insurance corporation. In China, however, specific legislation should be enacted to guard against abuse and forbid exclusion of pre-existing medical conditions. Until the new legislation in 1996, the U.S suffered from such problems, creating gaps in coverage and cost escalations. Since social insurance is already in place implementing safeguards over future private insurance should not be too difficult for China.

> 6See World Bank,"Brazil: Health Sector Reform Project" (1 5522-BR)and for Mexico see, FUNSALUD: "El paquete universal de servicios de salud" Documento 11, para el analisis y la convergencia, 1994