Combating Healthcare Cost Inflation with Administrative Measures in Urban China

Abstract

This doctoral thesis studies a critical health policy issue that many national governments around the world are grappling with?rapid inflation in healthcare costs. It specifically focuses on urban China which has been experiencing double-digit percentage in cost escalation for two decades. Its central thesis is that cost inflation in healthcare could be contained in the short run by concerted administrative action, but are contingent upon a set of conditions, which are often not present, thus undermining the effectiveness of the administrative action.

The thesis supplements the popular policy prescription that cost containment would hardly be achieved unless fundamental economic incentives are realigned such that supplier-induced demand in healthcare is effectively curbed, coupled with appropriate cost-sharing mechanisms on the demand-side. In examining the case of China, this thesis reveals that while a systemic and holistic approach to healthcare reforms is undoubtedly desirable, the real-world policy environment is however, not often conducive, making it imperative for the health bureaucracy to take action to address cost inflation, along with a multitude of resultant social problems.

This thesis investigates a healthcare reform program committed to cost containment in Fujian Province, which had been the only Chinese province using administrative measures to combat cost inflation, without involvement of other government bodies or substantive realignment of economic incentives such as payment arrangements. Integrating various qualitative, quantitative and case study methods, the thesis provides a strong account for the driving forces, rationale, dynamics, strengths and weaknesses of administrative cost-containment policies within the context of urban China.

Concurring with the perspective that the potential of administrative action in containing healthcare costs has been arguably underplayed, the thesis also reveals that this type of policy intervention also suffers from its inherent limitations which make healthcare providers` opportunistic behaviors possible. The analysis unveils a battery of behavioral patterns and responses on the part of public hospitals, most of which are undesirable. As such, although administrative interventions may have the potential of arresting the trend of continuous cost rise, its real effectiveness should not be overstated.This thesis draws some crucial implications for the ongoing national healthcare reforms in China, which has recently recognized the importance of administrative tools in the combat against unbridled cost escalation. It informs policy-makers that the administrative cost-containment approach is of a transitional and temporary nature, and its long-term effect must be supported by the revision of the economic incentive structure. As such, the true value of reform lies in reassertion of the health authorities` statutory role in healthcare administration, and restoration of collapsed accountability mechanisms in the Chinese healthcare system. In the long-run, these should be directed towards a sustainable and integrative framework of cost-containment in China, in close collaboration with other important complementary reforms, including provider payment methods, third-party controls and pricing policies.