The steady rise in medicine prices and the low availability of some essential pharmaceuticals is a growing problem in China. It is a phenomenon that is a product of a healthcare system in which  revenue from the sale of medicine is linked to the income of hospitals and often the salaries of doctors. It is a system where “medicine maintains hospitals”. As a result, healthcare providers have a financial incentive to prescribe the most expensive pharmaceuticals. At the same time, some essential medicines, which are cheaper and therefore less profitable, have become less available and more costly.

The Carnegie Endowment and China Society of Economic Reform gave scholars, government officials, and domestic and international industry insiders an opportunity to bring their unique perspectives on the issue in a forum entitled “Essential Medicine System Strategy Options”. This talk was the fifth in a series of “China New Health Reform Forums” hosted by the China Society of Economic Reform.

In a lively debate, participants also addressed broader strategic questions in healthcare reform, including the applicability of international healthcare models and experience in the context of the Chinese hospital system and the place of government regulation in healthcare.

Models of Reform

Public-Private-NGO Model
Scholars from Peking University introduced successful international models of healthcare reform as well as policy suggestions submitted by the World Health Organization. Establishing a national essential medicine (EM) system to improve accessibility to EM is a policy vigorously promoted by WHO. EM are those medicines that treat the basic healthcare needs of the population and are availble at affordable and adequate amounts at all times. The WHO's public-private model emphasizes the importance of balancing the relationship between government and the market. According to the so-called Public-Private-NGO approach, good pharmaceutical procurement practices can be implemented in the public sector while the private sector is encouraged to ensure effective distribution.

In response, many experts pointed out that international models and experience cannot be applied in a Chinese healthcare system because of the limited capabilities of the Chinese government to help the market deliver necessary goods and services. Other basic relationships that deserve closer attention include the similarities and differences between EM and non-EM; the relationship between the EM system, the health insurance system, and the medical service system; and the relationship between the EM system and the financial capabilities of government. 

Administrative Supply System Model
A different model for health care reform emphasizes the role of government. This popular reform framework, the Administrative Supply System model, would enable the government to intervene in the manufacturing, procurement, and distribution of essential medicines. Essential medicine prices would be controlled through price ceilings.

Challengers to this model, particularly industry insiders, questioned the government’s capabilities in this respect and also objected to intervention over market based pricing. Others argued that the framework might not solve the fundamental problem or even exacerbate government corruption.


All participants agreed that government policies should encourage doctors to properly prescribe medicine, and many suggested doctors undergo pharmacists’ training and supervision in order to address the problem. Most agreed that a system of compensation for doctors should be established in order to correct the current system of skewed financial incentives for the over-prescription of unnecessary, expensive medication. 

Opinions diverged over questions of the role of government and markets in the essential medicine system, specifically how to control rising prices and how to separate the prescription and distribution of these pharmaceuticals. Further studies are necessary before any model could be introduced.

The invited experts included senior representatives from China Society of Economic Reform, National Development and Reform Commission, the Research Office of the State Council, Peking University, China Pharmaceutical Enterprises Management Association, China Pharmaceutical Entrepreneur Association, Chinese Medical Insurance Association, Chinese Academy of Social Sciences, the Policy Office of the Ministry of Health. Deputies from domestic and foreign medical companies also attended. Among the news agencies covering the event were Xinhua News and 21st Century Business Herald.

The topic of the next discussion in “China New Health Reform Forums” series will focus on insurance for the elderly and will also be co-sponsored by the Carnegie Endowment.