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I'd like to welcome lawton Robert burns
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and he's a professor of healthcare
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management here at Wharton and he has a
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new book about China's health care
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system and it's actually called China's
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health care system and reform and his
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co-author is Gordon G Liu who's a
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professor of economics at Peking
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University and thank you for joining us
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today
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I understand you've written most of the
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book but you have had in addition to
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your co-author you've had some help from
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some other writers and authors tell us
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what the the big arc of this book is
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about ok well this book began as a
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global modular course back in 2012 so
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went over to Beijing met up with Gordon
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Liu who I've known for a few years he
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was actually a u.s. trained economist we
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taught a global modular course on
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China's healthcare system and reform and
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what we've done here is we've tried to
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embody what we taught in that course
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into a book and it covers the entire
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healthcare industry in China which is
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very provider-centric I mean China's
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health care system really revolves
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around its hospitals and all the
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physicians in China most of the
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physicians in China are employees of the
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hospital but then we branch out from
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there after looking at hospitals and
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doctors to study the the public and
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nascent private insurance industry
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biotechnology pharmaceuticals medical
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devices and then the real big thing you
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have to look at in China is public
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health changing demographics could the
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rise of chronic illness the rise of a
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for-profit hospital industry in China to
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supplement the public sector the growing
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long term care industry so we cover all
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of that as part of the book so to a
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casual observer China was a pretty poor
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country by Western standards 20 or 25
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years ago I'm imagining that their
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health care system at that time
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reflected that obviously they've come a
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long way in that time can you just talk
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about what's happened briefly over that
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period and then where they're trying to
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go because part of the book talks about
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a number of reforms that they're trying
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to introduce now but they've already
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come along
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I gather right well you know China's
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economy took off after dong Xiao ping
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came into office in the late seventies
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and they had the the economic
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liberalisation starting in the late 70s
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early 80s
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China's health care system lagged behind
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all that because the emphasis was put on
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economic development not on health care
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so it wasn't until you get to the late
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90s early 2000s that the Chinese leaders
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decided that they ought to take some of
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that surplus they've created and start
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pumping it back into the domestic
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consumption domestic economy and that's
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where you see a number of insurance
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reforms beginning and that the biggest
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one was in 2009 with the health China's
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version of Obamacare which was extending
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insurance coverage to over 95% of the
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population which is a lot of people a
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lot of people I can't imagine how you go
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about the that kind of a distribution
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system but maybe we can talk about that
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in a little bit so given that what what
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were their biggest challenges well the
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biggest challenges is China is very much
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like us in some ways they have a
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hospital centric health care system
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which is very expensive they also have
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sort of a mosaic of insurance policies
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both public and private mostly public
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but you know we have Medicare and
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Medicaid two different public policies
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they have three different public
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policies one for the urban employed one
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for the urban non employed and one for
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the rural and so it's this mosaic and
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it's not closely coordinated and each
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one of those had their reforms in the
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late 90s early 2000s and by using these
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three pillars China has extended health
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insurance coverage to most of the
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population so they're like us in some
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ways with there's no national health
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insurance there's a there's a smattering
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of different types of public insurance
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plans but unlike us their coverage is
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broad covers of most of the population
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but it doesn't go very deep so only
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covers a handful of things and the rest
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of Chinese health care is paid out of
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pocket so would it be something like
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catastrophic coverage and only is it
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something like that well up and up until
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the time these reforms
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were extended going into a hospital was
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catastrophic I mean the cost of a
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hospitalization could be as much as half
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a year annual family and family income
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and so these insurance extensions were
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designed to correct some of that to
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prevent medical bankruptcy from hurting
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the Chinese population but the insurance
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coverage covers primarily these large
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expensive inpatient hospitalizations but
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nothing in terms of primary care or
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preventive care things like that so
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people have to it's one reason they may
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save a lot because they know they've got
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they're responsible for a lot of their
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health care well then what they have to
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say for a lot of other things too like
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education and retirement they the the
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one part of the book goes through the
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whole Social Security system and the
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pensions and things all these areas are
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big problem areas for China and they're
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trying to figure out how to balance them
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all speaking of balance as as they go
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forward you have a concept in the book
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called the Iron Triangle of health care
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can you tell us what that is
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yes I'm it's it was not my idea the
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person who taught the course that I'm
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teaching Hereward and performing was
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built Kissick who was a physician over
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in the medical school and he actually
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wrote a book on it in the early 90s and
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he coined the Iron Triangle which is how
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I start every course here at Wharton the
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Iron Triangle is basically every society
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has three public policy goals they're
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trying to achieve in health care improve
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quality increase access and reduce the
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rate of increase in healthcare costs
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bill kissa called the it called it the
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Iron Triangle because they were
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competing goals and if you can imagine
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an equilateral triangle where each each
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of those goals is an angle and they're
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all 60 degrees if you want to expand one
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angle like increasing access you're
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gonna it's going to come at the expense
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of another angle such as cost
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containment we've seen that here with
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Obamacare Obamacare you know it was
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slated to cost a trillion dollars to
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increase access to coverage for over 20
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million people so you can't have it all
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you're gonna have trade-offs and so we
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apply that logic to the Chinese
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healthcare system they face the exact
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Sims same set of trade-offs so they've
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increased access to health insurance for
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over ninety five percent of the
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population but at the same time the rate
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of increase in national health spending
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in China
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is accelerating and it used to be three
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four five percent of you know GDP was
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spent on health care it's now seven
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percent in going higher and so they're
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facing the exact same problems we are
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how do you control rising healthcare
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costs and increase access to health
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insurance to the population what's the
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role of private insurance then in China
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well private insurance really hasn't
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taken off much there we've had a number
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of u.s. and Western insurers try to go
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over there and set up shop almost all
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unsuccessfully one reason maybe is the
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the fact that you know that's the
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private sector in China is distrusted
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public sector is trusted the private
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sector is distrusted I also don't think
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there is a a widely perceived need among
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the Chinese population to buy insurance
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coverage for something you haven't
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incurred yet and so it's sort of like
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would you rather save the money or buy
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an insurance policy then if you distrust
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the fact that it's a private for-profit
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insurance company there may be some
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reticence there but that's that's a work
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in progress you talked about some of
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some of the major challenges there for
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example the demographic time bomb which
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we can talk about but there are other
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things too including the pollution
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levels which have a huge effect on the
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health of the population can you tell us
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about that sure I mean I that the the
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changing demographics is a big worry for
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China but I think even bigger worry for
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China is the environmental pollution and
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the environmental pollution is in terms
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of the air as we all know from Beijing
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the water the soil sometimes the
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livestock and the poultry and things
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like that and so there are all types of
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pollution or there which affect the
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health of the population just to give
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you a quick illustration I was I was
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teaching a master class to the Wharton
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alumni back in 2014 over in Beijing you
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know number of Wharton faculty in the
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new Dean Dean Garrett went over there
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and so I was teaching a class in Beijing
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to the Wharton alumna and I casually
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mentioned that of course you know that
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the average lifespan of a Beijing
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resident is five years less
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because of the pollution levels and
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nobody in the audience knew that so I
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thought I'd committed the world's
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biggest faux pas but it turns out you
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know it's documented evidence but that's
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just how serious this problem is and so
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it's almost that I mean it's almost like
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an arms race is it because you're trying
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to introduce better healthcare but at
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the same time there's so many elements
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contributing to to that help yeah
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they're they're they're forces pushing
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for better health better health
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promotion addressing the chronic illness
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problem getting people access to health
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insurance so they can get access to
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healthcare services but at the same time
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you have these environmental forces you
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have public policy forces pushing
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against them just to give you another
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illustration smoking is a huge problem
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among Chinese males it's estimated that
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roughly half of all Chinese adult males
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smoke that's not so much with the
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females but with the males now you'd
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wonder why doesn't China address that
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because we all know that smoking
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contributes to a lot of chronic illness
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well it turns out tobacco is the seventh
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largest state-owned industry in China
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and China develops a lot of state
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revenues from selling tobacco at low
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prices to its population and so there's
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an illustration where you're trying to
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promote health by labeling on cigarette
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packages but at the same time it's in
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the state interest to manufacture and
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sell tobacco to it's possibly the
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ultimate conflict of interest ultimate
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conflict of interests
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there's a quote connected with all this
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that you mentioned before we started
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maybe want to talk about sure I was we
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were teaching this global modular course
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in Beijing we have a speaker and from
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kleiner perkins who's Chinese by origin
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but he comes into class and he he says
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to my class and so we put it in the book
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it's questionable whether China will get
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sick and die before it grows rich and
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old okay that kind of wraps it up well
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let's get back to the demographic time
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bomb because everyone's aware of China's
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aging population or many people are
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particularly because of the one-child
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policy so how does that affect the
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health care situation well what you have
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there is you have it sort of like a four
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to one demographic structure for
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grandparents
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two parents one child and so that one
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child is going to be really taxed in
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terms of taking care not only of his or
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her parents but then for grandparents
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and so what China really needs is a
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long-term care system which it will
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currently lacks
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as well as you know long some form of
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long-term care insurance their social
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security payments or disability payments
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or you know well-funded pensions for the
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people who retire China has issues
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within all of those areas these things
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under development these things they've
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enacted some reforms on the pension side
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so pensions for public employees but
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they're underfunded and they're not that
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big and so health care as health care
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costs and China rise then the cost of
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the care that those elderly are going to
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need is going to rise and the question
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is whether those that cost escalation
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and health care will outstrip you know
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savings and wage growth and things like
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that all which is taking place in the US
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and it's also now taking place in China
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so I mean it strikes me that pushing out
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health care to 95% the population is
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enormous undertaking it's it's an
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incredible achievement in a way what how
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does the health of Chinese stack up
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against other countries in terms of
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mortality rates infant or whatever
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they're the common yardstick is yeah
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well there are lots of metrics there we
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have this all in the book the metrics
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have obviously improved but I think the
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single biggest increase in the health of
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the Chinese took place under Mao as a
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result of investments in public health
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and you know research shows that over
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time public health investments you know
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clean air clean water
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you know hygiene sanitation those have
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enormous payoffs in terms of mortality
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and morbidity so China saw the biggest
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increases in those health outcomes under
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Mao and his emphasis on public health we
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haven't seen the same rate of increase
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in those indicators in under subsequent
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leaders but they've been occurring and
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so you can compare China with other
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countries in Southeast Asia which we
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have a whole chapter on and it sure you
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can see the dramatic improvement in
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China
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as a result of this so you've written a
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book about India's health care system
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and now China's health care system and
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you've been studying the US healthcare
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system for years and years what do you
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see as the similarities and differences
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in these systems may we cover this also
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in the introductory chapter the
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similarities outweigh the differences
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what I tell my students here as well as
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in India and Beijing is that most of the
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healthcare systems operate under some of
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the same basic processes and principles
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obviously there are institutional
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differences historical differences
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cultural distances but at the end of the
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day managing the cost of care managing
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the trade-offs in the Iron Triangle
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trying to get people to improve their
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health behaviors these are problems that
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are common to all these countries and so
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what you learn about managing the
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problems in this country is immediately
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transportable to these other countries
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in terms of here's some hypotheses about
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what might work and what might not work
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so just to give a quick illustration
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we've been trying to figure out how to
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control the rising cost of healthcare in
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the United States for since the early
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1980s
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outside of regulation and so one of the
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first things we did in the early 80s we
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passed what was called the prospective
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payment system using diagnosis related
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groups it turns out the United States
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exported this concept of diagnosis
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related groups to the rest of the world
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everybody uses us
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China's now peyote experiments in
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several of its cities to try to control
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the rising rate of hospital costs in
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China using diagnosis related groups so
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some of these things are immediately
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transportable what what happened I asked
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you that's really important to know
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about that the Chinese healthcare system
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and also just what where is it going
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where do you where will it be how much
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will it advance and progresses over the
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next three to five years well let me
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take your first question what you
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haven't asked me is the problem China
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has is just the sheer size and
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complexity of the government in the
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country so China operates there's a
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national government there are provincial
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governments there are local governments
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and the national government sets
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policy but the provincial and local
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governments have to come up with the
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money this was enacted 20 30 years ago
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and so you had this this disjunction
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between who sets policy and who has to
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implement it with what resources and
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that's always a tug-of-war as to whether
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or not the lower levels of government
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want to do or can afford to do with the
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upper levels of government suggests a
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second that's a vertical dimension the
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horizontal dimension is just the sheer
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number of ministries and the Chinese
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government that has something to do with
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healthcare so you got this horizontal
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division of labor
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you got this vertical division of labor
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and getting any kind of concerted action
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where strategy actually gets implemented
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it's totally problematic so that's one
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of the biggest problems China has just
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overcoming the size and complexity of
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their government the second question was
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well just in general what what where
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where do you see all of this reform that
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they're undertaking going and what will
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look like how much progress might we see
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in say three to five years nice to pick
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an arbitrary range right well you know
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as the economy slows down in China you
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know the the the the government has been
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using the high growth rate in China
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recently to take some of that surplus
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and plow it back into the domestic side
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to spur domestic consumption to switch
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from an export economy to a domestic
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consumption economy and so what they'd
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like the Chinese to be doing is spending
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more of the the money that they've made
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on their own health care question is
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whether or not the Chinese want to spend
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it on health care versus save it for
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retirement for their children things
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like that so that's one issue I think
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the the other thing China's going to
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have to worry about is you know they
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have all these initiatives to try to do
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things so one of the initiatives in the
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the more recent five-year plans was to
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develop a biotechnology sector well that
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that's easier said than done
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and so when they've developed at least
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four different biotech clusters across
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China mostly in the eastern coast of
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China and and hopefully develop a life
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sciences sector developing novel
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therapeutic drugs based on biotech now
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that is not easy to do and as we we've
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studied elsewhere in the healthcare
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program what it takes to put together a
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biotechnology cluster really requires
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the confluence of government help
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private sector involvement a lot of
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equity and venture capital pull all of
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these things together and it's an
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ecosystem of things plus all these local
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universities with talent to spare and
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China's ability to pull this off will be
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contingent on its ability to replicate
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some of the things we see in Cambridge
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Massachusetts or San Diego California
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it sounds like they that there's a lot
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of potential for business opportunities
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but whether or not the environment will
00:18:27
allow these things to flourish with all
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sorts of rules and regulation on
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investment in that sort of thing and
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repatriation repatriation of capital
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that kind of thing this is I guess it
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remains to be seen how this is going to
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play out yeah you know what I'd say to
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companies who were thinking of investing
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in China I think they have to know two
00:18:45
things they have to know the local
00:18:47
landscape in China and our book can help
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with that there are other things they
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could read as well but it gives you sort
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of the lay of the land of all the
00:18:53
different sectors in healthcare and how
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they're operating the issues they face
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the other thing is to understand why
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things work wherever in the world and so
00:19:02
if you understand why the biotech sector
00:19:05
took off in the US and it hasn't taken
00:19:08
off as much in other countries or why
00:19:10
the medical device sector is so
00:19:12
prominent in the US but not so prominent
00:19:15
in other countries then you can
00:19:16
understand what are the conditions
00:19:17
needed for this these sectors to really
00:19:20
thrive in China what are some of those
00:19:22
things that make it work well you know
00:19:24
I've we've already talked a little bit
00:19:26
about the biotech yes you need a
00:19:28
confluence of three or four major actors
00:19:30
all working in concert and these are in
00:19:32
local areas you know large parts of the
00:19:34
US would like to emulate Cambridge and
00:19:36
San Diego even Philadelphia would like
00:19:38
to be a biotech cluster but it's not
00:19:40
easy to do so it's not even easy to do
00:19:43
here let alone in China secondly with
00:19:46
medical devices that the success of the
00:19:48
medical device industry has really
00:19:50
rested on the partnerships between the
00:19:53
medical device companies and the
00:19:55
physicians who implant or you
00:19:57
lies those medical device products and
00:19:59
so you need a cadre of specialists who
00:20:03
are really good at you know using these
00:20:05
technologies whose demand these
00:20:07
technologies but who also helped to
00:20:09
invent or come up with the ideas for the
00:20:11
new technologies and so China doesn't
00:20:13
have that cadre of specialists
00:20:16
implanting specialists the way the US
00:20:18
does so that's one of the things they're
00:20:20
going to need well thanks very much for
00:20:23
coming in and maybe you'll be doing a
00:20:26
follow-up on this soon and we can catch
00:20:27
up with you my pleasure thank you so
00:20:29
much
00:20:34
[Music]
00:20:45
you
00:20:48
[Music]
