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