Equity and Efficiency of China's Healthcare Delivery System

China's incremental reform of healthcare delivery has failed to produce an equitable and efficient system. There is a mismatch of services and needs, with more than 80% of healthcare delivered in urban areas even though 70% of the population resides in rural areas. Tertiary hospitals operate at capacity, while community hospitals and township health centers have bed occupancy rates below 50 percent. The government is gradually reducing its subsidy to public hospitals (now 7%); and they generate operating revenue and profit, targeting primarily the rich. We examined the causes of this through analysis of National Health Services Survey data, China Health Surveillance System data, and other sources. The inequity is largely due to lack of appropriate financing and policy clarity on the role of government hospitals. It is unclear whether they should be part of a social safety net or act as a state-owned enterprise competing in the health care market. The root causes of system inefficiency are: a. payment method for providers where private out of pocket financing and fee for service is dominant, b. underutilization of primary care facilities due to a lack of quality, safety and public trust. To improve equity and efficiency, the government should: a. clarify and redefine the role of public and private providers; b. based on these roles, establish new organization and financing mechanisms to improve quality and efficiency in healthcare delivery; c. strengthen vertical integration of primary and secondary/tertiary systems to establish a seamless continuum of services and referrals.