The soaring price of hospital prescription drugs is believed to be a fundamental problem in China's healthcare system.
Back in the 1950s, due to the lack of government funding, the central authorities resorted to the policy allowing public hospitals to add a 15 per cent markup on drugs' original purchase prices.
The policy has enabled hospitals to generate revenue as state subsidies continued to shrink.
Liu Guo'en, a professor from Guanghua School of Management of Peking University, points out the problem with the policy.
"This markup policy directly provides incentives to hospitals to seek more expensive drugs. This could create incentives to doctors to over-prescribe. "
The Ministry of Health now sets to abolish the policy nationwide by 2015.
Currently, the revenues of public hospitals mainly derive from three sources: namely drug sales, medical service fees and state subsidies.
Statistics released by the State Council show that by 2009 drug sales accounted for up to 60 per cent of hospitals' income, while government funding covers only 10 percent of their operating costs.
Gu Xin is head of the national new healthcare reform research team.
"If hospitals can not make profits from drug sales, and if the current medical service fees are too low to sustain their operation, then governments will need to subsidize their expenses."
But hospital administrators worry that state subsidies alone will not be enough to keep hospitals afloat.
Ma Xiaowei, Vice Minister of the Ministry of Health, says an alternative way to fill the deficiency is for hospitals to lift medical service charges.
And to make medical services affordable, Gu Xin believes they must do more than merely cut down the 15 per cent markup.
"The key is to increase the proportion that should be covered by health insurance."
Currently, how much a patient can claim from the health insurance is based on the type of drugs used in medical treatment. Gu Xin suggests that if the insurance is offered based on the type of disease, it will limit the incentives for doctors to prescribe expensive drugs.
As the first step of the program, the new policy to cut down hospital markup rate is set to run in 300 counties later this year.
For CRI, I'm He Fei.
