ABSTRACT
In the course of the Reform and Opening period (since 1979), the regulatory institutions that govern China’s healthcare system changed. This institutional change turned a public service, which once achieved health outcomes in the rural areas that made China the avant-garde of health policy among developing countries, into a partly dysfunctional set of organizations driven primarily by economic constraints. One major cause of this development has been the fiscal crisis that hit China during the transition, and to which the government reacted with reforms that created a largely dysfunctional public finance system: centralizing revenue mandates, keeping expenditure mandates decentralized and failing to install an effective system of fiscal redistribution. The results of this development were twofold. On the one hand, many local governments henceforth suffered from heavy fiscal imbalances-that is, they lacked the financial resources to live up to their formal responsibilities in public service provision and other areas. On the other hand, local governments in general had strong incentives to concentrate their financial resources on economically and politically lucrative projects, by informal means if necessary. Even in wealthy areas, urbanization and economic development had priority over financing public service provision and healthcare (Wong 2009; World Bank 2007a). The regulatory institutions governing the healthcare system were, however,
not systematically adapted to the changes in the public finance system and local fiscal state capacity. On the one hand, healthcare providers were comprehensively commercialized, but, on the other hand, they were continuously expected to perform social functions without separate financing, such as the provision of cheap basic healthcare services and public health work. At the same time, the coverage of health insurance decreased and shifted the growing financial burden of supporting the commercialized health sector to households. Commercialization and the decrease of insurance coverage were more gradual processes in the urban areas, whereas they were swift and comprehensive in the rural areas where the collective economy had been the primary financial foundation of the healthcare system. Due to the systemic interdependence of health sector regulation and public
finances, many of the processes and operations in China’s healthcare system
were pushed into informality. On the one hand, healthcare providers at the township level and above largely remained public or semi-public in terms of ownership status and were formally designated non-profit providers. At the grassroots level, non-public provision was more common, with private practitioners and clinics. On the other hand, there were far-reaching formal mandates focusing on public health tasks and formal requirements to adhere to the pricing system. The public finance system determines the level of fiscal capacity available for funding the health sector at the local levels, and health sector regulation determines the level of public funding that the healthcare facilities need for their daily operations and the fulfillment of their social functions. Based on fieldwork in rural Guangxi in the late 1990s, Cailliez summarizes how these institutional misfits transform the health system as a functional context of interaction between healthcare providers and patients: “The health system no longer functions as a public service: it is entirely subject to economic constraints” (Cailliez 1998). Chapters 5 and 6 will analyze in greater detail how the institutional misfits influence policy implementation and the interaction of local governments and healthcare providers. This chapter primarily focuses on the institutional change in China’s health
system during the reform period, up to the enactment of the New Health Reform, which will be discussed separately in Chapter 7. The first part will analyze the institutional structures that governed the healthcare system in the planned economy period, and the second part will analyze the institutional structures of the reform period. Both will analyze separately the fields of service providers, risk protection and health insurance, and market regulation. The third part will briefly summarize the social effects of the institutional change, which became a driving force for the introduction of the new rural health insurance system which will be analyzed in the following chapters. This chapter also provides an important basis for Chapter 6, which analyzes the local implementation and maintenance of the NRCMS in a context of interdependent but misfit institutions. Chapter 7 will build upon this chapter and provide a summary, which analyzes the most recent reform initiatives under the New Health Reform and their effects on the institutional misfits.
