An evaluation of systemic reforms of public hospitals: the Sanming model in China

Abstract

Low- and middle-income countries (LMICs) have been searching for effective strategies to reform their inefficient and wasteful public hospitals. Recently, China developed a model of systemic reforms called the Sanming model to address the inefficiency and waste at public hospitals. In this article, we explain and evaluate how the Sanming model reformed its 22 public hospitals in 2013 by simultaneously restructuring the hospital governance structure, altering the payment system to hospitals, and realigning physicians' incentives. By employing the difference-in-difference (DID) method and using the hospital-level data from 187 public hospitals in Fujian province, we find that the Sanming model has reduced medical costs significantly without measurably sacrificing clinical quality and productive efficiency. The systemic reform, on average, has reduced the medical care cost per outpatient visit and per inpatient admission by 6.1% (P-value = 0.0445) and 15.4% (P-value < 0.001), respectively. It is largely accomplished through a decrease in drug expenditures per outpatient visit and per inpatient admission of about 29% (P-value < 0.001) and 53% (P-value < 0.001). These results show that the Sanming model has achieved at least a short-term success in improving the performance of the public hospitals. These findings suggest that such a systemic transformation of public hospitals, where the governance structure, payment system and physician compensation methods are aligned, are crucial to improving their performance; it holds critical lessons for China and other LMICs.

China's Healthcare Costing in Times of Crisis: Conflicts, Interactions, and Hidden Agendas

“…The so‐called neutral nature of the accounting steering mechanism means that it can be more easily manipulated where multiple co‐existing values exist, and where there is weak governance and accountability as in the public sector. Piecemeal reform can encourage actors to circumvent regulations and continue to prioritize their own interests (Fu et al ., ). A systemic design that bundles or blends different mechanisms, which calls for a better understanding of organization lifeworld and cross‐institution collaboration, is a way forward for public sector reform, both in China and worldwide.…”

“…Alongside the artificially low prices for basic medical services set by government under the ‘fee‐for‐service’ payment system, public hospitals were granted permission to charge for high‐technology tests and sell drugs at a profit in order to survive financially. They were granted autonomy to generate, retain, and manage profit (Yip and Hsiao, ; Fu et al ., ). Bonus schemes were introduced; performance‐related remuneration was used to motivate physicians to optimize revenue (Blumenthal and Hsiao, ).…”

“…In particular, the Government encouraged trials of various provider payment mechanisms, demanding more intensified expenditure control in public hospitals (Yip et al ., ; Fu et al ., ). The first guide on cost measurement methods for public hospitals in Beijing was issued in 2002, driven by marketization reform.…”

The Sanming Three‐in‐One Model: A Potentially Useful Model for China's Systemic Healthcare Reform

“…The Sanming model significantly reduced medical costs without measurably sacrificing clinical quality and productive efficiency. 8 From 2014, the systemic reform reduced the medical care cost per outpatient visit by 6.1% and per inpatient admission by 15.4%. This achievement was largely accomplished through a decrease in drug expenditure per outpatient visit of about 29% and per inpatient admission of about 53%.…”

“…This achievement was largely accomplished through a decrease in drug expenditure per outpatient visit of about 29% and per inpatient admission of about 53%. 8 The unique healthcare reform in Sanming also reduced the weighting of drug sales in hospital revenue from 47% to 26%. The medical insurance fund has improved from a deficit of 200 million Yuan to a positive balance of 130 million Yuan, meaning Sanming medical insurance moved from a deficit to a balance.…”