Gordon G. Liu on China's healthcare reforms: overcrowded clinics, underpowered pharma

Top health economist calls for a stronger dose of mobility across hospital tiers and prescribes drug procurement adjustments to empower innovative drug R&D.

Most Chinese patients tend to seek primary care at tertiary hospitals—the top tier of China’s three-level healthcare system—even for minor ailments. This has resulted in overcrowding at higher-level hospitals and the continued underdevelopment of community-based medical services. Institutional barriers that restrict practitioners from working across multiple locations and tiers have only deepened this imbalance.

To address this issue, Gordon Guoen Liu, a leading figure in health economics in China, emphasised the importance of developing a stratified care system in a recent interview with Outlook Oriental Weekly, a magazine under the state-run Xinhua News Agency. The key, he argued, lies in removing institutional barriers that prevent multi-site practice and transforming tertiary hospitals into open, shared platforms where physicians can move freely in and out. Liu believed that only through such supply-side reforms can patient behaviour on the demand side be reshaped, thus achieving better alignment between healthcare supply and demand across the system’s various tiers.

Gordon Guoen Liu is BOYA Distinguished Professor of Economics at the National School of Development (NSD), and Dean of the Institute for Global Health and Development at Peking University, and an academician of the Chinese Academy of Medical Sciences. He has been at the forefront of China’s healthcare reform since its inception in 2009. In 2011, he was appointed to the inaugural Expert Advisory Committee on Healthcare Reform under the State Council’s Healthcare Reform Leadership Group.

Liu also went into details about the drug procurement process under China’s national healthcare insurance system. In China, the government negotiates directly with pharmaceutical companies to secure public procurement contracts that allow medicines to be sold in public hospitals and covered by national insurance. These negotiations determine which drugs are included, along with their pricing and reimbursement standards.

Since the announcement of the 2024 negotiation results in November, public debate has intensified. Concerns have surfaced over the high proportion of domestic generic drugs included in the list, and viral anecdotes, such as patients reportedly waking up during surgery after receiving domestically produced anaesthetics, have spread wildly online.

Having served as the head of the pharmacoeconomics advisory panel during the first three years of negotiations, Liu emphasised the independence and impartiality of the drug procurement process and highlighted various strategies to enhance returns on investment for pharmaceutical companies and promote sustainable innovation. These include raising medical insurance reimbursement standards and allowing new drugs, medical devices, and services not yet covered by insurance to enter public hospitals.

The original text of the interview is available on the official NSD WeChat blog.

—Yuxuan Jia

刘国恩：为什么分级诊疗任重道远

Gordon G. Liu: Why Achieving Stratified Care Remains an Uphill Battle

Accelerating the establishment of stratified care

Oriental Outlook: What is the primary goal of the current healthcare reform?

Liu: Advancing stratified care is the foremost goal of China’s healthcare reform.

Stratified care, simply put, is about directing patients to the most appropriate level of healthcare facility based on the severity and urgency of their condition. In China, there are three tiers of medical services: tertiary care, secondary care, and primary care (including community health service centres, community hospitals, and township health clinics).

Currently, the disparity between tertiary hospitals and primary care facilities in China is stark. Tertiary hospitals often operate like “war-zone” hospitals, with outpatient departments overwhelmed by a flood of low-risk patients. Meanwhile, primary care facilities struggle with low patient volumes, leaving medical resources underutilised.

This unbalanced utilisation of healthcare resources largely stems from the structure of the healthcare system. Historically, the system has been centred on large hospitals, providing a one-stop solution for all types of medical needs—be it minor ailments, major illnesses, chronic conditions, infectious diseases, emergencies, or long-term treatments. While this model offers convenience, it also results in higher time costs and medical expenses for patients, hindering the effective implementation of stratified care.

Tertiary hospitals in China provide three main types of services: emergency care, inpatient care, and outpatient care. Emergency and inpatient departments are essential, as only large hospitals typically have the necessary resources and personnel to deliver critical care, a pattern seen in healthcare systems around the world.

However, outpatient departments are rarely found in tertiary hospitals in most countries, especially in developed ones. This is largely because China has yet to establish a well-functioning system of community-based family doctors who act as gatekeepers for residents’ healthcare. As a result, outpatient departments in tertiary hospitals are often overwhelmed by patients seeking treatment for common ailments. Studies suggest that 70% to 80% of these cases could be managed at lower-tier facilities, sparing patients the long wait times at the outpatient department of top hospitals such as Peking Union Medical College Hospital or West China Hospital.

According to the annual Statistical Bulletin on the Development of China’s Health issued by the National Health Commission, total annual hospital visits nationwide increased from 6.27 billion in 2011 to 8.47 billion in 2021, a rise of 35%. However, visits to primary care facilities grew only modestly, from 3.81 billion to 4.25 billion, a rise of just 12%. In stark contrast, visits to tertiary hospitals surged from 900 million to 2.23 billion, marking a dramatic increase of 148%.

These statistics highlight a growing siphoning effect of tertiary hospitals on outpatient visits, even as the overall health of the population continues to improve. This underscores the long and challenging road ahead for redirecting routine outpatient visits to primary facilities and fully implementing stratified care.

Oriental Outlook: What are the benefits of stratified care?

Liu: If 70% to 80% of routine outpatient cases currently handled by tertiary hospitals can be redirected to community healthcare platforms, it would bring numerous advantages.

First, it would significantly reduce the clinical workload at tertiary hospitals. Scarce specialist resources would no longer be consumed by the need to handle dozens or even hundreds of routine outpatient cases each day. Instead, physicians could devote more time and expertise to treating complex and severe inpatient cases, conducting research, and training medical students.

Second, for patients, accessing high-quality outpatient care in the community would eliminate the need to queue at large hospitals. This would save considerable time and expense, as well as allow for more attentive consultations with community-based doctors. At present, many patients report that hospital outpatient physicians, overwhelmed by heavy caseloads, lack the time for meaningful communication, often falling short in empathy. In contrast, community clinics, with their lighter patient loads, allow doctors to spend more time with each individual, providing more warm and compassionate care. This not only enhances the quality of medical services but also helps build stronger doctor–patient relationships.

Additionally, as patient volumes increase, the community healthcare system would gain opportunities for growth and development. This would lead to better working conditions and compensation for community healthcare workers, encouraging more professionals to commit to community-based services.

Naturally, some patients may worry that consulting general practitioners (GPs) in community settings is less effective than seeing specialists in major hospitals. However, a substantial body of medical literature and clinical experience, both in China and abroad, shows that specialists are not always the best choice for treating common ailments. In many cases, experienced and empathetic GPs are better equipped to meet patients’ needs. With their broad medical knowledge and systemic approach to health, GPs serve as ideal “gatekeepers,” providing more accessible and effective primary care.

When it comes to the quality of initial consultations, GPs often bring greater experience in managing a wide range of conditions, more time for meaningful patient interaction, and a deeper understanding of local community health contexts. These qualities make them a better choice than specialists.

Oriental Outlook: How can patients be encouraged to seek treatment at the community level?

Liu: This requires ensuring that patients can easily access competent GPs and that these practitioners develop a deep understanding of the communities they serve. Objectively speaking, China’s healthcare system has long prioritised specialised medicine, while the development of general practice remains relatively underdeveloped.

The preference for specialisation over general practice is evident in the curriculum design of medical schools across the country. This has resulted in a lack of systematic and high-quality training pathways for GPs.

Currently, while qualified GPs remain in short supply, doctors in internal medicine and paediatrics can serve a transitional role to some extent. However, they cannot fully substitute for the functions of GPs. Since the launch of healthcare reform in 2009, establishing a tiered healthcare system has been a key objective. Yet from the supply perspective, effective vertical mobility across hospital tiers and a clear division of labour among China’s nearly 4.8 million physicians still require substantial improvement.

Although the policy of allowing physicians to practice in more than one location has been introduced during these years of reform, the supporting institutional frameworks have yet to catch up. Key issues surrounding multi-sited practice—such as career advancement, medical research, and teaching responsibilities at new practice locations, particularly in privately run community clinics—remain unresolved. These challenges make it difficult for most doctors to transition from large hospitals to community-based primary care, resulting in a continued shortage of high-quality medical resources at the community level.

The success of public hospital reform depends on encouraging routine outpatient patients to follow doctors out of tertiary hospitals. The key lies in addressing the supply-side challenges—“freeing” doctors from large hospitals and enabling them to move into communities and serve the people. Through extensive community clinic platforms, these doctors can take on the role of “gatekeepers” for ordinary patients, leaving tertiary hospitals to focus on severe and emergency cases.

Only by transforming tertiary hospitals into open, shared platforms for high-quality care, where the institution remains constant as physicians come and go, can effective collaboration with primary care facilities be achieved. Such a shift on the supply side is essential to reshaping patient behaviour on the demand side, ultimately enabling better alignment between healthcare supply and demand across different tiers of the system.

Healthcare insurance reform has yielded significant results

Oriental Outlook: Under the national medical insurance system, the National Healthcare Security Administration (NHSA) negotiates drug prices and reimbursement standards with pharmaceutical companies. Having participated in several rounds of these negotiations, how do you view the outcomes of the medical insurance reform?

Liu: Since its establishment in 2018, the NHSA has developed a structured selection process—including expert evaluations and negotiations with pharmaceutical companies—to adjust the national insurance drug catalogue more systematically, scientifically, and efficiently. This mechanism has provided more orderly and transparent technical support for national reimbursement decisions.

First, since 2018, the adjustment cycle for the national medical insurance drug catalogue has been shortened from up to seven years to just one year. Previously, updates to the catalogue and price management relied heavily on administrative directives and lacked a transparent expert review mechanism. Pharmaceutical companies also faced uncertainty around review timelines, often waiting years after a drug’s launch for potential inclusion, which hindered operational efficiency and delayed public access to innovative drugs. The post-2018 reforms have introduced clearer timelines for both companies and the public, significantly accelerating the inclusion of new drugs in the insurance system.

Second, the introduction of expert groups is another hallmark of these reforms. These groups include clinical experts, medical insurance experts, and economic experts. The clinical panel, composed of leading national pharmaceutical specialists, provides experience-based opinions grounded in extensive clinical knowledge and medical expertise. The medical insurance panel, consisting of officials directly involved in local medical insurance administration, evaluates the financial impact of including a drug in the insurance system. The economic panel assesses cost-effectiveness by analysing data and research submitted by pharmaceutical companies and then offers economic evaluations.

During the centralised evaluation process, the expert groups operate independently, without communication or joint discussions, to ensure the impartiality and objectivity of their assessments. The administrative departments then consolidate the recommendations from all groups to formulate a proposed reimbursement standard, which is submitted to the negotiation team. This team engages with pharmaceutical companies to determine whether the drug will be included in the insurance catalogue and to finalise the corresponding reimbursement terms.

Oriental Outlook: How can we ensure that all insured individuals receive the medical coverage they are entitled to?

Liu: Before 2019, China’s universal medical insurance system consisted of three separate programs: the Urban Employee Basic Medical Insurance (UEBMI), the Urban Residents-Based Basic Medical Insurance (URBMI), and the New Rural Cooperative Medical Scheme (NCMS). These programs differed in terms of reimbursement rates and coverage scope.

Through continuous improvements, by 2019, the integration of urban and rural medical insurance was completed nationwide, creating a unified Urban and Rural Resident Basic Medical Insurance (URRBMI) system within each region, providing equal coverage for urban and rural residents.

However, it is also important to acknowledge that disparities still exist among the URRBMI, the UEBMI, and state-funded medical care typically reserved for government officials. Bridging these gaps will require higher-level policy designs.

From the standpoint of improving efficiency and equity in resource allocation, the future integration of URRBMI, UEBMI, and state-funded medical care into a unified, upgraded universal medical insurance system would mark a significant step forward. This remains a critical issue that warrants in-depth discussion and further research.

Collaborating to advance innovative drug development

Oriental Outlook: How can medical insurance procurement be balanced with returns on investment for new drugs?

Liu: No system can be perfect from the outset, and the Basic Medical Insurance (BMI) system is no exception—it still has many aspects that need improvement. For innovative pharmaceutical companies, the time from drug approval to inclusion in the insurance catalogue has been significantly shortened. This provides companies with access to a broader market and allows for faster market expansion. However, inclusion in the insurance system reduces their autonomy in pricing. If return on investment declines, it may, to some extent, hinder continued investment in innovation.

Therefore, in a landscape where opportunities and challenges coexist, pharmaceutical companies face the complex task of formulating long-term R&D strategies. Balancing effective reimbursement for basic medical services with the promotion of domestic pharmaceutical innovation presents a dual challenge in the development of the medical insurance system—one that demands collective attention and thorough deliberation.

From a pharmacoeconomic perspective, the key focus is the relationship between the cost of new drugs and the health benefits they deliver. The most widely used metric for assessing these benefits is the Quality-Adjusted Life Year (QALY). As recommended by the World Health Organisation in the 1990s, a new drug is generally considered cost-effective and suitable for inclusion in medical insurance if it provides one additional QALY at a cost not exceeding three times the country’s per capita GDP compared to existing clinical alternatives. The actual reimbursement level can be adjusted in line with the nation’s average income.

In China, since the establishment of the NHSA in 2018, annual negotiations for the national medical insurance drug catalogue have been conducted for seven consecutive years. For most included drugs, the average reimbursement threshold for gaining one QALY through medical insurance has ranged between 1 and 1.5 times the GDP per capita. Higher thresholds—typically 1.5 to 2 times GDP per capita—have been applied to treatments for rare diseases and paediatric conditions.

It is clear that there remains room to raise the reimbursement threshold for gaining one QALY from new drugs. Achieving this, however, requires increased funding for the medical insurance system, drawing from enterprises, individuals, and government finances. Contributions from enterprises are reflected in labour costs, government funding comes from tax revenues, and individual contributions are drawn from post-tax disposable income. Ultimately, all costs are borne by individuals. Whether individuals are willing to allocate a larger share of their income to healthcare at the expense of other essential needs entails a personal trade-off.

At the national level, reallocating spending from other sectors and reducing inefficiencies or waste in medical insurance expenditures could create additional funding sources as it prioritises health as a strategic focus. Another potential approach to resource allocation is to tap into the existing surplus of the medical insurance fund. In particular, the UEBMI has accumulated a sizeable surplus over the years. A portion of these surplus funds could be reallocated to cover current-year expenditures more effectively, allowing for more favourable reimbursement standards. Doing so would enhance support for innovative pharmaceutical companies, helping to ease their financial burdens and avoid potential crises, thereby sustaining the momentum of medical innovation.

China should, and can, strengthen support for innovative drugs through more favourable medical insurance reimbursement standards in the future. In fact, a nationwide survey of pharmacoeconomic experts conducted in 2023, with findings published in Value in Health, [Liu, Gordon G. et al. (2024). Key issues of economic evaluations for health technology assessment in China: A nationwide expert survey. Value in Health, 27(11), 1535–1543.] showed that these experts put forward more supportive recommendations for advancing pharmaceutical innovation.

Oriental Outlook: Why is the development of innovative drugs so important?

Liu: In recent years, China has placed increasing emphasis on innovation-driven development. Globally, the pharmaceutical industry consistently ranks among the top in R&D investment. According to data from the S&P 500 in the United States, the return on investment in the pharmaceutical sector significantly outperforms that of many other industries. Therefore, for any country pursuing an innovation-led growth strategy, pharmaceutical innovation must be the leading industry for overall R&D investment.

At present, there are more ways to support pharmaceutical innovation beyond raising medical insurance reimbursement standards. One such approach is to allow new drugs, medical devices, and services not yet covered by insurance to enter hospital systems. This would enable patients with urgent needs, and the willingness and ability to pay out of pocket, to access these treatments. Such a policy would place no burden on insurance funds while addressing the needs of specific patient groups and indirectly benefiting the broader population. By reducing demand for insured drugs, self-paying patients free up more resources for general patients. At the same time, this approach can enhance return on investment for companies, encouraging sustainable technological innovation and potentially benefiting the general public more quickly.

Oriental Outlook: In 2016, the State Council released the Outline of the Healthy China 2030 Plan, which emphasised “integrating government leadership with the initiative of society and individuals.” To what extent does personal behaviour influence health outcomes?

Liu: A substantial body of both domestic and international medical research shows that individuals have significant control over their own health. Generally speaking, about half of a person’s health status is determined by “non-behavioural factors,” such as genetics, environmental conditions, and medical resources. The other half depends on “behavioural factors,” namely, adopting a healthy lifestyle, including a balanced diet, avoiding smoking and excessive alcohol consumption, and engaging in regular physical activity.