A China Hospital Watchdog Pushes Hard for Reforms

The Shanghai Hospital Development Center is getting the region’s hospitals into line when it comes to quality and financial standards.

The Shanghai Hospital Development Center (pictured here), established in September 2005, manages the budget, staffing, and health-record sharing of 37 of Shanghai's municipal hospitals.
The Shanghai Hospital Development Center (SHDC), established in September 2005, manages the budget, staffing, and health-record sharing of 37 of Shanghai's municipal hospitals. Photo from SHDC

Before 2005, Shanghai's public hospitals all pulled in extra revenues by overcharging patients for procedures, drugs, medical supplies and routine lab tests. The inflated charges were seen as necessary for keeping the hospitals afloat.

Enter the Shanghai Hospital Development Center (SHDC) in September of that year.

A non-profit investment group founded and controlled by the Chinese government, SHDC was established to oversee the region’s public hospitals. That oversight quickly grew into more direct involvement, and soon the Center was tightly managing the operations of 28 municipal tertiary hospitals in Shanghai. Today, SHDC controls the overall budget, staffing and health-record-sharing of 37 of the city’s municipal hospitals.

“We represent modern hospital management” says Guoming Song, a director at SHDC. Serving in effect as protector of the government’s investment into its municipal hospitals, the Center has been granted unusual autonomy to effect change, even for a state regulatory body. It hasn’t hesitated to use that authority to ensure that the dozens of hospitals under its charge are providing improved, more affordable services to patients — and that they’re doing it while adhering to their budgets.

SHDC’s main weapon is heavily controlling budgets. The hospitals it oversees have to submit a detailed budget plan that covers all aspects of hospital operations at the end of every year for approval by SHDC, as well as by Shanghai’s Finance Bureau. Significantly, the agency ensures sufficient staff salaries, along with raises and promotions, are built into the budget, to reduce pressure on staff to overcharge patients as a means of making up for traditionally meager salaries.

But though it was originally founded only to oversee budgets, SHDC quickly expanded its authority to include the overall performance of hospital directors. It now demands that all hospital management meet a wide range of key performance indicators. If the KPIs disappoint, SHDC can dismiss the hospital directors it holds responsible for the weak numbers, and can appoint their replacements. Directors now know a near-failing grade in any one KPI is a sure ticket to immediate dismissal. “After 11 years, we’ve set a clear standard,” says Song.

The process of establishing that standard encountered early resistance. According to Jin Ma, executive director at the Public Health Department of Shanghai Jiaotong University, hospital executives weren’t happy with SHDC’s interference. But they quickly learned they didn’t have much choice in the matter and eventually accepted the Center as their government-empowered boss.

With that acceptance came SHDC-driven overhauls at all the hospitals aimed at boosting operating efficiency. The number of cost-saving ambulatory surgeries went up, for example, and prescriptions for the priciest drugs went down. The efforts haven’t stopped the growth of expenses, but have considerably slowed that growth, which is down from a 15.7 percent annual growth rate between 2009 and 2011, to an 11.7 percent rise between 2012 and 2015.

As a further sign of payoff from SHDC’s efforts, Shanghai’s municipal hospitals no longer have to worry about raising capital for big hospital upgrades. Improvements and additions to infrastructure and medical equipment and other technology — formerly financed via patient overcharging and private bank loans — are now built into the center’s annual budget plans.

Patients experience some of the improvements directly — starting with their initial contact with a hospital. All medical data that all of the hospitals have under SHDC’s management come to be shared via the SHDC Hospital Link Platform. Patients can now make appointments with any of the 37 locations, and no longer have to face repetitive tests or consultations that used to drive up costs as patients were moved between facilities. All the information relating to any patient visit to any of the hospitals, including a complete list of itemized charges, runs across the desks at SHDC, where suspicious charges or procedures are given close scrutiny.

SHDC's actions have spearheaded China’s efforts to reduce healthcare costs throughout its major cities. That effort is a work in progress. China’s state-funded urban-employee medical insurance has continued to shell out more and more money to cover patient costs, with expenditures having risen US$65 billion between 2009 and 2013, an average annual growth rate of 19.9 percent. The cost-controlling efforts dropped that rate of increase to 15.2 percent in 2014, but that still leaves the Center ahead of its counterparts around the country when it comes to getting costs under control.

That’s why SHDC is seen by many as a role model for at least some aspects of China’s efforts to improve healthcare. But SHDC’s approach clearly comes with some risks. In particular, Song says, it has been a challenge to avoid overcentralizing hospital management and robbing the individual hospitals of the independence each needs to meet its specific needs and those of its communities.

But as long as those KPIs keep rising, SHDC is likely to keep a strong hand in hospital plans and operations — and that model will probably take hold in more and more components of China’s vast and rapidly growing healthcare system.


Changhong Zhang

Changhong Zhang is a freelance healthcare writer based in Shanghai, China.


Update: The article originally cited "Shenkang" as the name of Shanghai's Hospital Development Center, which is an outdated reference to the Center. The institution's mentions in the article have been updated to reflect the Center's new name: Shanghai Hospital Development Center (SHDC).


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