60-Second Main Ideas:

1.     Incentivizing Healthcare Providers Based on Health Outcomes: If we can find a more effective way to pay for medical services based on residents' health status—where providers receive more money if fewer people get sick and less if more people get sick—it would motivate providers to focus on preventive and health-promoting services. This would align the interests of healthcare providers with patients (both wanting fewer illnesses) and would not increase the financial burden on insurance payers, thereby achieving a win-win situation for all three parties.

2.  WHO Standard for Cost-Effectiveness of Medical Technologies: According to an informal but widely accepted standard by the World Health Organization, a new medical technology is considered worth purchasing and recommending if it can extend a patient's life by one year and costs no more than three times the per capita income of the patient's country.

Condensed Summary:

Call for Pilot Reform to Pay for Medical Services Based on Residents' Health Status

Future healthcare system reforms should focus on two main areas: improving payment methods and aligning incentives among stakeholders. Medical services are currently purchased by third-party health insurance, utilizing both government funding and market mechanisms.

However, the challenge is to ensure that the incentives for insurers, patients, and healthcare providers align optimally. Payments are currently disease-based, leading to higher hospital costs compared to outpatient costs. Healthcare providers benefit from more hospitalizations, while patients and insurers prefer fewer severe illnesses to minimize costs. This misalignment of incentives causes conflicts among the parties. By exploring a system where payments are based on residents' health status—rewarding providers for better health outcomes—providers would be motivated to offer preventive and health-promoting services. This would align the interests of all parties, reduce conflicts, and promote a more effective healthcare system.

A health-based payment system currently remains in theoretical research, and we are unsure how to implement it. However, given China's size, could we pilot this approach in some regions? We could contract with hospitals, where insurance payments are based on the residents’ health levels rather than the number of patient visits. Higher health levels would result in higher payments to hospitals, while poorer health levels would result in reduced payments. This would align the interests of healthcare providers and patients. While this is theoretically straightforward, practical implementation would be challenging. However, it should not deter us from experimenting.

 

Secondly, we need to find ways to empower individuals to take primary responsibility for their health, rather than adopting a fully paternalistic approach that makes all health and medical decisions for them. Such an approach could be more costly and might not garner optimal cooperation from everyone. Therefore, we should incorporate findings from behavioral economics into our future health policymaking. This would enhance individual agency, making people more engaged and cooperative, leading to better physical and mental well-being.

Revealing the Reality of Health Insurance Negotiations: How Was a Life-Saving Drug Reduced from 700,000 to 33,000?

The most crucial aspect of pharmaceutical innovation is the protection of intellectual property. The intellectual property of pharmaceutical innovation is, of course, embodied in its patent protection. According to globally accepted principles, the patent period is about 20 years.

Patents are important because innovation itself is a highly uncertain endeavor, requiring substantial investment and lengthy development cycles. Looking at pharmaceutical innovation data, in the United States, it takes an average of over ten years and an investment of approximately $2 billion for a new drug to go from initial investment to successful market entry. For Chinese pharmaceutical companies, the time cost for new drug innovation is like that of American companies, with an investment scale of around $200 million.

Therefore, we can see that the research and development, as well as the market launch of a new drug, face enormous uncertainties. Consequently, once a new drug is successfully developed and launched, society must provide certain protections to ensure a reasonable return on investment, thereby supporting and motivating these research and development entities to continue their work in pharmaceutical innovation. The essence of patent protection is to allow for free pricing and to secure better returns, which is the most critical aspect.

 

Let me give you a good example. In 2019, a particularly famous drug was launched in China, commercially named Nusinersen Sodium. It is used to treat spinal muscular atrophy (SMA), a rare disease primarily affecting children, who typically cannot stand and most face death. Before 2019, there was no medication available for treatment. After its launch in 2019, each injection of this drug cost around 700,000 RMB, with the first year of treatment requiring six injections. If calculated at 700,000 RMB per injection, the first year would cost 4.2 million RMB.

In 2021, the manufacturer of this drug submitted a request to enter the national health insurance through the National Healthcare Security Administration's annual drug catalog update platform, proposing a price for insurance negotiation. Ultimately, the price of this drug was negotiated down from 700,000 RMB to 33,000 RMB per injection, a reduction famously referred to as "soul bargaining." This was an unprecedented reduction. Opinions on this reduction vary widely. From a positive perspective, considering the patients' and insurance's standpoint, it is beneficial. However, there are some negative views, particularly from new drug companies' perspective which are concerned that the support for innovation might be insufficient and that profits may not be adequate.

 

Here, I want to clarify that the reduction from 700,000 RMB to 33,000 RMB was not arbitrarily decided by individuals from the so-called health insurance department or experts. The negotiated price of 33,000 RMB was the outcome of a negotiation process, and this negotiation was not devoid of scientific basis. I was directly involved in this process. The National Healthcare Security Administration initiated a systematic update of the national healthcare catalog in 2018 and invited three expert groups to evaluate these drugs.

The first group consisted of clinical experts, including doctors, clinical researchers, and pharmacists, all of whom had extensive clinical experience. Their assessment was based on whether the drug was clinically necessary, considering if there were similar drugs available or if there were better alternatives.

The second group comprised economists who evaluated these drugs based on economic principles. They assessed the health benefits the drug would provide to patients and the cost that the healthcare system would bear. They conducted cost-benefit analyses to determine if the drug was worth the investment and then proposed a corresponding price.

 

The third group was the fund calculation team, consisting mainly of professionals responsible for managing healthcare funds at the local government level. Their focus was on whether the healthcare funds in various regions could afford the inclusion of a new drug into the national healthcare catalog. Their task was to assess if there were sufficient funds available. So, while the economists evaluated if the drug was worth it, and the clinical experts determined if it was necessary, this group calculated if the funds were available. The responsibilities of these three groups were clearly defined, and they did not interact or communicate with each other. They provided independent, expert opinions, which were then integrated and submitted to the relevant management departments to determine the final negotiation price. During the negotiation process with the company, the experts opened the envelope containing the proposed price for the first time. The entire process was supervised to ensure compliance with regulations.

When economists determine the price of something, it is primarily based on the value of the item itself rather than its cost. The negotiations for Nusinersen Sodium went through multiple rounds, ultimately settling at 33,000 RMB per injection. I want to emphasize that this price is not arbitrary or speculative. In the current landscape of pharmaceutical economic evaluation, there's an informal but universally accepted standard by the World Health Organization. According to this standard, a new medical technology that extends a patient's life by one year, if it does not exceed three times the per capita income of the patient's country, is considered a worthwhile and recommendable medical technology.

 

This evaluation essentially puts a price on our lives because China's income level is relatively low compared to those of developed countries. Additionally, China has a large population, so even a rare disease in China might affect a significant number of patients compared to smaller countries. Taking these factors into account, the National Healthcare Security Administration has established a recommended average payment standard. If a new drug can extend a patient's life by one year and its cost does not exceed the per capita GDP, it is considered a worthwhile drug. Currently, our per capita GDP is over $10,000, which is approximately 70-80,000 RMB. So, if a drug can extend a patient's life by one year and costs less than 70-80,000 RMB, it is considered a recommendable drug.

Using this guideline, Nusinersen Sodium, priced at 33,000 RMB per injection and requiring six injections in the first year, totals nearly 200,000 RMB. This is more than double the average payment standard for other drugs we use, and almost three times the per capita GDP. In other words, the baseline price set by the experts already significantly exceeds our average payment standard for other common drugs, approaching the standards set by the World Health Organization.

 

Experts consider multiple factors when determining such payment standards. Firstly, the disease being rare, secondly, affecting children, and thirdly, the drug being innovative. These considerations likely led our experts to set the payment standard close to three times the per capita GDP, instead of just one time.

Without such evaluation, if healthcare insurance were to pay 700,000 RMB per injection, it may seem like we are prioritizing the interests of sick children. However, consider this: within the healthcare insurance fund, there are many other diseases affecting children, women, and the elderly. Excessive spending on one drug might lead to reduced coverage for others. And for them, spending less money (compared to Nusinersen Sodium) might yield more years of life. In this sense, not conducting such evaluations might be irresponsible towards life.

From this perspective, spending less money to buy more years of life does seem more valuable. Therefore, when considering life, we should adopt a holistic, comprehensive, and systematic approach.

Allocating healthcare resources based on needs is indeed a better option.

 

In general, we can categorize the factors influencing health into four main classes: firstly, healthcare services, which fall under health economics; secondly, our health behaviors, encompassing what we eat, wear, do, and engage in, collectively known as health behavior economics; thirdly, the environment, including biological, social, economic, and even political factors, as they all impact our physical and mental well-being. Lastly, there is the influence of genetics, which to some extent determine our health status, such as genetic diseases caused by mutations.

Regarding how healthcare resources should be allocated, this is a focal point of research both domestically and internationally. When it comes to the methods of resource allocation, it is not a question that can be simply answered by administrative or market measures. However, based on years of academic research and involvement in related policies, my understanding remains that both market mechanisms and administrative measures are crucial.

The current funding for basic medical insurance is primarily government-led, which pools resources from 1.4 billion people. If we were to rely solely on market mechanisms, allowing individuals to purchase commercial medical insurance based on their need to contribute to the insurance fund, it would be less effective and prone to strong selection bias. Younger and healthier individuals would likely opt out, while older individuals or those with perceived health risks would enroll, leading to adverse selection. Therefore, it is necessary to employ administrative measures to ensure broader participation in the funding of basic medical insurance.

 

Once the funds are collected, there are several options for allocating these resources. Two major approaches are as follows:

1.     Administrative Allocation to Providers: This involves directly allocating resources to healthcare providers, such as hospitals and clinics, through administrative measures. These measures regulate the behavior and ethical standards of these institutions, ensuring they provide quality, affordable, or even free healthcare services to the public. This method allocates resources to healthcare providers upfront.

2.     Third-Party Fund Pool Allocation: The second method involves pooling the funds into a third-party fund, such as the national basic medical insurance fund. This fund acts as a large purchasing platform on behalf of the public. When residents need medical services, they can choose where and when to seek treatment. If they are dissatisfied with their experience, process, or outcomes, they can opt for another healthcare provider. This approach allocates resources to the demand side.

Both methods aim to effectively use the funds to meet the healthcare needs of the population. However, the key difference lies in the role of the patient in each approach. With administrative allocation to providers, the patient's influence is limited since resources are pre-allocated to healthcare institutions. Patients rely on these institutions to act in good faith, adhere to regulations, and provide quality, low-cost, or free services. On the other hand, when resources are allocated through a third-party fund, patients have more autonomy and choice, as they can decide where and how to receive medical services. This demand-side allocation allows for greater patient involvement and potentially better responsiveness to patient needs and preferences. If resources are allocated to the demand side, residents can play a more active role. When patients need medical care, they can choose their preferred hospitals. Hospitals that are not chosen may face a lack of patients, leading to no payments from medical insurance institutions. This situation fosters effective competition among healthcare providers. Therefore, resource allocation towards the demand side is considered a better option.

From a macroeconomic perspective, the role of healthcare services in the service industry is significant. The share of healthcare services within the modern service industry has been steadily increasing since World War II. This growth rate has outpaced overall economic growth in many countries over the past seventy years, resulting in a higher proportion of GDP being allocated to the healthcare industry.

This trend highlights two key points:

1.     People are increasingly dedicating more of their wealth or income to improving their health and the quality of healthcare services.

2.     Healthcare services are highly labor-intensive. When we visit medical institutions, we interact with doctors, nurses, and other service personnel. While some automation can replace manual tasks in the production of medical services and drugs, patients generally prefer personal interactions with healthcare providers over robotic services in the final stages of care.

The employment index released by the U.S. Department of Labor closely correlates with macroeconomic cycles. Employment indices rise during periods of economic growth and fall during downturns. However, several sectors, including healthcare, consistently show rising employment indices. Employment indices for doctors' offices, nurses, and hospital professional staff have been steadily increasing, regardless of broader economic conditions. This underscores the labor-intensive nature of the healthcare industry.

 

Services provided by medical institutions do not fluctuate with economic cycles because our demand for medical services is fixed. We seek medical care in good economic times, and we also seek medical care in bad economic times. It is even possible that during economic downturns, we have more time to see a doctor because seeing a doctor has a time cost. Additionally, there might be more psychological issues due to unemployment. Therefore, we have reason to believe that at least during economic downturns, the demand for medical services will not decrease; it is more likely to increase.

Medical services currently account for about 18.5% of the GDP in the United States, while in China, it is about 7%. Of course, everything has its pros and cons. The proportion of medical services in GDP continues to rise, and there seems to be no ceiling. It might follow the law of diminishing marginal returns; although it keeps rising, the rate of increase may slow down. Discussing its challenges is also worthwhile. As we allocate more resources and wealth to medical and health services, it means we must forgo some other resources that could significantly enhance our consumption levels, such as buying houses, cars, traveling, and education. We must sacrifice some resources to ensure the improvement of medical service quality.

Lessons from the COVID-19 pandemic for epidemic prevention: achieving a trinity of human health, animal health, and ecological health.

After three years of hard work, humanity has finally emerged from the shadow of the COVID-19 pandemic. All countries have gone through a stressful process and paid many costs, including economic costs.

If we face such a large-scale pandemic again in the future, relevant measures and activities can be arranged better. I believe there are some lessons to learn from and some innovative practices to reference. Currently, many top epidemiologists, virologists, and public health experts worldwide generally agree that the risk of global pandemics like COVID-19 will not decrease in the future and may even increase.

 

The increase in risk is partly related to human activities unless we take action to reduce the risk of pandemics. For instance, pandemics are mainly caused by microorganisms. Microorganisms like SARS and the novel coronavirus face survival crises in their own habitats, prompting them to find new places to live. These microorganisms themselves cannot directly infect humans; they mostly rely on larger animals as hosts to transmit to humans. Therefore, ensuring the habitats of animals becomes a very important part of providing a better health platform for humans.

We do not know exactly how microorganisms infect human bodies, but we know that they do so through hosts. Hence, we should avoid encroaching too much on the habitats of wild animals and refrain from hunting wild game. These activities increase contact between wild animals and humans, thereby increasing the risk of microorganisms infecting humans. To avoid or reduce the risk of microorganisms infecting humans and causing pandemics, focusing on human health should also mean focusing on animal health.

The ecosystem is also crucial. There are over 8 billion people on this planet, and we need a friendly ecological environment. From the perspective of the natural ecological environment, two conditions are indispensable: appropriate temperature—neither too high nor too low. Bill Gates published a book in 2021, translated into Chinese as "Climate Economy." He estimated that due to climate change, especially the rapid increase in greenhouse gases, if we do nothing to intervene today, by the end of the 21st century, climate change could cause nearly 10 million deaths per year.

Another issue is pollution. Its impact is more direct. People might not realize that pollution affects the cardiovascular system even more seriously than the respiratory system. For instance, in China, the most serious diseases within the cardiovascular system are strokes, including cerebral hemorrhage and cerebral infarction. The most severe are diseases of the brain's vascular system, while heart-related diseases come second. In developed countries, heart disease poses the greatest risk of death, surpassing brain-related conditions. Medical research has shown that 43% of deaths caused by stroke-related cardiovascular system blockages and damage are attributable to both outdoor and indoor pollution. Therefore, everyone should take action to reduce pollution, as it is a matter of saving lives.

 

To better cope with future pandemics, humanity should start with "health promotion," achieving a trinity of human health, animal health, and ecological health. We cannot completely avoid future pandemics, but by making efforts in these areas, we can potentially reduce the risk.

Additionally, can we discuss more effective methods of epidemic prevention that are less costly to society and the economy?

There is a relatively new branch of economics called behavioral economics, which has gradually developed since the latter half of the last century. Behavioral economics considers the decisive role of market forces, allowing economic agents more freedom to allocate resources. At the same time, it incorporates ideas from Keynesianism, advocating for better government intervention. Behavioral economics aims to find an improved balance between a free-market economy and government intervention, often referred to as libertarian paternalism.

 

For example, if we were unfortunate enough to face a pandemic in the future and discovered that it could spread in public places, a strict approach may involve mandatory virus testing for everyone and requiring everyone to wear masks. This is like a parent caring for their child—simple and straightforward, but it comes with significant costs. It would have a huge impact on businesses and social and economic activities, and cause inconvenience to individuals. People might resist, feeling that they are being controlled, much like children who are unhappy with too much parental discipline.

But if we take a different approach, such as having the relevant administrative departments encourage people to wear masks and provide free testing and masks, allowing people to get tested and receive masks anytime, anywhere, without restrictions, we might see better results. For instance, if someone enters a mall without a valid virus test result or a mask, they can still enter but will be subject to a higher tax, causing the prices of goods in the mall to rise by 20%-30%.

What are the benefits of this approach?

First, each person remains the primary decision-maker regarding whether to go to the mall, travel, work, take public transport, or fly. They are not deprived of their decision-making power—they can choose whether they want to pay the additional tax.

Second, shops would not have to shut down extensively, and social and economic activities would not be significantly disrupted.

Third, the additional 20%-30% tax revenue could be better used to provide public services like virus testing and masks. The macroeconomic impact would be minimized, the blow to businesses would be reduced, and each person would still be the primary actor in their decisions. I believe that this libertarian paternalistic approach would be more popular.

Behavioral economics has found that when children and parents are in a game-like scenario, parents making decisions for their children may seem faster and more effective, but it often leads to resistance because the children feel their decision-making opportunities and rights have been taken away, resulting in less effective outcomes. Conversely, if parents give children the right to choose and let them face the consequences of their decisions, children are more motivated to act. The so-called libertarian paternalistic approach offered by behavioral economics is worth studying and applying in the future.

 

When the “Healthy China” initiative was launched in 2016, it emphasized the importance of individuals playing a primary role in maintaining their own health. This is not a fanciful idea; personal health behaviors account for at least 50% of the determinants of one's health and life, while medical technology impacts our health by only about 10-15%.

Why do medical technologies have such a limited impact compared to personal health behaviors? This is a result of human evolution. Consider how our ancestors lived through different stages of civilization.

First, there was the hunter-gatherer stage, followed by the agricultural stage, and finally, the industrial stage of modern humans. To put these stages into perspective, imagine a 24-hour clock representing 300,000 years of human history. The hunter-gatherer stage spans from midnight to just after 11 PM. The agricultural stage begins in the last hour, starting a little over 10,000 years ago. The final minute represents the past two to three hundred years of the industrial stage, marking modern human history.

During 99% of this timeline, our direct ancestors developed certain biological foundations. They lived without knowledge of farming or animal husbandry and had to forage for wild fruits and hunt animals daily to survive. Their diets were highly varied, which has led to the first biological foundation that still affects our health today: dietary diversity.

Second, our ancestors had to walk an average of 7 to 10 kilometers daily for hunting and gathering, a level of physical activity that today only athletes might achieve. This has ingrained the necessity for physical activity into our genes, requiring us to walk several kilometers each day.

Modern medical advancements have significantly contributed to human health, yet they only account for 10-15% of our overall health. This is because our ancestors established biological foundations that require dietary diversity and daily physical activity. Thus, while recognizing the contributions of modern medicine, we must also acknowledge that the primary responsibility for our health lies with us as individuals.

(Interpreted by Waverly Shi)