Beginning next month, the government will prepay hospitals for their services based on how many beds they have and how many patients they treat on average, instead of paying for individual services after they have been performed.

After conducting a survey of the city's 400-plus hospitals, the Shanghai Public Health Bureau has set a budget for each facility for next year based on their capacity and services offered, Vice Mayor Yang Xiaodu announced Tuesday.

"If hospitals go over budget they will have to cover added expenses themselves," he said.

The new system is an attempt to reduce health-care costs by eliminating incentives for hospitals to prescribe unnecessary or overly expensive procedures and drugs.

In the past, many doctors and hospitals received commissions from drug companies, which worked as a reward for those who over-prescribed, or pushed expensive brand-name medicines when cheaper generic products were available. That practice inflated health-care costs for the government and patients, city officials say.

In order to ensure the new system doesn't prevent patients from receiving necessary services, the health bureau will establish a strict monitoring system, said Yang.

"Any hospital that doesn't provide people with good service or overcharges them will no longer receive medical insurance payments," Yang warned.

The city will also expand its medical-expense payment system to ease the burden of high medical bills for all of Shanghai's 6.6 million public employees and retirees.

Currently, 2.7 million people use the system, which allocates them a social security card containing information about what government-paid medical and unemployment insurance they are entitled to.

The cards, along with a computer network that links the city's hospitals to the medical insurance bureau, ensure public workers only pay their portion of health-care costs when they are treated. In the past, patients had to pay all of their expenses up front, and then ask their companies to reimburse them for fees covered by insurance.

That often placed a large burden on those working at money-losing companies that couldn't afford to reimburse workers.

The city is urgently pushing reform to cut costs and prepare local hospitals for increased competition from foreign health-care companies following China's entry into the World Trade Organization.

In order to allow foreign companies to compete fairly, the local health bureau said it will no longer manage hospitals on a day-to-day basis, instead limiting its role to setting and supervising regulations.

City officials said the government will also introduce competition among government-based facilities.

Hospitals that perform poorly will lose their government financing, officials said.

(eastday.com December 26, 2001)