Too Good to Last

By: Alkman Granitsas
Far Eastern Economic Review, January 18, 2001 

IT'S ANOTHER of Hong Kong's many contradictions: A socialist health-care system in a laissez-faire economy, a multibillion-dollar subsidy programme for every man, woman and child in one of the world's lowest tax regimes. It's also a system that desperately needs reform. 
Hong Kong is greying fast, and more elderly people means more of the long-term diseases that come with growing old. Government spending on health care is expected to balloon in the next 15 years to about 23% of the budget, up from 14%, or $4 billion a year, now. That's something Hong Kong can't afford without busting budget targets set by the city's mini-constitution.

"The system will survive, but there will be three consequences if we don't reform it," says Dr. E.K. Yeoh, secretary for health and welfare. "One, quality will be affected in the future. Second is that taxes may have to go up substantially. And third, future generations may have to pay much more for fees and charges. So it's really putting the problem on to the next generation."

The city's bureaucrats are trying to fix the system before it's too late. But the problem with the latest reform plan unveiled in December--the third in 10 years--is that it only goes halfway. To cut government subsidies, the bureaucrats are proposing a mandatory health-care savings plan for the middle-aged. Every Hong Konger between 40 and 64 will need to set aside 1%-2% of his salary to help pay for health care after he retires.
The government's medical savings plan is just a drop in the bucket. In any event, the other half of the problem is the exorbitant salaries that Hong Kong's doctors command. Hong Kong faces a crushing shortage of doctors, which will only get worse and keep salaries sky-high. The city's doctors are the highest paid in the world, in the public and private sectors alike. In the public sector, wages and benefits--mostly for doctors--gobble up more than 80% of the budget. Some of the city's private doctors earn in a day what a middle-aged worker will save in 25 years under the government's mandatory savings proposal.

"It's mainly an issue of demand and supply," says Ralph Tam, associate director at insurer Goodhealth Worldwide in Hong Kong. "Because we don't have many doctors, doctors can set their own prices."
Hong Kong's public health-care system is enormous. The quasi-governmental Hospital Authority oversees 44 of the city's 56 hospitals and 80% of its 36,000 hospital beds and employs one-third of Hong Kong's 9,800 doctors. Generally, the Hospital Authority gets high marks. The city's life expectancy is as high as anywhere in the developed world, and infant mortality rates are low by international standards.

The government offers a great deal to every Hong Kong identity-card cardholder. A consultation with a public-hospital doctor costs just under $5 and a one-night stay in a public hospital, less than $9 a day. This includes doctor's fees, nursing costs, surgery and medication. The cost to the government is at least $256 a day. In the case of an expensive operation, like a liver transplant, the government will pay over $125,000 for the operation. The patient? Just $9 a day for hospitalization.

Those kinds of subsidies have led to abuse. Every day, thousands of patients, mainly the elderly and the poor, come to the government hospitals' emergency rooms--which are free--to seek treatment for minor injuries and common colds or to pick up medication. Stories abound of patients spending more on taxi fares to get to the hospital than on hospitalization itself. Doctors regularly complain about having to see as many as 100 patients a day. "The Hospital Authority is a victim of its own success," says Grace Tang, dean of the medical faculty at Hong Kong University. "Nowhere else in the world offers these kinds of benefits."

That's something Yeoh--formerly head of the Hospital Authority--wants to fix. He reckons that higher fees and charges in some areas can cut back on abuse. "A slight change in fees can cause a dramatic change in behaviour," says Yeoh. "For example, if we begin charging for emergency services then misuse will decline dramatically. Another thing I'm looking at is charging for drugs." By some estimates, as many as three-quarters of the patients that crowd into public emergency rooms each day are nonemergency cases.
But in the private sector, it's a different story. Most of the abuse comes from doctors, some of the richest in the world. Salaries range between $170,000 and $300,000 a year, according to a 1999 report by Harvard University researchers. That's well above the median income for American doctors, the world's second-best paid at $166,000 a year.

Health care in Hong Kong's private sector is rife with stories of price gouging, particularly among specialists like surgeons. Consultations are said to last five minutes on average, and many doctors are suspected of overprescribing and overcharging for antibiotics, as they get a cut when they write a prescription.

Two years ago, a survey by insurer AIA United Health Care disclosed outrageous price-gouging among surgeons. Based on 76 insurance claims for hysterectomies, surgeons' fees varied between $1,025 and $13,846 per operation. The overall cost of the operations also ranged between a low of $2,883 and a high of $25,585. "I know some surgeons who make a million Hong Kong dollars ($128,000) a month," says one physician at a private hospital.

Then there's the bizarre fee structure. Unknown to most patients with health insurance, Hong Kong's private hospitals charge according to a person's ability to pay, based on the accommodation he choses. As a rule of thumb, a private room costs one-and-a-half times as much as a semi-private room, which in turn costs one-and-a-half times as much as a stay in a bed in a ward. Everything else--doctor's fees, medication, hospital charges, fees for surgical operating rooms--is priced accordingly. That means an appendectomy costs a ward patient about $2,500 but someone staying in a private room will pay twice as much.

For years, the Hospital Authority has had to compete with high private salaries in order to hold on to its own doctors. This is a cost that every Hong Konger, directly or indirectly, must bear. For the year to March 2001, the authority is budgeted to spend $3.7 billion. About four-fifths of that goes to salaries and other staff benefits, with by far the largest chunk paying for the salaries of doctors as opposed to nurses and other staff.

As a result, Hong Kong's public doctors are the highest-paid government doctors in the world. After a several-year residency for fresh graduates, salaries and benefits for public doctors jump to between $124,000 and $190,000 a year. For senior doctors, they can go as high as $330,000 a year.

Hong Kong trains far too few doctors. According to the government, the city has 1.42 doctors per 1,000 people. That's only half as many as in the United States and significantly fewer than in Japan or Singapore. And the problem is about to get worse. In December, the government asked Hong Kong's two medical schools to reduce their already small intake of students (about 170 students each year). The reason? It has no room in public hospitals to train them. At the moment, this is the only route for post-graduate training.

In past years, 10%-15% of doctors in public hospitals would leave each year, either to go into retirement or to earn even higher salaries in the private sector. But since Hong Kong went into recession three years ago, prospects in the private sector have deteriorated and the generous and guaranteed salary at the Hospital Authority has looked even better. As a result, attrition at public hospitals has slowed to just 1%-2% and next year there may not be enough room for all the graduates.

Still, the need for doctors will continue to grow: first, because of the city's growing population, which is adding about 1 million people per decade; and second, because the elderly need more doctoring.

So what's the solution? One would be to train more doctors and arrange their residency at private hospitals. One private hospital has already launched such a scheme, though it won't begin until 2002 at the earliest. Another solution would be to import more doctors from outside--in particular, from China's Cantonese-speaking Guangdong province. A third would be to increase the role of less-expensive clinics and community centres, where nurses, not doctors, care for the elderly.

But in the long term, the answer lies with better preventative care. Many Hong Kongers don't get regular medical check-ups until late in life. "We have very weak health education. Many people don't go for a check-up or even a blood-pressure test until they are over 60," says Ho Hei-wah, spokesman for the Patient Rights Association. "We don't want to see people go to the hospitals. We want to see people be healthier."