Guo Baocheng explained that the RMB 3,000 reimbursement benchmark for hospitals outside Shenmu County is meant to encourage residents to use local medical resources. "We have very good hospitals in our county, and they have close cooperation relations with some of the country's top hospitals; we can invite their medical experts to fly over and help perform complicated surgical procedures," Guo said.

The new program has in fact lowered government employees' preferential treatment. Previously, they only needed to pay RMB 500 if they went to hospitals outside the county. And Guo Baocheng considered it reasonable that they should pay as much as an average resident. "At least they have higher incomes," he commented.

Control Costs

Before instituting comprehensive free medicare, the Rehabilitation Work Committee published and distributed pamphlets among villagers to familiarize them with the pilot medical reforms.

As expected, the free medicare program brought a sharp increase in hospital patients. Local residents that wanted to go into one of the county's better equipped hospitals needed to make an appointment and wait for weeks or even months. Beds in other designated hospitals, meanwhile, were soon fully occupied. The amount of hospitalization fees reimbursed in March 2009 was RMB 9.6 million, and in April the figure jumped to RMB 12.70 million. Prior to 2009 monthly hospitalization expenditures remained around RMB 7 million.

Finding a balance between cost control and medical quality was a tall order for the county government. To avoid the risk of either local inhabitants or hospital staff taking advantage of their access to medical resources for personal gain, certain new rules controlling the cost of medications were stipulated in conjunction with the reimbursement benchmark. For example, doctors are forbidden to dispense excessive prescriptions, and the proportion of drugs not covered by the free medicare program should not exceed 10 percent of a prescription. Another stipulation was that the cost of medication during hospitalization be no higher than 50 percent of the total cost of hospital treatment, and that the cost per day of a hospitalized patient should not exceed RMB 400. These restrictions effectively controlled medical costs. Shenmu has also laid out reimbursement quotas for 30 common diseases.

Three months after the pilot medicare program had been in operation, however, almost all designated hospitals had exceeded quotas in indexes such as per person per day hospitalization cost. The county government hence took punitive action. The top three hospitals to have exceeded quotas were respectively fined RMB 15,000, RMB 10,000 and RMB 5,000. Those that continued to flout the program stipulations had their status as designated hospitals either suspended or canceled. Daxing Hospital of Shenmu County was first to be taken off the list. The hospital president Li Zenghou has since admitted that losing this status has affected hospital income by 30 to 40 percent.