Financial Crisis in Chinese Public Hospitals Worsens as Medical Systems Across Regions Struggle

On January 31, Zhou Hongsheng, the director of Luxinan Hospital, a private hospital in Yanggu County, Shandong Province, stated: "Our hospital has over 700 staff members. Currently, we owe wages to a total of 601 employees. The total amount of unpaid wages, including social security, exceeds 45 million yuan. Some employees have been owed for 3 months, some for 8 months or 6 months, and the longest arrears exceed a year."(video screenshot).

People News — Recently, Guangdong’s Meizhou Jiaying University Medical School Affiliated Hospital had to announce the suspension of services and consider filing for bankruptcy after being unable to pay medical staff salaries for ten months. This incident has attracted widespread attention, exposing a deeper crisis within China’s medical system: many hospitals are struggling to stay afloat due to financial shortfalls and mounting debt, with some even issuing “IOUs” to patients as a stopgap measure.

According to Radio Free Asia, public hospitals in China are facing severe financial distress, with Jiaying University Medical School Affiliated Hospital exemplifying this crisis. As reported by Jiupai News, the hospital recently suspended its services, with staff salaries unpaid for months, and may soon apply for bankruptcy. Since early 2023, the hospital has been unable to pay employee salaries on time. Last Thursday (the 24th), hospital management unexpectedly announced at an internal meeting that staff should resign. Medical personnel, caught off guard, reported that no salaries had been issued for nearly the entire year, making life increasingly difficult.

Mr. Li, an employee of a state-owned enterprise in Chaozhou, Guangdong, told Radio Free Asia on Wednesday (the 30th) that due to limited government subsidies, most public hospitals rely on self-generated revenue to maintain operations. However, with declining government support, many hospitals struggle to meet basic operating needs. “Many businesses are going bankrupt now, and hospitals can’t even pay basic salaries because government subsidies are lacking, and expense reimbursements can’t be processed smoothly,” Mr. Li said. “China’s fiscal and healthcare systems face the risk of collapse.”

Mr. Li believes that the financial challenges facing both state-owned enterprises and hospitals have persisted for three years, with no signs of improvement.

According to Tianyancha data, Jiaying University Medical School Affiliated Hospital had an initial investment of 25.87 million yuan, but its debt burden has continued to grow, with an additional enforcement target of 6.64 million yuan added in mid-October. Staff at the Meizhou Health Bureau told Jiupai News that the hospital’s suspension “likely involves financial issues, and the hospital is planning to apply for bankruptcy.”

However, this financial crisis is not unique to Meizhou. Since the implementation of the new healthcare reform and the “zero markup on drugs” policy, public hospitals have mainly relied on medical insurance fund payments, patient payments, and limited financial subsidies. These factors have caused district and county-level hospitals to face chronic losses due to insufficient self-funding.

Mr. Wang, an agent for medical devices in Yangzhou, Jiangsu, mentioned in an interview that corruption within hospitals is also an issue; previously, Hongqiao Hospital in Wuxi was officially reprimanded for allegedly defrauding medical insurance funds. He pointed out that resource shortages within hospitals are severe: “Certain drugs and imported materials needed for surgeries are no longer supplied, causing many surgeries to be postponed and services to be greatly affected.”

Shandong Hospital Issues IOUs to Patients Due to Funding Shortages

In mid-October, Heze Juancheng County People’s Hospital in Shandong faced severe cash flow problems and had to resort to an unusual measure: issuing IOUs to patients due to delays in medical insurance reimbursements. Hospital insurance staff explained to the media that patients currently need to pay medical expenses in full and then potentially receive reimbursement later. This situation has led to dissatisfaction among local residents, who questioned the effectiveness of the medical insurance system. Juancheng County’s medical insurance bureau confirmed the practice of issuing IOUs, admitting that the insurance fund has long been stretched thin.

Ms. Fang, a medical professional in Shandong, commented: “The medical insurance fund is supposed to be used exclusively for healthcare, but because the government integrates it with general fiscal management, all tax revenues must be allocated collectively, regardless of special funds. State subsidies for public hospitals are less than seven percent, so over 90% of hospital income has to come from self-generated revenue.”

Healthcare System’s Structural Issues Behind the Financial Crisis

These incidents across the country reveal not just isolated financial issues but also structural problems with insufficient support from the medical insurance fund. According to Jiemian News, the financial structure of public hospitals in China has increasingly relied on payments from the medical insurance fund and self-generated revenue. Data shows that direct state subsidies for public hospitals account for only 7%, with hospitals having to raise the remaining funds themselves. This has created a heavy burden, particularly for secondary and some tertiary public hospitals, which remain stuck in a “triangular debt” situation: the medical insurance bureau owes hospitals, and hospitals owe suppliers.

Ms. Fang pointed out that without proper caution, hospitals may be forced to close: “These hospitals are not the first, nor will they be the last, as various problems in China are gradually surfacing. A Red Cross Hospital in Meizhou, Guangdong, is also struggling with wage payments, leaving staff unpaid and the hospital unable to maintain regular operations.”

Industry insiders note that since the implementation of the “zero markup on drugs” policy, hospitals have shifted their focus to income from diagnostics and treatments. However, revenue growth has not kept pace with rising operating costs. For instance, a Grade IIIA hospital in Beijing reported an annual revenue of 4.3 billion yuan but incurred annual losses of 500-600 million yuan. With the rising demand for medical services and no significant increase in state subsidies, hospital deficits are growing.

Calls for Healthcare System Reform

News of hospitals unable to pay wages and even filing for bankruptcy has sparked heated discussions on social media, with many questioning why the medical insurance system has failed to support hospital operations. Some experts recommend that, within the current system, the insurance department should speed up reimbursement processes to protect the interests of both patients and hospitals. There are also calls to reform the reimbursement process so that the insurance department directly reimburses patients, relieving hospitals of the burden of covering costs upfront.