Part I Demand and Institutions: The Industry Environment in China. Chapter 2 Institution on Pricing

Price Setting InstitutionsIn China, the price of drugs had been kept low until the mid 1980s so that basic medical care would be affordable for the general public.The medical care system was decentralized due to the progress of fiscal reform in China.Fiscal reform requires the local government to be responsible through their budget for the social security system.Thus, fiscal subsidies for the hospital and healthcare sector are limited, and as a result they are also required to operate by means of their own revenues.In this way, since the middle of the 1980s, the prices for medical services were adjusted to compensate for the operating costs of the healthcare sector.