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Following is a speech by Secretary for Health and Welfare, Dr E K Yeoh, at the Seminar on Health Care Reform "Why does Hong Kong Need Health Reform" organised by The American Chamber of Commerce in Hong Kong today (May 3):

Mr Katsanos, Ladies and Gentlemen,

Thank you for inviting me to speak here today to a group of distinguished audience who has contributed much to the growth of health care industry in Hong Kong by supporting research and development, and bringing in novel drugs with lesser side effects to the benefit of patients.

I would also like to thank Mr Katsanos for organizing this seminar drawing in different experts in the field to speak on this well-chosen topic of today, "Why does Hong Kong Need Health Reform?" This is a topic frequently asked and of particular interest to the Hong Kong community at the time when the Consultation Document on Health Care Reform was released for public consultation in December last year. I am very delighted to have the opportunity once again to revisit the backdrop to the reform and to share with you some of my thoughts. Of course, my ears are still widely open for opinions and comments, even though the public consultation period officially closed in March.

The health care reform we propose for consultation in the past three months is a comprehensive all-out reform which has far-reaching impact. Given this background, I reckon the fact that some proposals have been mistaken not because of the susceptibility to new ideas of the general public, but the underlying technical concepts that make them difficult to be understood, for example, when we talk about the various financing options. I would later take you through the financing options and the government involvement in health care provision.

Now, let me respond to today's topic, "Why does Hong Kong need Health Reform". I think the speakers this morning have already given you their answers to this question. So I would share with you my views here. As with most health systems, our health care system is facing three challenges. First of all, the population is aging. Our elderly population will double in 30 years' time, rising to almost 20% of the total population in 2029. The aging population has two implications. First, the disease profile would evolve to become more chronic-illness-ridden as the population ages. This means that hospitalisation will become more frequent, patients will need more regular follow-up consultation with specialists, and they will need to depend on long-term medication. Our health care system will be facing increasing demand and health care expenditure will inevitably rise. Secondly, the aging population implies fewer members in the workforce. As evident from the elderly dependency ratio, in 2029, every 1,000 members of the population aged between 16 and 64 will be supporting 309 elders. With the smaller workforce, fewer people will be paying taxes and the government will have lesser income to finance for public health care services. As you all know, 95% of the public health care system is financed through tax revenue.

The second challenge is the development and availability of new medical technologies and drugs which can cure the incurable diseases hitherto. Such new technologies are labour intensive and tend to be financially expensive and need to be managed to ensure they are appropriately applied, effectively used and financially accessible.

Last but not least is the rising expectation for health care service. The past decade saw the continuous improvement of health care services in the public sector. Alongside with the strong economic growth, people tend to ask for more and better health care services. To meet this public demand, the government is responsible for providing subsidized and quality services in an equitable and accessible manner; and therefore we have to continue the allocation on health.

A health care system is more dynamic than you and I would have thought; and the pressures are incessant. I have just illustrated how demographic changes, rising medical cost and community expectations are driving us to change. If we fail to evolve to meet our future financial and organisational needs, as foreshadowed in what we see today, we will not need to wait until the next generation to see a less enviable health care of the past.

Then, what is the government's role in the whole exercise? This is perhaps the focus of concern of many in the health sector who has been urging the government for a delineation of health services provided. Let me elaborate here.

When we talk about health care, it is not any commercial good which has a very easily-defined demand and supply curves and hence an easy-to-spot equilibrium that is called price. Health care does not have a demand curve, per se. Rather this demand is supply-driven. There exists complete market failure in the allocation of health care that extensive government involvement is likely to result in the achievement of societal objectives, such as equity and efficiency. However, one should avoid a socialist perspective in viewing a government involved health care system. We know where we stand and our objectives are clear.

There are three objectives to justify government involvement in providing health care services. They are quality, equity and efficiency.

First of all, quality. By quality, I mean the broadest sense of quality, that is the overall attainment of the health care system in improving the health of the general population. In fact, all of us would agree we are a very healthy population with health indices comparing favourably to other developed countries such as the United States and Britain. This is attributable to the dual health care system we all cherish. The private sector has all along been playing an important and complementary role who is volatile and responsive to patients' needs and demand. However, the private sector, like any other private health care providers in the world, has little incentive to offer services of minimal financial rewards irrespective of however great the public health concerns of these services bring. Tobacco control, occupational safety and control of communicable diseases are typical examples. This kind of programs, however, is essential in improving the general health status of the whole population.

The second objective is equity. The government financed health care services ensures that health care is directly available to the financially vulnerable at an affordable fee at the point of delivery, so that they would not be deterred from seeking the help they need because they lack the financial means. To make our publicly financed health care system more equitable, we are proposing bold measures to review our fee structure by asking those who can afford to pay more. The revised fee levels will be more reflective of the priorities of government subsidy which should be channeled to the financially vulnerable and to those services which incur major financial risk.

The last objective is efficiency. It essentially refers to the amount of resources a health care system requires to produce the level of health of the population and the level of the system's responsiveness to expectations. It is our long-held arrangement that we have our public health care services offered in public institutions with salaried doctors under global budgeting. This form of payment mechanism for providers in the public sector has been very effective in ensuring and monitoring the efficiency of the system in the past. In spite of this, we are now also moving towards the direction of constantly enhancing the productivity of the system by adopting effective technology arrangement, service re-design and appropriate pricing of public service to influence provider and patient behaviour.

The performance of our public health care system and the overall favourable health indices of our population illustrate that government involvement in the provision of health care services is justifiably attained. People of Hong Kong will want to enjoy continued equitable access to quality health care with certain level of choice. Therefore, to reform our health care system to one which can stand the test of time, we have to take an all-out approach from organisation and delivery of service, quality assurance to the financing of the whole health care system.

On the organisation and delivery of health care services, we propose to develop a community-based integrated model so that health care is delivered in or around people's home. With the gradual adoption of family-medicine based practice, patients will be able to enjoy holistic and continuous care. We will also strengthen efforts in preventive care so that people can take a more positive role in managing his own health whereby reducing exposure to health risks. We will also enhance the interface between public and private health care providers, and to introduce Chinese Medicine in the public health care system in order to provide more choice for patients. Meanwhile, we will adopt common clinical protocols and risk management, promote continuous medical education and development of all health care professionals to ensure quality is achieved and maintained consistently. We are confident that these organisational changes, if carefully implemented and well managed, will help significantly contain the growth in medical cost in the long run.

Having said that, we have to look into various viable financing tools which can help sustaining our health care system through our next generations. There are certainly a variety of financing options throughout the world and there is of course no one single perfect solution. And it is not practical to replicate another country's financing model, given differences in social and economic infrastructures, and environments based on different values and philosophies. Meanwhile we have to achieve equilibrium in achieving the three objectives just mentioned, i.e. quality, equity and efficiency. Basically, there are two financing options that address the need for equity. They are taxation and social insurance.

First, let me talk about taxation. The Hong Kong public health care financing system is based primarily on tax revenue. This has the advantage of being efficient, simple and easy to administer.

However, continued reliance entirely on tax revenue is not viable. The level of our expenditure on health care is second only to our expenditure on education. Allocating more public revenue to health care is not realistic; it would mean a corresponding reduction in allocations for other equally deserving public programs, such as education and welfare.

Due to the narrowness of Hong Kong's tax base, generating additional revenue by raising taxes to cover rising health expenditures is not feasible, either. And one must never forget that tax revenues are generated mainly from the young, healthy, working population. Financing through tax revenue alone will put undue pressure on our next generation. With the aging population and rising prevalence of chronic diseases, tax revenue is not sufficient to finance a sustainable health care system.

Another type of health care financing is social insurance which was proposed in the Harvard Report as the main pillar for financing Hong Kong's health care system. However, social insurance is not widely accepted by the public, which finds the risk-pooling concept unfair - albeit on the basis of some misunderstanding.

Inadequate measures to mitigate against disease and poor health could drive up insurance premiums and, in the end jeopardize equal access to health care. Besides, inter-generational subsidization - whereby the young and healthy subsidize the elders and sick - puts and additional financial burden on our next generations.

We respect the community's views as collected in the previous consultation exercise, so we are retaining a tax-based system as the primary pillar of financing. Then, we have to identify supplementary sources of funding, which will help to achieve the long-term financial sustainability of the public health care system.

In the consultation document, we mentioned we would start by looking for resources within the existing system, by continuing with cost-control and productivity measures that are already in practice in the Hospital Authority. We will also review the fee structure for health care services to better prioritize our subsidies to the financially vulnerable and illnesses that put a heavy financial burden on the patient. One of the examples is the charging of non-emergency consultation in A&E Department.

In addition to fees, we propose another supplementary funding source: a savings option. Savings is a concept that, I believe, is more acceptable to the Hong Kong community - which traditionally regards it as a virtue.

This savings option is a proven source of supplementary funding. It is being practised on the mainland, in Singapore and in the United States. It involves pre-funding - that is, saving money for future use - and personal responsibility and it is also key to alleviating the burden on the next generation. We want to enable each individual to create an adequate reserve for medical expenses after retirement so that the burden will not be passed on to our next generation. Such reserve will also provide more and better choices between services in the public and private sectors. We will study further in the viability of the proposed Health Protection Account and will further consult the public before final implementation.

Ladies and gentlemen, our focus of reform is placed not only on the present health care system but the future one which the Hong Kong community will continue to aspire and take pride. We aim high in achieving the reform measures but we assure you that the process will be incremental and participatory. As a responsible government, we strive to improve our health care system which will continue to protect and promote the health of the population. This will be achieved through the participation of everyone here today and closer inter-sectoral collaboration. I look forward to your valuable contribution which will place us on a strong footing in taking the reform forward.

Thank you.

End/Thursday, May 3, 2001

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