China’s Healthcare System Is Reorganizing: What It Means for Manufacturers

Two recent releases—the National Healthcare Security Administration’s 2025 Medical Insurance Development Statistical Bulletin (March 16, 2026) and the National Bureau of Statistics’ 2025 National Economic and Social Development Statistical Bulletin (February 28, 2026)—point to a clear shift in China’s healthcare system.

Trend 1: Stable coverage, slowing fund growth

China’s basic medical insurance system has reached effective saturation. Coverage remains stable at around 95%, with total enrollment at 1.33 billion in 2025, marking a return to marginal growth after three years of decline.

The more consequential shift is on the funding side. BMI revenue growth has slowed to low single digits, while expenditure growth—after a spike in 2023—has been compressed to near-zero. This is occurring alongside continued growth in healthcare utilization.

Two directions follow directly from this shift:

(1) Aligning expenditure with revenue implies tighter cost control.

Aligning expenditure with revenue has long been a core operating principle for China’s BMI system. In a lower-growth environment, controlling expenditure growth below revenue growth becomes a central requirement. Expect continued, more granular cost-control measures.

(2) Improving fund efficiency becomes the primary policy lever for BMI.

With limited room for top-line growth, policy will increasingly focus on how funds are used—through micro-level, payment-side measures to guide utilization and improve efficiency, and in parallel, macro-level financing reforms such as provincial-level risk pooling to strengthen risk sharing across regions, support fund sustainability, and reduce regional disparities.

At the same time, macro-level fund allocation is becoming more explicitly value-directed: resources are increasingly tilted toward medical technologies that address significant unmet clinical needs and demonstrate differentiated value, as reflected in the NHSA’s evolving price–value adjustment framework. Together, these shifts signal a transition from expanding coverage to actively shaping what the system chooses to fund, and at what level.

Trend 2: Service volume shifting from inpatient to outpatient

Healthcare demand continues to rise, but it is increasingly being absorbed in outpatient settings. In 2025, total patient visits reached 10.58 billion, up by 470 million year-over-year, while inpatient discharges declined to around 300 million after peaking in 2023. At the same time, hospital bed capacity fell for the first time in five years.

The direction is clear: as DRG/DIP compresses inpatient margins and chronic disease management drives repeat outpatient visits, more care is moving out of inpatient settings and into outpatient and day-surgery settings.

Two implications follow:

(1) Changes in service mix are reshaping hospital revenue structure.

The traditional model—where inpatient departments served as the primary profit center—is being rebalanced toward outpatient care. However, with average per-visit spending declining in both inpatient and outpatient settings, hospitals continue to face financial pressure despite this shift.

(2) Outpatient care is taking on a larger role in both delivery and spending oversight.

As utilization shifts, policy attention is following. Outpatient-focused payment reform and tighter oversight of prescription outflows all point to more active management of cost and utilization outside inpatient settings.

Trend 3: Healthcare resources shifting toward primary care

Recent data point to a clear redistribution of healthcare resources. In 2025, the number of hospitals declined by 1,000, while primary-level healthcare institutions increased by 15,000. At the same time, total bed capacity fell for the first time in five years, driven largely by reductions at hospitals, even as the number of physicians and nurses continued to grow.

The direction is clear: resources are shifting away from higher-level hospitals and toward primary care, suggesting that earlier policies aimed at both diverting care from higher-level hospitals and strengthening primary care—particularly for chronic disease management and routine care—are beginning to take effect.

Two implications follow:

(1) Primary care is increasingly being positioned as both a clinical and financial gatekeeper.

Recent policy guidance jointly issued by NHSA and NHC places primary care at the center of the next phase of reform, with a clear focus on strengthening its gatekeeping role.

To attract patient flow, this includes expanding long-term prescription capabilities for chronic disease patients at the primary level—where such prescribing had previously been constrained in many regions—alongside differentiating reimbursement rates across provider tiers and adjusting inpatient deductibles to better align utilization with provider capabilities.

To reinforce its financial role, payment reform is also being extended to primary care settings. This includes exploring outpatient capitation models linked to chronic disease management and family doctor contracting, as well as refining diagnosis-based payment systems to include conditions appropriate for primary-level treatment.

(2) Integration of care and drug supply across provider levels is becoming a critical enabler of this shift.

Efforts to standardize formularies, centralize drug procurement and distribution, and enable prescription flow across integrated care networks are being advanced to address long-standing barriers to downward referral. By improving drug availability and continuity of care across county, township, and community levels, these measures aim to make it more feasible for patients to initiate and continue treatment outside higher-level hospitals.

Trend 4: Contraction of private hospitals

Private hospitals declined in 2025 for the first time in over a decade. The total number fell from 27,000 in 2024 to 26,000 in 2025, accounting for all of the 1,000 hospital closures during the year and marking a clear reversal after a decade of continuous expansion.

While tighter cost control and payment reform have contributed to this shift, the more fundamental driver is structural.

In China’s current system, most BMI funding flows to public hospitals and is geared toward standardized disease treatment. Private hospitals—especially those not contracted under BMI—receive little to no public funding. Additionally, high-quality private institutions tend to focus on services such as personalized care, precision diagnostics, rehabilitation, and health management, which generally fall outside the BMI coverage scope.

This creates a structural mismatch between the strengths of private healthcare and the public insurance payment model.

Two implications follow:

(1) The limits of a BMI-centered system in supporting differentiated care are becoming more apparent.

As cost control and standardization intensify within BMI, services outside its core coverage scope face increasing difficulty in scaling within the system. This places structural pressure on providers whose models rely on differentiated or higher-end service offerings.

(2) Structural gaps are creating space for the development of additional payer layers.

The mismatch between demand for differentiated care and the scope of BMI coverage highlights the role of commercial health insurance in bridging this gap. While still developing, this layer becomes increasingly relevant as the system evolves.

Taken together, these four trends point to a system that is not simply slowing, but being reshaped under tighter financial and structural constraints.

As BMI moves into a lower-growth phase and provider revenue pressure persists, the system is under increasing pressure to push cost control, improve fund efficiency, redesign care pathways, and diversify funding sources through multi-layer coverage.

Implications for manufacturers

(1) Evolving channel dynamics

As care is increasingly organized across provider tiers, channel dynamics are being reshaped by how patient flow and prescribing link across county, township, and community-level healthcare institutions. Rather than being defined by individual care settings, access and utilization are increasingly influenced by how these tiers connect through evolving referral pathways. While still at an early stage, these changes reflect a gradual shift toward more coordinated care across levels of the system.

At the same time, integration of drug supply across these tiers is being advanced through standardized formularies, centralized procurement and distribution, and enabled prescription flow across networks. While still at an early stage, these developments point toward a more connected distribution structure and the potential for improved access efficiency. Manufacturers that begin aligning with these emerging structures will be better positioned as access pathways evolve.

(2) Fund reallocation toward innovation and outpatient utilization jointly reshape pricing pressure and product opportunity.

As BMI moves into a more constrained phase, fund allocation is becoming increasingly selective. Resources are being tilted toward medical technologies that address meaningful unmet clinical needs and demonstrate clear, differentiated value, consistent with the NHSA’s evolving price–value adjustment framework. This creates a more defined boundary: while genuinely innovative products may benefit from preferential positioning, the space for me-too products continues to narrow.

At the same time, as utilization shifts to outpatient settings, cost control follows. Payment reform, primary care financial gatekeeping, greater price transparency across channels and regions, and tighter oversight of prescription flows from hospitals to retail are beginning to reshape how products are priced and used.

In this environment, discriminatory pricing across channels and regions is becoming increasingly difficult to sustain. Manufacturers will need to move toward more consistent pricing, while demonstrating value in longitudinal outpatient care pathways rather than relying on inpatient initiation alone.

These shifts also open up new opportunities.

Beyond breakthrough innovations, indication expansion for in-catalog products—particularly those that enable earlier intervention and reduce overall disease burden—will be increasingly aligned with policy priorities.

Additionally, as hospital revenue models rebalance, demand is growing for products that fit outpatient care: therapies that can be initiated and maintained outside inpatient settings, or support ongoing chronic disease management.

Manufacturers will need to adjust across both dimensions: aligning with more selective, value-based fund allocation, and positioning their portfolios for a system in which utilization is increasingly scrutinized across a longitudinal care pathway, rather than concentrated at the point of inpatient initiation.

(3) Multi-layer payment readiness becomes a core capability

As BMI moves into a lower-growth phase while provider revenue pressure persists, a more functional multi-layer coverage framework becomes increasingly necessary.

The contraction of private hospitals highlights the limits of a BMI-centered system in sustaining differentiated specialty care without stronger third-party payer support. The same structural constraint applies to manufacturers.

In this context, participation in China’s multi-layer payment landscape is no longer optional. The ability to navigate and engage this fast-evolving payment ecosystem is becoming central to long-term success in the market.

At the same time, this opportunity comes with complexity. First, limited visibility into the commercial insurance landscape and patient payment needs creates data gaps. Second, fragmentation in the commercial insurance market makes it difficult to define coherent, scalable payment strategies. Third, many organizations lack the internal operating models needed to support multi-layer payer engagement.

These constraints are emerging as key bottlenecks in commercialization—and increasingly determine whether product value can be translated into sustained access and uptake in China.

Conclusion

Taken together, recent NHSA and NHC data point to a system that is not simply slowing, but reorganizing—across care settings, provider economics, and funding pathways.

For manufacturers, success is no longer about simply accelerating new product launches or expanding capacity, but will depend on adapting to new channels and use settings through emerging referral pathways and, critically, developing the capabilities to operate within China’s multi-layer payment environment.

References:

1.     2025 Medical Insurance Development Statistical Bulletin, National Healthcare Security Administration (NHSA), March 16, 2026,   https://www.gov.cn/lianbo/202603/content_7062793.htm

2.     2024 Medical Insurance Development Statistical Bulletin, National Healthcare Security Administration (NHSA), July 14, 2025,  https://www.gov.cn/lianbo/bumen/202507/content_7031956.htm

3.     2025 National Economic and Social Development Statistical Bulletin of the People’s Republic of China, National Bureau of Statistics (NBS), February 28, 2026,   https://www.stats.gov.cn/sj/zxfb/202602/t20260228_1962662.html

4.     2024 National Economic and Social Development Statistical Bulletin of the People’s Republic of China, National Bureau of Statistics (NBS), February 28, 2025,   https://www.stats.gov.cn/sj/zxfb/202502/t20250228_1958817.html

5.     Over the Past Year, 1,000 Hospitals Closed and More Than 200,000 Beds Reduced Nationwide—So Why Did Total Patient Visits Increase by 470 Million?, Jianwen News, March 26, 2026, https://www.yicai.com/news/103105061.html

6.     Policy Interpretation: Guiding Opinions on Supporting the Development of Primary Healthcare Services through Medical Insurance, National Healthcare Security Administration (NHSA) and National Health Commission (NHC), March 17, 2026,    https://www.gov.cn/zhengce/202603/content_7063032.htm

7.     NRDL+ 2025 Annual Executive Debrief: The State of Access for Innovative Medicines in China, 2025-4-30, https://www.nrdlplus.com/2025-annual-executive-debrief/

8.     Impacts of Provincial Central Pooling of Basic Medical Insurance on China's Healthcare Ecosystem, NRDL+ Executive Debrief, 2024-5-22, https://www.nrdlplus.com/impacts-of-provincial-central-pooling-of-basic-medical-insurance-on-chinas-healthcare-ecosystem/

9.     NHSA Strengthens Control Over Outpatient Spending, NRDL+ Executive Debrief, 2024-12-4, https://www.nrdlplus.com/nhsa-strengthens-control-over-outpatient-spending/

10.  Fair Pricing of Pharmaceuticals: Insights into China's NRDL Negotiation, NRDL+ Executive Debrief, 2024-1-3, https://www.nrdlplus.com/fair-pricing-of-pharmaceuticals-insights-into-chinas-nrdl-negotiation/