* $125 billion plan to extend coverage to 200 million uninsured
* Drug mark-ups to be regulated
* International firms still on the sidelines
By Lucy Hornby and Langi Chiang
BEIJING China's new, 850 billion yuan ($124.3 billion) health care reform plan aims to bring coverage to 200 million uninsured Chinese, but it still relies heavily on spending by cash-strapped local governments and may disappoint international companies eager to enter the Chinese market.
The cost of health care is one of the biggest concerns for poor or even middle-income Chinese, whose savings can easily be wiped out if a family member falls seriously ill.
Better health coverage could also help create a potentially huge market attractive to foreign pharmaceutical and health service providers, but China's health plan still regulates drug prices and limits participation by international insurers.
"There are still over 200 million people that are not covered by the nation's basic medical insurance system. That will be the priority for work in the next three years," Hu Xiaoyi, vice minister of human resources and social security, told a press conference on Wednesday.
Cautious Chinese saving in case of illness is one of the factors keeping domestic consumption relatively low, complicating Beijing's efforts to ride out the global financial crisis.
China's plan calls for local governments to fork out 520 billion yuan, or 60 percent of the cost of the program, through 2011. The local share is down from 73 percent in the last three years, but could still be a burden for governments short on revenue after the collapse of the real estate market and the removal of the grains tax.
The plan envisions building or upgrading thousands of county hospitals and township clinics, and raising the insurance subsidy for rural dwellers to 120 yuan per year.
"The document does call for increased use of commercial insurance, but that market remains largely closed to international actors who have much more experience in the field," said Drew Thompson, director of China Studies at the Nixon Center in Washington.
"The global financial crisis does not help international insurance companies make the case to Chinese regulators that they have valuable experience and contributions to make and should be allowed greater market access, resulting in health competition."
The new health plan calls for limiting the mark-up that hospitals and drug distributors can charge, and tries to regulate the price difference between patent and generic drugs.
Chinese hospitals are notorious for padding revenues and doctors' salaries by prescribing expensive or unnecessary medication, a practice that infuriates ordinary Chinese.
"We will gradually cut the profit margin of drugs sold at medical institutions ... and implement zero profit margin for drugs sold at local public clinics," said Peng Sen, vice director of National Development and Reform Commission.
The catalog of which drugs will be covered will be released by the end of the year and will be eagerly awaited by multinational pharmaceutical firms.
The plan tries to steer most patients with common complaints to neighborhood hospitals and rural clinics, to keep them from flooding the more specialized city hospitals.
Local clinics currently suffer from poor infrastructure and are staffed by poorly-educated personnel, contributing to patients' unwillingness to go to the doctor.
"Only if common people trust the medical care system will they be willing to use it; only if lots of people go to clinics and primary level hospitals will they work effectively," said Wang Jun, the vice minister of finance.
The new plan will experiment with better pay structures for doctors, government support of hospital upgrades, and partial privatization of some facilities.
(Editing by Nick Macfie)