Abstract: It is suggested that to change the institutional status of the public hospitals into the corporate governance structure with independent economic interests, to change the role of the finance to public hospitals from supply complement to demand complement, to encourage public hospitals to join the market competition, and to purchase the services of public hospitals by the government on behalf of the patients; such a reform idea is not likely to be successful. The fundamental reason is that the serious market failures caused by the specificity of medical services are unable to be eliminated. The consequence of the market competition between the public hospitals will be higher and higher medical (drug) charges. The sign of success of the reform of public hospitals is whether the “public welfare” is truly realized. The key link in the realization of “public welfare” in public hospitals is public oversight. Therefore, public hospitals run by national finance under public supervision should be the inevitable choice.

Key words: public hospitals; market failure; public welfare; governance structure; financial investment