(Reuters) - Beijing is struggling to deal with an increasingly violent flashpoint of social unrest in its healthcare system, as its latest bid to cut costs is failing to ease tensions among millions of people who cannot afford basic treatment.

Violent attacks directed at hospital doctors and other healthcare workers in the form of beatings, threats, kidnappings, verbal abuse and even killings soared in recent years to 17,243 cases in 2010, alarming central policymakers who regard China's overhaul of its lumbering public healthcare system a top national priority.

Critics say China's efforts to cut treatment costs in public hospitals and defuse tensions do not go far enough and show little sign of reversing the violence of angry sufferers.

"The government is very worried about violence against doctors, especially when a few doctors and healthcare workers were attacked earlier this year. Some hospitals now have guards guarding them," said a health official in southern Guangdong province, speaking on condition of anonymity because of the sensitivity of the issue.

"It's a top priority to stop these things from happening," said the source, who works in hospital administration.

In July, the ruling Communist Party sought to make treatment more affordable by looking to ban an age-old practice among public hospitals of marking up drugs prices by 15 percent, a practice the government allowed to flourish after it wound back subsidies for public hospitals from the 1950s.

The ban applies to 300 county hospitals under a pilot project. But a patients' group and senior Chinese health officials say the measure, even if implemented nationwide, does not make medicines substantially more affordable.

Instead, they say Beijing must tackle the far fatter markups enjoyed by drug distributors, a web of middlemen who inflate prices by 40 percent and sometimes by several-fold to levels that are beyond the reach of many ordinary Chinese.

This is a "bigger problem", said Liao Xinbo, deputy director general for health in southern Guangdong province.

"Nothing is being done to change this," said Liao, who is about to publish his second book taking a critical look at China's healthcare reforms.

PAYING THE BILL

One Chinese struggling to meet medical bills is Xu Shiding, who needs weekly injections that each cost more than 1,300 yuan ($210) to control chronic hepatitis C.

The gold miner in China's northwestern region of Xinjiang has to pay out of his own pocket for one or two injections each month. He has state health insurance, but his cover is limited.

With monthly income of 2,600 yuan, he has been forced to borrow money from his family, he said.

"I have even become a boyfriend of a wealthy married woman," said Xu, sobbing at times, as he alluded to how he needs his mistress's financial support to pay for his treatment. Left untreated, such patients may end up with liver cirrhosis and even cancer.

The average cost of a single hospital admission in China is roughly the same as average annual income, a 2008 paper published in The Lancet said. For the lowest fifth of income earners, it is more than twice average annual earnings, the paper said.

REFORMS MEET VESTED INTERESTS

China's healthcare spending is set to grow to $1 trillion by 2020 from $357 billion in 2011, consultancy McKinsey & Company said in a report in July.

Embedded in China's healthcare system are strong vested interests: tens of thousands of drug-makers and distributors supporting workers and their families and local governments that depend on tax revenues from these companies.

In China's fragmented healthcare sector, a batch of drugs can go through two, even three layers of distributors before ending up at a hospital. It is not uncommon to have a distributor servicing only one hospital. Each distributor takes a cut and pays doctors and advertisers to promote its sales.

Beijing has a blueprint for reforming distribution but healthcare experts say it is bound to face fierce resistance among provincial authorities already worried about tax revenues as economic growth slows down.

"There are literally thousands of distributors and they tend to be localized ... China wants to consolidate them. But every time a small company disappears, it is the taxes, jobs that go away," said Franck Le Deu, partner and head of Greater China healthcare at McKinsey & Company in Shanghai.

"Therefore, the consolidation process faces resistance."

In addition, some of the companies involved in the distribution chain are state-owned enterprises, which will resist change, said Li Renbing, a lawyer representing the China Patients' Rights League Project Group.

"Can the government cut them out completely? These enterprises have to survive, which is why this middle section (of distributors) is preserved," Li said.

Still, some major distributors are not resistant to changing the current system. Beijing is starting to set floor and ceiling prices for state-subsidized medicines, which they say could help deliver more affordable healthcare.

"When both the floor and ceiling prices are controlled, then whoever has a better and more trusted brand will gain," said Jia Zhongxin, chief operating officer for Sihuan Pharmaceutical Holdings Group Ltd, the eighth largest drugmaker and distributor in China by market share.

Still, critics say even that idea won't work because hospitals can find other ways to increase costs for patients, such as by encouraging tests that may not be necessary, and sophisticated and costly treatment.

While Beijing wound back subsidies from the 1950s, it allowed hospitals to mark up drug prices to alleviate budget pressure, effectively passing these costs on to patients.

Drug distributors then moved into the picture from the 1980s when China opened up its economy, pushing prices even higher.

Critics say doctors have an incentive to earn commissions on prescribing drugs because by international standards their salaries are low, ranging from 4,000 yuan ($628) to 10,000 yuan ($1,570) a month.

"Within this space, salesmen push for sales, offering commissions to doctors if they prescribe more of certain drugs. Prices go up. Hospitals prescribe more expensive drugs because the cuts and the markups from them are higher," said Liao, the Guangdong province health official.

"Everyone profits from this big mark-up. Who suffers? The common people. Whoever has to consume the drug suffers." ($1 = 6.3264 Chinese yuan)

(Additional Reporting by Donny Kwok in Hong Kong: Editing by Neil Fullick)

*Images courtesy: © Thinkstock photos/ Getty Images
*Text courtesy Reuters