The Ministry of Health (MOH) issued the notice to clarify several issues in the reform of public hospitals in 2012. The pilot cities are required to phase out the subsidizing of medical services with drug sales revenues, based on drug price mark-ups. The public hospitals may increase the revenue from service fees and financial subsidies, but not drug price mark-ups any more. A modern hospital management system shall be established in the public hospitals. The management system of hospital directors’ qualifications, and the responsibility system and assessment system, will be established and improved. MOH will vigorously promote the comprehensive reform of county-level hospitals and expand the measures and policies nationwide. Furthermore, the private medical institutions will be further encouraged. The local health authorities are required to formulate detailed rules for private medical institutions and to advance the preferential policies with regard to pricing, taxation, medical insurance of designated hospitals, land, key science project construction, and post-evaluation on professionals.