Beijing announced on Thursday that it plans to boost public spending on hospitals and shift away from a "profit-driven model" in the health service.
The government has faced mounting criticism over soaring medical fees and insufficient access to services.
As part of renewed efforts to provide universal medical service to China's 1.3 billion citizens, the Health Ministry said that the government will support the construction of about 2,000 county-level hospitals over the next three years, with work scheduled to start this year.
The goal is to ensure that each county has at least one hospital operating at national standards.
Health Minister Chen Zhu said that the government will also invest heavily in public hospital infrastructure, medical equipment, academic research, training for doctors and subsidies to cover the health costs for retirees.
Chen called for an "overhaul" of state-run hospitals.
Until the early 1990s, the government covered more than 90 percent of medical expenses, but spending cuts have reduced coverage to just 17 percent.
Public hospitals have increasingly been forced to rely on profits generated from medical services and drug prescriptions to cover their operating costs.
Chen observed that this "profit-driven model" meant "heavy burdens on patients and a waste of medical resources.
"We aim to cut hospitals' involvement with drug sales to cut drug prices, medical supply prices and physical check-up fees," he said.
The government will set up hospital monitoring institutions to ensure "transparency in management and quality of medical service."
Chen said that his ministry will roll out a "compensation scheme" that would address the high pharmaceutical costs in the country, without elaborating.
He also reported that the government "will give special subsidies to hospitals providing public health services such as disease prevention, inoculation and health education.
"The plan will tilt in favor of hospitals specializing in epidemic diseases, vocational diseases, psychiatry, traditional Chinese medicine, maternity and pediatrics," he went on.
The reforms will be rolled out in several cities as part of a three-year pilot program.
Chen did not give the number or names of the cities, but he said that the pilot program would "help us form a general idea to lay the foundation for nationwide reform."
The new plans emerged from two years of public debate.
The Ministry of Health has received more than 200,000 suggestions from Chinese citizens since 2006, when it called for a national "brainstorm" on how to improve the country's health service.
