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Financial conditions, health care provision, and patient outcomes: Evidence from Chinese public hospitals

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  • Luan, Mengna
  • Shao, Xiang
  • Dou, Fengman

Abstract

This paper investigates the impact of health care providers’ financial conditions on the provision of health care, using a policy shock in China – Zero Markup Drug Policy (ZMDP) – which reduces the profits that hospitals obtain from prescribing and dispensing drugs. The study utilizes a comprehensive data set of 117 public hospitals in a major Chinese city from 2007 to 2015 and adopts the difference-in-differences identification strategy based on the staggered adoption of ZMDP. Our findings show that the policy puts financial pressure on hospitals, as their revenue from prescription drugs per patient decreases significantly. In response to the financial shock, hospitals increase revenues from other treatments and procedures per patient, such as imaging tests. Moreover, as hospital revenues become more dependent on medical tests after the policy shock, hospitals increase their capital expenditure on medical equipment. Nevertheless, the study finds no effect of ZMDP on the quality of health care.

Suggested Citation

  • Luan, Mengna & Shao, Xiang & Dou, Fengman, 2020. "Financial conditions, health care provision, and patient outcomes: Evidence from Chinese public hospitals," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519304422
    DOI: 10.1016/j.econlet.2019.108876
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    References listed on IDEAS

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    1. Fu, Hongqiao & Li, Ling & Yip, Winnie, 2018. "Intended and unintended impacts of price changes for drugs and medical services: Evidence from China," Social Science & Medicine, Elsevier, vol. 211(C), pages 114-122.
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    4. David Dranove & Craig Garthwaite & Christopher Ody, 2017. "How do nonprofits respond to negative wealth shocks? The impact of the 2008 stock market collapse on hospitals," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 485-525, May.
    5. Liu, Gordon G. & Li, Lin & Hou, Xiaohui & Xu, Judy & Hyslop, Daniel, 2009. "The role of for-profit hospitals in medical expenditures: Evidence from aggregate data in China," China Economic Review, Elsevier, vol. 20(4), pages 625-633, December.
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    Cited by:

    1. Mengna Luan & Wenjing Shi & Zhigang Tao & Hongjie Yuan, 2023. "When patients have better insurance coverage in China: Provider incentives, costs, and quality of care," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(4), pages 1073-1106, October.
    2. Zhou, Mei & Zhao, Shaoyang & Fu, Mingwei, 2021. "Supply-induced demand for medical services under price regulation: Evidence from hospital expansion in China," China Economic Review, Elsevier, vol. 68(C).
    3. Yiming Hou & Guanwen Yin & Yanbin Chen, 2022. "Environmental Regulation, Financial Pressure and Industrial Ecological Efficiency of Resource-Based Cities in China: Spatiotemporal Characteristics and Impact Mechanism," IJERPH, MDPI, vol. 19(17), pages 1-18, September.

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