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Addressing government and market failures with payment incentives: Hospital reimbursement reform in Hainan, China

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  • Yip, Winnie
  • Eggleston, Karen

Abstract

This paper examines the role of provider payment policy as an instrument for addressing government and market failures and controlling costs in the health sector, particularly in developing countries. We empirically evaluate the impact of provider payment reform in Hainan province, China, on expenditures for different categories of services that had been subject to distorted prices under fee-for-service. Using a pre-post study design with a control group, we analyze two years of claims data to assess the impact of a January 1997 change to prospective payment for a sub-sample of the hospitals. This difference-in-difference empirical strategy allows us to isolate the supply-side payment reform effects from demand-side policy interventions. We find that prepayment is associated with a slower increase in spending on expensive drugs and high technology services, compared to fee-for-service. The fact that payment reform is associated with reduced growth in spending on the most expensive drugs is particularly encouraging, given that drugs account for a remarkably high percentage of both the level and growth of aggregate health expenditure in China. Payment reform can be an effective policy instrument for correcting market failures and adverse side effects of government health sector interventions (such as distorted prices to assure access to basic services), both of which can lead to excessive health care expenditure growth. Such health spending growth can have a particularly high opportunity cost for developing countries.

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Bibliographic Info

Article provided by Elsevier in its journal Social Science & Medicine.

Volume (Year): 58 (2004)
Issue (Month): 2 (January)
Pages: 267-277

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Handle: RePEc:eee:socmed:v:58:y:2004:i:2:p:267-277

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Related research

Keywords: Prospective payment Hospital reimbursement Price distortions Pre-post control study design Urban health reform China;

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Cited by:
  1. Winnie Yip & Karen Eggleston, 2001. "Provider payment reform in China: the case of hospital reimbursement in Hainan province," Health Economics, John Wiley & Sons, Ltd., vol. 10(4), pages 325-339.
  2. Eggleston, Karen & Ling, Li & Qingyue, Meng & Lindelow, Magnus & Wagstaff, Adam, 2006. "Health Service Delivery in China: A Literature Review," Policy Research Working Paper Series 3978, The World Bank.
  3. Karen Eggleston & Keqin Rao & Jian Wang, 2005. "From Plan to Market in the Health Sector? China's Experience," Discussion Papers Series, Department of Economics, Tufts University 0501, Department of Economics, Tufts University.
  4. Faden, Laura & Vialle-Valentin, Catherine & Ross-Degnan, Dennis & Wagner, Anita, 2011. "Active pharmaceutical management strategies of health insurance systems to improve cost-effective use of medicines in low- and middle-income countries: A systematic review of current evidence," Health Policy, Elsevier, vol. 100(2), pages 134-143.
  5. Karen Eggleston & Chee-Ruey Hsieh, 2004. "Health Care Payment Incentives: A Comparative Analysis of Reforms in Taiwan, Korea and China," Discussion Papers Series, Department of Economics, Tufts University 0402, Department of Economics, Tufts University.
  6. Ardeshir Sepehri & Sisira Sarma & Wayne Simpson, 2006. "Does non-profit health insurance reduce financial burden? Evidence from the Vietnam living standards survey panel," Health Economics, John Wiley & Sons, Ltd., vol. 15(6), pages 603-616.
  7. Wagstaff, Adam & Yu, Shengchao, 2007. "Do health sector reforms have their intended impacts?: The World Bank's Health VIII project in Gansu province, China," Journal of Health Economics, Elsevier, vol. 26(3), pages 505-535, May.
  8. Adam Wagstaff & Winnie Yip & Magnus Lindelow & William C. Hsiao, 2009. "China's health system and its reform: a review of recent studies," Health Economics, John Wiley & Sons, Ltd., vol. 18(S2), pages S7-S23, July.

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