The impacts of medical insurance payment methods on medical bills and medical service quality: Evidence from Xiangtan, China

This study investigates the impact of Diagnosis-Related-Group (DRG) on medical expenses and medical service quality in Chinese public hospitals. We also examine how the effects of DRG vary among different hospital classifications. Using a unique dataset of hospitalization settlement and discharge information at the patient level, we apply a fixed-effects difference-in-differences (DID) model to assess the causal effects. Our research uncovers interesting findings on how public hospitals react to cost controls and quality improvement during the initial stages of DRG implementation. Our results reveal that DRG significantly reduces various medical costs but does not significantly affect the quality of care. Furthermore, we observe that DRG increases the burden on patients in Grade III hospitals and has a substantial negative impact on medical service quality, which contradicts the intended goals of the DRG payment reform. Our study provides insights from the hospital perspective and can serve as a reference for medical insurance payment reform in developing countries that are undergoing primary healthcare reform.