Hospital response to increases in prices of pediatric services: Evidence from China

This study examined how hospitals responded to increases in the prices of previously underpriced pediatric services. In May 2018, the city of Guangzhou in southern China mandated price increases of 30 % for 408 pediatric service items when children patients aged under 6. Prices for patients aged 6 and over, however, remained unchanged. Using case-level discharge data from public hospitals in Guangzhou, we employed a regression discontinuity design to estimate the differences in health expenditures, treatment intensity, and readmission rate between patients hospitalized just before and after the age of 6. Since we observed no behavioral changes for children aged above 6, and an absence of demand-side response among children aged under 6, the estimated effects can be interpreted as providers' response to increases in pediatric service prices for children aged under 6. We found that the higher service prices significantly increased expenditures on medical services per admission for children aged under 6 by 15.8 %. The magnitude of this estimate provided suggestive evidence that increased expenditures on medical service were mainly driven by the mechanical price effect and the provision of medical services remained largely unchanged, because 408 pediatric services with price increase of 30 % accounted for almost half of the total service expenditures. Moreover, this pricing reform reduced drug expenditures and antibiotics expenditures per admission for children aged under 6 by 21.2 % and 31.8 %, respectively. Given that there was no price change in prescription drugs, the fall in drug and antibiotics expenditures was primarily due to behavioral effects on the supply side. The reduction in drug expenditures nearly offset the increase in expenditures on medical services, resulting in statistically insignificant changes in total expenditures per admission. Furthermore, we observed no measurable changes in treatment intensity or readmission rates around the age of 6. These findings suggested that increased prices for previously underpriced services may reduce the over-prescription of drugs without increasing total health expenditures and sacrificing healthcare quality, highlighting the potential of mitigating distortions in medical prices in improving health system performance.