A comprehensive assessment of provider payment reform: Insights from China

This paper develops a context-specific model to evaluate China's transition from a fee-for-service (FFS) system to a prospective payment system (PPS) in healthcare. The model predicts three distinctive pathways. First, reimbursable expenditures are expected to decline, while non-reimbursable expenditures increase. Second, expenditures are predicted to decrease more for historically overused services. Third, the policy is predicted to generate spillover effects, notably an increase in outpatient visits if payment rates exceed a certain threshold. Using a large administrative dataset, we empirically validate these predictions. Reimbursable expenditures declined by 6.7 % after the reform, and non-reimbursable expenditures exhibited an upward trend. The expenditure reduction was entirely driven by a decline in drug costs, with no significant changes in non-drug services such as examinations, treatments, or nursing care. Outpatient visits increased by 19.5 % following the reform. These findings offer valuable insights into the mechanisms and broader implications of healthcare payment reforms in developing countries.