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Mismeasurement in Pay-for-Performance: Evidence from an Intervention to Reduce Health Care Spending in China

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  • Bingxiao Wu

    () (Rutgers University)

Abstract

This paper examines how physicians in China respond to a pay-for-performance scheme that mismeasures performance. In 2005, China imposed a policy that penalizes hospitals with high drug sale percentage in the total revenue, with the intent to decrease drug expenditure. Using a unique patient-level data from a large Chinese hospital, I find that physicians responded not by decreasing drug prescription, but by increasing non-drug services, especially diagnostic tests. There is no significant impact on length of stay. The overall effect was to increase total expenditures. This finding is consistent with the inducement hypothesis as physicians in China may receive under-the-counter commission for prescribing certain drugs. I also find that increased non-drug expenditures were concentrated among insured patients, suggesting that physicians have stronger incentives to act in the patients’ interests than in the interests of the third-party payer.

Suggested Citation

  • Bingxiao Wu, 2014. "Mismeasurement in Pay-for-Performance: Evidence from an Intervention to Reduce Health Care Spending in China," Departmental Working Papers 201409, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:201409
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    References listed on IDEAS

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    More about this item

    Keywords

    pay-for-performance; physician incentives; drug prescription; China’s health care system;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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