The impacts and unintended consequences of the nationwide pricing reform for drugs and medical services in the urban public hospitals in China

Since 2015, China has been rolling out the pricing reform for drugs and medical services (PRDMS) in the urban public hospitals in order to reduce drug expenditures and to relieve financial burdens of patients. This study aims at evaluating the effectiveness of the reform and investigating its positive impacts and unintended consequences to provide evidence basis for further policy making.

The Difference-in-difference (DID) approach was employed to analyze the reform impacts on the 31 provincial administrative areas in China based on data abstracted from China Statistics Yearbooks and China Health Statistics Yearbooks from 2012 to 2018.

The reform resulted in a decrease of 7.59% in drug cost per outpatient visit, a decrease of 5.73% in drug cost per inpatient admission, a decrease of 3.63% in total cost per outpatient visit and an increase of 9.10% in surgery cost per inpatient admission in the intervention group. However, no significant change in examination cost was found. The reduction in the medical cost per inpatient admission was not yet demonstrated, nor was that in the total outpatient/ inpatient expenses. The nationwide pricing reform for drugs and medical services in urban public hospitals (PRDMS-U) in China is demonstrated to be effective in cutting down the drug expenditures. However, the revealed unintended consequences indicate that there are still significant challenges for the reform to reach its ultimate goal of curbing the medical expenditures.

We conclude that the pricing reform alone may not be enough to change the profit-driven behavior of medical service providers as the root cause lies in the unchanged incentive scheme for providers in the service delivery. This holds lessons for policy making of other low- and middle-income countries (LMICs) with similar health systems set up in the achievement of Universal Health Coverage (UHC).