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Soc Sci Med. 2018 Aug;211:114-122. doi: 10.1016/j.socscimed.2018.06.007. Epub 2018 Jun 18.

Intended and unintended impacts of price changes for drugs and medical services: Evidence from China.

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National School of Development, Peking University; Room 202, National School of Development, Peking University, Beijing, 100871, China. Electronic address:
National School of Development, Peking University; Room 201, National School of Development, Peking University, Beijing, 100871, China.
Department of Global Health and Population, Harvard T.H. Chan School of Public Health, 665 Huntington Avenue, Building 1 Room 1210C, Boston, MA, 02115, USA.


In 2012, the Chinese government launched a nationwide reform of county-level public hospitals with the goal of controlling the rapid growth of healthcare expenditure. The key components of the reform were the zero markup drug policy (ZMDP), which removed the previously allowed 15% markup for drug sales at public hospitals, and associated increases in fees for medical services. By exploiting the temporal and cross-sectional variations in the policy implementation and using a unique, nationally representative hospital-level dataset in 1880 counties between 2009 and 2014, we find that the policy change led to a reduction in drug expenditures, a rise in expenditures for medical services, and no measurable changes in total health expenditures. However, we also find an increase in expenditures for diagnostic tests/medical consumables at hospitals that had a greater reliance on drug revenues before the reform, which is unintended by policymakers. Further analysis shows that these results were more likely to be driven by the supply side, suggesting that hospitals offset the reductions in drug revenues by increasing the provision of services and products with higher price-cost margins. These findings hold lessons for cost containment policies in both developed and developing countries.


China; Cost containment; Difference-in-Difference; Healthcare expenditure; Healthcare reform; Price changes; Public hospitals

[Indexed for MEDLINE]

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