For decades, many doctors in rural China boosted their incomes by both recommending and selling drugs, often at steep markups. With mounting evidence of overprescription, in 2009 the Chinese national government largely banned markups, undermining doctors' financial incentive to over-provide them. Instead, the government provided physicians with a subsidy to compensate for the loss in profits.
Since then, a number of scholars have examined the effects of the policy. But no one has looked at the unintended consequences — until now.
In a study published today in Health Affairs, a team of researchers found the policy had the unintended consequence of boosting hospitalizations and the provision of inpatient care.
"When you have a regulation that affects pricing, it's like pushing a balloon in in one place — then it pops out in another," said Grant Miller, PhD, director of the Stanford Center for International Development, senior fellow at the Freeman Spogli Institute for International Studies and an associate professor of medicine. The first author is Hongmei Yi, PhD, program manager of FSI's Rural Education Action Program in China.
The team, which also includes Scott Rozelle, a senior fellow at FSI, examined data from rural Chinese clinics between 2007 and 2011. They found clinics that were most heavily reliant on drug revenues before the policy change more than doubled their provision of inpatient services when compared with the clinics least reliant on drug revenues before the change. These centers also experienced little change in revenue, which indicates they were able to offset the losses of drug revenue with income from inpatient stays.
Based on their analysis, the team also believes that this increase is not driven by demand for inpatient services, Miller said.
By also surveying and conducting follow-up phone interviews with patients, the researchers also found some evidence that clinics may be artificially boosting their inpatient tallies to increase their compensation from the government.
He said he was not surprised the policy had unexpected ramifications. "Humans are adaptive creatures and doctors are not categorically different than the rest of us. If you take away a source of livelihood, it's not surprising they found another way to make it up."
Rural primary care doctors in China "are also not at the top of the economic pyramid," Miller said.
Health-care reform is on the national agenda in China and it's possible that this study could inform future policies, Miller said. "It raises a much broader set of questions about how you design in a more holistic way a proper set of incentives for providers," he said.