Establishing Appropriate Agency Relationships for Providers in China

Liu, Yu; Saltman, Richard B.

To eliminate the perverse financial incentives related to drug mark-up policies described above, from 2015, the Chinese government began to eliminate the 15% drug cost markup for public hospitals (eg, zero mark-up drug policy). By September 30, 2017, all public hospitals should have eliminated the drug markup (except for Traditional Chinese Medicine). 37 To compensate for the loss of revenue to public hospitals, most labor-related services such as physician service fees, inpatient bed fees, nursing fees, surgery fees, and traditional medicine rehabilitation fees have all been increased. The comprehensive payment structure reform required that, on average, the increased fee schedule will compensate 90% of the drug mark-up profit loss for countylevel hospitals and above. 38 The goal of this policy is to eliminate the incentive for physicians to overprescribe expensive drugs and high-technology diagnostics tests. However, if physicians' incomes are still tied to public hospitals' profit, hospitals can design other financial incentive systems to reward physicians who help hospitals to increase profit. Multiple studies have already reported that hospitals and physicians responded by increasing physician and other service charges. [38] [39] [40] [41] [42] One recent study on a well-recognized reform model, "Sanming," 26, 43 also showed the zero mark-up drug policy's effect on reducing expenditure faded over the long term. 44 Lack of a proper professional code for Chinese physicians could make physicians' and hospitals' fee response behaviors even more extensive.