The Chinese experience of hospital price regulation

This paper analyzes the distortion effects of the hospital pricing policies in China. To help maintain equitable access to hospital services, the Chin ese government regulates prices of hospital services, and provides subsidie s to public hospitals. Comparing the regulated fees of selected hospital se rvices with their average unit costs indicates that the average cost-recove ry rate of the fees is only 50%, The fees for 90% of the services are less than their average unit costs, while the fees for the high-tech services ex ceed their costs, Moreover, the State Price Commission allowed a drug profi t margin of 15-20% over the wholesale price. The distorted fee schedule aff ects the behaviour of hospitals. Empirical evidence revealed problems of vi olation of price regulations (charging a fee exceeding the regulated fee), over-provision of profitable high-tech services and over-prescription of dr ugs, The Chinese experience shows that low regulated fees cannot reduce the economic burden on patients, and that distorted medical fees can result in distorted service provision and low efficiency of medical resources, Strat egies to correct for the price distortions are discussed.