Government Expenditure and Health Cost Inflation in China: The Role of Doctors

Background and Purpose: Previous studies investigating the effects of government health expenditure on cost inflation focus on grand knowledge of healthcare system but neglect the voices and role of doctors in the micro settings.

This study inquired into the role of doctors in the relationship between government health expenditure and health cost inflation in China. It also investigated a prevailing wisdom in China--advocating the return of government health finance to curb health cost inflation.

Methods: This study employed a sequential mixed methods design. It first used a qualitative study to probe into the role of doctor in transferring government finance to medical costs. The qualitative study used semi-structured interview to collect the voices of 40 doctors and managers in hospitals at different levels in both rural and urban areas in a Chinese province. It was followed by a thematic analysis to discover patterns of the role of doctors. Based on the qualitative findings, we took the income of doctors into consideration and proposed two new hypotheses for statistical testing in the next phrase.

The following quantitative study served as either a confirmative design or a strategy of generalizing the main findings to national population. It used province by year in China as the unit of analysis and traced the public health finance and cost inflation based on aggregated panel data in 31 provinces from 2007 to 2012. It adopted the fixed effects panel data model to test the effects of the two predictor variables (ratio of government finance for health organizations to their salary amount and per capita government health expenditure in a province) on the six medical expenditure variables (total, drug, and test and treatment expenditure of both outpatient and inpatient services per admission in general hospitals in a province).

Findings: The qualitative study revealed that doctors were generally dissatisfied with both their low income and the weak or even adverse effects of increasing public finance on their salaries; therefore, they used hidden strategies such as prescribing device test, lab test, surgery and other medical services to transfer medical costs and to make up the loss of drug profit; as a result, the effects of increasing government expenditure in restraining cost inflation were offset.

The quantitative study revealed that the ratio of government finance for health organizations to the salary of doctors increased test and treatment expenditure per admission in general hospitals; and that per capita government health expenditure raised total healthcare expenditure, drug expenditure for inpatient services, and test and treatment expenditure per admission in general hospitals.

Conclusions and Implications: This study provided some adverse evidence against a prevailing wisdom which advocated the effectiveness of government finance in restraining health cost inflation in China. It concluded that public health finance did not play a positive role in curbing cost inflation as expected partly because of the malfunctioned practices of doctors. The living conditions of doctors should be given adequate concern.