Bad to All? A Novel Way to Analyze the Effects of Fee-for-Service on Multiple Grades Hospitals Operation Outcomes

It is a consensus that Fee-for-Service (FFS) is a traditional medical insurance payment scheme with significant disadvantages, namely the waste of health care resources. However, the majority of the prior works that draw such conclusions from the perspective of social welfare while analyzing the impacts of FFS on operation outcomes of hospitals still lack attention from the existing literature, considering the fact that the majority of public hospitals are self-founding. Under this motivation, we collected operation data of 301 public hospitals with different grades (grade II and III) in central China. Here, we present a novel statistical evaluation framework on the impact of FFS on hospital operation outcomes from four dimensions (financial income, efficiency, medical service capacity, and sustainability) using fixed-effects multivariate regression. With verification by the robustness test, our results indicate that: (i) The classification of the hospital (COH) significantly affected the impacts of FFS on hospitals' operations. (ii) For grade III hospitals, FFS leads to higher financial income, medical service capacity (MSC) and longer length-of-stay (LOS). (iii) However, as for grade II hospitals, hospitals with FFS adoptions achieve lower financial income, lower MSC and shorter LOS, which violates the common sense from previous works. (iv) FFS has a significant negative impact on public hospital's sustainable development; however, there is lack of evidence showing that sustainability would be affected by the interaction effects between FFS and COH. We believe these new findings from the perspective of hospital operation provide insights and could serve as a reference for the healthcare payment hierarchical reform by COH in low and middle-income countries (LMICs), which are going through the primary stage of the healthcare reform.