Can a global budget improve health care efficiency? Experimental evidence from China

Health care in China suffers from substantial allocative inefficiency in the delivery system and technical inefficiency within hospitals. To ameliorate this problem in rural areas, the Analysis of Provider Payment Reforms on Advancing China's Health (APPROACH) project shifted the payment method of China's rural health insurance scheme for county hospitals from fee-for-service to a novel global budget. In particular, APPROACH global budget incentivized system-level allocative efficiency by reimbursing county hospitals at higher tariffs for gatekeeping and averting out-of-county (OOC) admissions among local patients they could treat. APPROACH conducted a large-scale randomized controlled trial of the global budget in 56 counties (22 million enrollees) of Guizhou province during 2016-2017. Applying randomization inference to claims data, we find a significant shift of inpatient utilization and expenditure from OOC hospitals to county hospitals. At county hospitals, average expenditure per admission and length of stay decreased, though not significantly. Effects on readmissions show no clear sign of compromised quality. We further find limited effect heterogeneity with respect to treatment and hospital characteristics. Overall, APPROACH global budget may offer a framework for improving health care efficiency without sacrificing quality.