The effect of case-based payment reform on hospitalization rates: evidence from China

Rising medical expenditure has posed a major governance challenge worldwide, prompting health systems to replace fee-for-service reimbursement with case-based payment models to realign provider incentives. China has also implemented the case-based payment reform nationwide, adopting both the DRG-based payment and a domestically developed alternative model known as the Diagnosis-Intervention Packet (DIP). Using a county-level panel dataset from Sichuan Province covering 2011-2022, this study examines how this reform is associated with changes in hospitalization rates, an outcome that remains insufficiently understood in the existing literature.

This study employs an imputation-based staggered difference-in-differences design to examine the impact of case-based payment reform on public hospital hospitalization rates.

The case-based payment reform increases public hospitals' hospitalization rates by 0.72% points, a 6.7% increase relative to the pre-reform mean of 10.68%. Additional analyses offer suggestive evidence on factors that may be related to this pattern. On the supply side, the reform is associated with improved hospital efficiency, which is consistent with the possibility that hospitals are able to accommodate more inpatient admissions. On the behavioral side, changes in hospitalization rates may also reflect hospitals' strategic adjustment to the new reimbursement scheme. Heterogeneity analyses further show that the effect is more pronounced in areas with more abundant medical resources, higher per capita health insurance revenue, and a lower share of beds in primary care institutions.

Case-based payment reforms can trigger unintended volume expansion, which could partly weaken their expected cost-containment effects. These findings highlight the importance of designing provider payment systems with more carefully aligned incentives and strengthening regulatory frameworks to monitor hospitals' behavioral responses. The evidence also offers policy-relevant lessons for China and other low- and middle-income countries seeking to reform provider payment systems while balancing cost control, service capacity, and access to care.