Title: How Do Physicians Respond to Price Changes: Evidence from China

Speaker: Assistant Professor Ju Shi, Peking University

Time: October 20th, 2017  13:30–14:45

Venue: Conference Room 106B, Zhonghui Building (College of Economics, JNU)

Abstract: 

Excess medical supply, especially of drug prescription, has being causing great concerns in China in recent years. In order to contend with this problem, the Chinese government implemented a national reform in drug purchase and use, named constructing the Essential Drug System, which aimed to lower the prices of prescription drugs. Using a large sample of medical claims data and taking advantage of the variation in the magnitude of the exogenous policy shock to different level of hospitals, this work investigates how physicians respond to price changes. We found that compared to the upper level hospitals that were less affected by the policy, the ratio of drug spending to total spending had decreased by 6 percentage-point more in the most affected township hospitals after the reform. Further investigation found that the decrease mainly came from the decrease in drug price rather than quantity. However, despite of the reduction in drug ratio, no significant reduction in total medical spending was found and the ratio of examination and tests increased by 6 percentage point accordingly. One potential explanation is that although physicians’ incentives to over-prescribe drug seemed to have been mitigated by the policy, they responded by providing more examinations and tests in order to maintain certain level of revenues.