Patient Copayments, Provider Incentives and Income Effects: Theory and Evidence from China's Essential Medications List Policy
78 Pages Posted: 22 Sep 2013
Date Written: September 19, 2013
How do demand- and supply-side incentives interact, when there are potentially large provider income effects? We develop a simple model and empirically test it with data from China’s Essential Medications List (EML) policy, which reduced patient copayments and changed provider incentives by removing a large source of revenue from primary care providers: drug dispensing revenues. Using a panel of patient-level spending and clinical data for Chinese patients with diabetes or hypertension over two and a half years, we find evidence of strategic provider response that dampened the impact of patient copayment reductions. Resource use and patient out-of-pocket spending did not change, when taking account of patient utilization outside primary care.
Keywords: provider payment, insurance, chronic disease management, China, income effects
JEL Classification: I11, I13
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