The Financial Impact of the ‘Zero-Markup Policy for Essential Drugs’ on Patients in County Hospitals in Western Rural China

Objective: With a quasi-experimental design, this study aims to assess whether the Zero-markup Policy for Essential Drugs (ZPED) reduces the medical expense for patients at county hospitals, the major healthcare provider in rural China. Methods: Data from Ningshan county hospital and Zhenping county hospital, China, include 2014 outpatient records and 9239 inpatient records. Quantitative methods are employed to evaluate ZPED. Both hospital-data difference-in-differences and individual-data regressions are applied to analyze the data from inpatient and outpatient departments. Results: In absolute terms, the total expense per visit reduced by 19.02 CNY (3.12 USD) for outpatient services and 399.6 CNY (65.60 USD) for inpatient services. In relative terms, the expense per visit was reduced by 11% for both outpatient and inpatient services. Due to the reduction of inpatient expense, the estimated reduction of outpatient visits is 2% among the general population and 3.39% among users of outpatient services. The drug expense per visit dropped by 27.20 CNY (4.47 USD) for outpatient services and 278.7 CNY (45.75 USD) for inpatient services. The proportion of drug expense out of total expense per visit dropped by 11.73 percentage points in outpatient visits and by 3.92 percentage points in inpatient visits. Conclusion: Implementation of ZPED is a benefit for patients in both absolute and relative terms. The absolute monetary reduction of the per-visit inpatient expense is 20 times of that in outpatient care. According to cross-price elasticity, the substitution between inpatient and outpatient due to the change in inpatient price is small. Furthermore, given that the relative reductions are the same for outpatient and inpatient visits, according to relative thinking theory, the incentive to utilize outpatient or inpatient care attributed to ZPED is equivalent, regardless of the 20-times price difference in absolute terms.