Can a results‐based bottom‐up reform improve health system performance? Evidence from the rural health project in China

In 2008, the Rural Health Project (Health XI) was initiated in 40 Chinese counties to pilot interventions aimed at improving local health systems. Performance targets were pre‐specified (results‐based), and project counties were allowed to tailor their interventions (bottom‐up) in recognition of the substantial regional variations. Using household data from the China National Health Services Survey in a difference‐in‐differences strategy combined with matching, we find that project counties have improved outcomes (both incentivized and not‐directly‐incentivized) in all three domains examined—medical care, public health services, and self‐rated health—by 2013. In particular, the decrease in outpatient intravenous drip use and financial strain and the increase in all four components of public health services provision are robust to a variety of tests and alternative matching strategies. Results for not‐directly‐incentivized indicators suggest that results‐based payment did not lead to multitasking problems but rather to positive spillovers. On the other hand, little improvement in inpatient‐related indicators suggests that the Health XI interventions did not successfully redress the perverse incentives driving the bulk of providers' income. In general, however, our results indicate that interventions adopted in the results‐based bottom‐up approach generated substantial benefits given the investment.