Effects of Hospital Payment Reform of Government Budget Allocation and Social Health Insurance in a Pilot in China

Background: Government Budget Allocation (GBA) and Social Health Insurance (SHI) constitute the primary revenue sources for public hospitals in China, with GBA accounting for a substantially smaller proportion compared to SHI. Starting in 2015, a megacity in southern China gradually introduced payment reforms. GBA, previously based on government approved number of staff (input-based), was replaced with an output-based model. Subsequently, SHI payment method was changed from fee-for-service to case-based payment. Methods: The study adopted a staggered difference-in-differences model to assess the effects of reforms on service volume and capacity, as well as hospital efficiency. We used hospital-level panel data of 29 hospitals in the city from 2009 to 2022. Results: The GBA reform increased annual outpatient visits by 301,374 per hospital (p< 0.01) and promoted efficiency (score increase of 0.02, p< 0.05). In contrast, the SHI reform increased annual inpatient discharges by 2,417 per hospital (p< 0.05) but had no significant effect on efficiency (-0.15, p> 0.1). Conclusion: The output-based GBA reform increased outpatient service volume and the number of healthcare professionals, while the case-based SHI reform raised inpatient discharges. Only GBA was associated with a modest efficiency gain given the distinct incentives of GBA and SHI. Future research should explore strategies for better alignment of multiple funding streams, such as unified purchasing with blended payment models or clearer functional differentiation.