Physician agency in China: evidence from physicians’ responses to financial pressure during the COVID-19 pandemic

This paper examines how rural primary care physicians in China adjusted their practice patterns to pandemic-related financial pressures under a capitated global-budget model. Using township-hospital data, we find increased prescribing of Traditional Chinese Medicine (TCM) decoction pieces, with effects concentrated among habitual prescribers rather than converting occasional users into regular prescribers. Physicians also reduced both the number of drugs prescribed and the volume of services provided to cost-sharing outpatients, producing a 5% decline in average insurance payments per outpatient visit and potentially generating a greater surplus within the global-budget pool. By contrast, we observe no significant changes for self-paying outpatients, suggesting limited scope for physician-induced demand. These results underscore the role of physician agency in healthcare provision and highlight the importance of aligning financial incentives with policy goals. While drug reforms and managed-care models have contained expenditures, challenges remain in achieving adequate coverage for rural residents.