Financial and social impacts of drug price changes: Evidence from 2017 healthcare reform in Liaoning Province, China

Healthcare reform was launched in China in 2017 to reduce the financial burden on both patients and the government by terminating the 15% markup on drug prices at public hospitals. To evaluate this reform's impacts, we conduct a quantitative study based on the operational data from one of the top 10 hospitals in Liaoning, China. Specifically, we utilize log-linear and logistic regression models to examine the policy's impacts on patients' total healthcare expenditures and the hospital's adjustments of its offering list that consists of western medicine (WM), traditional Chinese medicine (TCM) and non-medicine (NM). We find that the reform effectively alters the patients' spending structure and the hospital's profit model: (1) it decreases patients' average per-visit expenditure on WM and TCM while increases their average NM expenditure; (2) it differently affects patients from various socioeconomic groups and leaves space to target on groups that may demand extra financial and healthcare assistance; (3) it slows down the hospital's revenue increase and incentivizes the hospital to shift the WM revenue from margin-driven to volume-driven and to weigh more on NM revenue and (4) it encourages the hospital to keep WMs with steady price and drop WMs whose price keeps rising.