The Impact of DRG-Based Payment Reform on Inpatient Healthcare Utilization: Evidence from a Natural Experiment in China

<b>Objectives</b>: This study aims to examine the impact of Diagnosis-Related Group (DRG) payment on medical costs, efficiency, and quality of healthcare services in public hospitals, providing policy recommendations for further health insurance payment reforms in China. <b>Methods</b>: Utilizing inpatient medical insurance settlement data from 2020 to 2023 in the selected city, we constructed a regression discontinuity design (RDD) and an interrupted time series (ITS) model to evaluate the causal effects of the DRG reform. The analysis includes 66,533 inpatient settlement records. <b>Results</b>: Following the reform, the average length of stay (LOS) decreased by 2 days (95% CI: -3.43 to -0.70, <i>p</i> < 0.01), total hospitalization expenditures dropped by 13% (95% CI: -0.26 to -0.00, <i>p</i> < 0.05), and expenditures from the medical insurance fund declined by 25% (95% CI: -0.39 to -0.12, <i>p</i> < 0.01). Additionally, examination and consultation fees were reduced by 23% (95% CI: -0.41 to -0.05, <i>p</i> < 0.05), although patients' out-of-pocket burden increased by 8% (95% CI: 0.05 to 0.10, <i>p</i> < 0.01). In terms of healthcare quality, the 30-day readmission rate decreased by 1% (95% CI: -0.01 to -0.00, <i>p</i> < 0.01), and the mortality rate among low-risk patients declined by 4% (95% CI: -0.04 to -0.03, <i>p</i> < 0.01). We found no evidence of patient selection or denial of admission. Heterogeneity analysis revealed that the reduction in hospital stay was concentrated among enrollees under the Urban and Rural Resident Basic Medical Insurance and those treated in secondary hospitals. The policy's effects peaked shortly after implementation but gradually attenuated over time. <b>Conclusions</b>: Our study offers hospital-level evidence indicating that the initial stage of DRG implementation achieved its preliminary goals of optimizing medical resource allocation and improving the efficiency of medical insurance fund utilization. However, the reform still faces several challenges. These findings may offer valuable references for developing countries pursuing reforms in primary healthcare and health insurance payment systems.