Impacts of medical insurance payment reform (DRG) on public medical institutions: evidence from pilot cities in China

BACKGROUND: In 2019, China selected 30 cities to pilot diagnosis-related group (DRG) payment reforms nationwide. This study describes the impact of DRG payment reforms on medical expenses, service quality, and efficiency across public hospitals in these pilot cities. METHODS: One reform pilot city served as the policy implementation group, whereas an adjacent city without DRG reform served as the control group. Data on the demographic and sociological characteristics of inpatients, hospitalization expenses, medical quality, and information from medical records and annual reports of public hospitals in both cities from 2016 to 2022 were collected. A difference-in-differences model was used to analyze the net policy effect of DRG payment reform on medical expenses, quality, and efficiency. RESULTS: During the observation period in the pilot city, the implementation of DRG payment reform was associated with reduced total hospitalization costs (β = -0.191, p < 0.01), particularly the diagnostic examination (β = -0.276, p < 0.01) and treatment (β = -0.476, p < 0.01) costs. Concurrently, the reform was correlated with a shortened length of stay (β = -1.625, p < 0.01) and decreased antibiotic usage (β = -0.089, p < 0.01). Heterogeneity analysis further indicated that the cost containment effect was more pronounced in secondary hospitals than in tertiary hospitals while showing no significant differences in quality-of-care or efficiency metrics. These associations aligned with theoretical expectations; however, further research is warranted to account for potential confounding factors and elucidate the specific pathways of hospital behavioral adjustments to establish causal mechanisms. CONCLUSION: This study indicated that the DRG payment reform might encourage hospitals to optimize medical cost management and adjust the cost structure. However, its impact on improving medical quality and efficiency was relatively limited. Attention should be paid to the potential behavioral responses that may arise from changes in the medical insurance payment method. It is recommended that when implementing the DRG reform, hospitals should strengthen supporting measures, optimize the utilization of insurance funds, improve the diagnosis and treatment process, and continuously monitor the balance between nursing quality and service efficiency.