Two essays on health economics in China

Abstract

This thesis consists of two studies on health economics in China. The first chapter investigates health providers’ financial incentives in driving up medical expenses. The second chapter examines the impacts of China’s centralized drug procurement on drug price and quantity of drug use. The first paper studies whether and how physicians respond to a mandatory upgrade in patients’ health insurance status. We find consistent increases in total medical expenses and across all four subcategories of expenses (prescription drug expenses, diagnostic test expenses, surgical treatment expenses, and other service expenses), but no improvement in the quality of care delivered. These increases in expenses can be attributed to patients, physicians, or both. Our analysis shows that physicians’ financial incentives play a major role in inducing an increase in medical expenses when patients switch to a more generous medical insurance scheme. The second paper examines the impacts of China’s centralized drug procurement on drug price and quantity of drug use between 2008 and 2010. We find evidence of a 7.1 percent reduction in drug prices during this period. We also find significant changes in drug prices and quantity of drug use based on responses from pharmaceutical firms. Specifically, small firms tend to show a greater reduction in drug prices and a significant increase in quantity of drug use, whereas large firms tend to reduce the price of their drugs less but experience a small reduction in quantity of drug use. Small firms also tend to introduce more new versions of drug products.