By Xiaoying Zhu (Nossal Institute for Global Health, The University of Melbourne; School of Elderly Care Services and Management, Nanjing University of Chinese Medicine)
Background
The hospitalisation rate of residents in China has been steadily rising. In 2018, the annual hospitalization rate reached 18.2%, surpassing the average levels of the OECD countries. Meanwhile, outpatient visits per capita in China remain below the OECD average. This imbalance is likely related to the design of China’s health financing system, which prioritizes financial protection for inpatient services at the expense of outpatient care.
China has almost achieved universal coverage, with social health insurance (SHI) schemes covering 95% of its population. However, the high hospitalization rate may make the healthcare system inefficient and costly, which raises growing concerns among health policy makers in China.
During the initial design of the SHI schemes, a key policy concern was around whether the focus should be on covering severe illnesses typically requiring inpatient care, or minor illnesses often managed through outpatient services? Given limited resources and the goal of preventing catastrophic health expenditures, the design prioritized inpatient care. This decision led to a significant disparity in cost-sharing between outpatient and inpatient services, offering researchers a unique opportunity to observe how individuals respond to varying levels of financial burden for different types of healthcare services.
Cost-sharing is a widely used mechanism to curb healthcare costs and encourage efficient utilization. By requiring patients to contribute to their healthcare expenses, the system aims to discourage unnecessary service use. Research confirms that cost-sharing generally leads to decreased healthcare utilization. However, in systems with robust insurance coverage, reducing cost-sharing can backfire.
Our recent article in Health Policy and Planning examined the relationship between cost-sharing and the use of outpatient and inpatient services in the Chinese healthcare system and analyzed the effectiveness of cost-sharing within diverse socioeconomic settings in order to identify unintended consequences that undermine financial protection for the patients who most need it.
What did we find?
- Choosing Inpatient Over Outpatient Care
We discovered that higher cost-sharing for outpatient services seemed to drive up discretionary hospitalization, while the level of cost-sharing for inpatient services didn’t show a strong link with discretionary hospitalization. This suggests a ‘moral hazard effect’, where relatively higher outpatient cost-sharing incentivizes individuals to use more inpatient care, even when it is not strictly necessary.
- Financial Barriers and Forgone Care
In contrast, our analysis of doctor-initiated hospitalizations revealed that individuals are more likely to forgo such care when the cost-sharing for inpatient care increases or when the cost-sharing for outpatient care is higher relative to inpatient care. This indicates that while inpatient and outpatient services serve distinct roles, financial barriers in one area ripple into the other, exacerbating inequities.
- Contrasting Trends
The above contrasting trends raise an interesting dilemma. While higher cost-sharing levels appear to deter people from seeking doctor-initiated healthcare services, they seem to have the opposite effect on the discretionary inpatient services. We thus conclude that the rise in inpatient care in China may reflect an escalation of moral hazard, where individuals seek unnecessary hospital admissions, rather than a correction of underutilized inpatient care.
Our study found high-income individuals have a higher probability of using inpatient services, and patients from rural areas, with chronic diseases, or with low incomes, are more sensitive to the level of cost-sharing. The pronounced gap in cost-sharing between outpatient and inpatient care creates a significant financial barrier to accessing essential outpatient services for these vulnerable groups, often forcing them to choose between expensive inpatient care or forgoing necessary treatment altogether.
The study is unique as it highlights cases where individuals didn’t get inpatient care despite a doctor’s recommendation. By focusing on this, we identified the potential unmet needs for inpatient services and moral hazard effects, an area often overlooked in past research. Additionally, we examined how the ratio of outpatient to inpatient cost-sharing impacts healthcare utilization. This innovative approach helps uncover how the cost structure of both services influences people’s decisions.
Conclusions
This study suggests that the lower cost-sharing for inpatient services may not be effectively reaching the individuals who need inpatient care the most. Individuals may substitute more expensive inpatient services for outpatient care when faced with higher cost-sharing for the latter. However, among vulnerable groups who genuinely require hospitalization, there is an unintended exclusion from access to inpatient care at the outpatient stage. This situation leads to both inequity and inefficiency in the healthcare system.
It is essential to note that recent reforms to China’s social health insurance system are still being gradually implemented, which may lead to improvements reflected in our research findings. Despite these reforms, the cost-sharing mechanisms between outpatient and inpatient services remain in place. The insights from this study are not only relevant to China but also have broader implications internationally, and especially for many low- and middle-income countries that have started down the path to UHC or are seeking to optimize their existing health insurance systems.
Image credit: Xiaoying Zhu
