Abstract
The inefficient use of healthcare resources is a persisting challenge to almost all healthcare systems, making it imperative to understand the underlying factors of healthcare demand. This paper investigates patients' health-seeking behavior in rural China using a random coefficients logit model. We further perform a counterfactual simulation and welfare analyses to evaluate the inefficiencies in health services utilization. The counterfactual simulation reallocates patients to more efficient health providers following the principles of the hierarchical medical system. Our analysis suggests that out-of-pocket expenses and distance to providers discourage patients from utilizing healthcare, while quality of care has a positive effect on patients' hospital choices. However, significant heterogeneity exists in patient preferences over quality of care, out-of-pocket expenses, and distance to providers. The simulation results show that the overall welfare change may have masked variations related to the hypothetical change, with societal welfare loss from switching to higher-tier providers. Our analysis provides support for policies to improve hospitals and assist rural patients in financing healthcare in China.
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