The impact of China’s Zero-Markup Drug Policy on county hospital revenue and government subsidy levels

Abstract

In 2009, the Chinese government passed the Zero-Markup Drug Policy, which strives to contain the costs of medicines and ultimately reduce the financial burden to the public, especially those in low-income settings. This study aims to evaluate the impact of the Zero-Markup Drug Policy on health care provision, revenue structures in county hospitals, and demand for fiscal compensation from the government. Our study employs a difference-in-difference model to measure the difference in several indicators between two hospitals, Ningshan County Hospital, which implemented the policy, and Zhenping County Hospital, which had not. The main indicators include health care provision, drug revenue as a part of total hospital revenue, and level of government subsidy. The data come from hospital financial statements and operation reports. The findings of the study show that for Ningshan County Hospital the zero-markup policy led to an increase in health care provision and a sustained total hospital income despite a decrease in drug revenue. The enhancement in outpatient and inpatient visits also represents progress from the lens of the government, whose mission is to ensure greater access to care for the population. The study demonstrates that with minimal or no subsidy, the government can catalyse the zero-markup policy and potentially generate positive outcomes for county hospitals.