The impacts of China's drug price zero-markup policy on medical expenditures and health outcomes

Abstract

Drug overuse and high drug expenditures have long been of concern in China. In 2012, the Chinese government implemented the drug price zero-markup policy (ZMP) to contend with these problems. This paper investigates the impact of the ZMP on the hospitalization expenses and health outcomes of inpatients, using administrative data from Beijing. The findings show that the ZMP reduces inpatients' medicine expenses by an average of 20.4%, while total hospitalization expenses do not change significantly. The findings also show that the average length of hospital stay increases by 0.588 days. The results jointly indicate that hospitals adopt substitution behavior to make up for the drug revenue loss. The paper finds no evidence that the ZMP has a negative impact on patients' probability of death or readmission.