3. Strengthening Health Systems

China has made wide use of incentive payments in hospitals—and even in public health programs. Research suggests that such payments have deleterious effects when their ability to skew behavior is not controlled. In Shandong province, studies found that a change in the bonus system for hospital doctors from one that was tied to the quantity of services provided to one that was tied to revenue generated was associated with a significant increase in hospital revenue. About 20 percent of hospital revenue was generated by the provision of unnecessary care. Although data did not permit linking bonus type to quality of care, the bonus system was clearly designed to achieve financial goals rather than quality goals. Furthermore, during the 1980s and 1990s, the government provided a decreasing share of the income of public health institutions, and the share of service charges greatly increased. As a result, public health institutions became heavily dependent on generating their own income. Negative effects included duplicate inspections of factory premises by different public health units, excessively frequent inspections, and neglect of less profitable factories that were less able to pay inspection charges.

Source: Liu and Mills 2002, 2003.