New evidence on supplier-induced demand in China's public tertiary hospitals: is the cost of hospitalization higher in the off-season?

Supplier-induced demand (SID) is a long-standing concern in health economics and health system studies; however, empirical evidence on SID-critical to the development of health policy-is difficult to obtain, especially from China. This study, therefore, aims to add new evidence on SID in China's public tertiary hospitals and facilitates the development of evidence-based health policies in China and other countries with similar healthcare systems. For this study, we used patient-level electronic medical records (EMRs) collected from the information systems of tertiary hospitals in a western province in China. From 11 tertiary hospitals, we collected 274,811 hospitalization records dated between 15 February and 30 November 2019. Total expenditure on hospitalization and length of admission of each patient were the primary metrics for measuring SID. We constructed a character indicator to measure the high-season or off-season status of hospitals, and log-linear estimations were applied to estimate the "off-season effect" on hospitalized expenditures and length of admission. We find that the cost of hospitalization is indeed higher in the off-season in China's public tertiary hospitals; specifically, expenditures for patients admitted in the off-season increased by an average of 5.3-7.9% compared to patients admitted in the peak season, while the length of admission in the hospital increased by an average of 6.8% to 10.2%. We also checked the robustness of our findings by performing subgroup analyses of EMRs in the city-level hospitals and surgical group. We name this phenomenon the "hospital off-season effect" and suggest that the main reason for it is inappropriate financial incentives combined with a Fee-For-Services payment method. We suggest that China should work to reform inappropriate financial incentives in public hospitals to eliminate SID by changing its payment and financing compensation system.