Moral Hazard in Physician Prescribing Behavior: Evidence from China’s Zero-Markup Policy (with Yuxi Dong, Yang Li, and Ning Zhang, Applied Economics, 2024)
In this study, we investigate the moral hazard associated with physician prescription patterns in the context of China's Zero-Markup Policy (ZMP), which annuls markups on Western medications while exempting Traditional Chinese Medicine (TCM). Using a distinctive dataset of administrative records, we investigate the influence of patient insurance status on the consumption of drugs, with a discerning focus on the disparate utilization of Western drugs and TCM. Our empirical results reveal a pattern in which insured patients exhibit increased expenditure on TCM and decreased outlay on Western drugs relative to their uninsured counterparts, suggesting that physicians are incentivized to prescribe profit-generating TCM rather than Western drugs with zero markup. A heterogeneity analysis confirms the consistency of these findings across varied health insurance schemes and a pronounced tendency among patients aged over 30. Our findings illuminate the dynamics of provider-induced demand in the pharmaceutical sector under China's ZMP, contributing to the discourse on policy-induced perverse incentives in healthcare provisioning.
Nonprofit Behavior Altered by Monetary Donations: Evidence from the U.S. Hospice Industry (with Lei Guo and Yang Li, European Journal of Health Economics, 2023)
This study investigates whether reliance on monetary donations alters nonprofit firms’ behaviors. Specifically, in the hospice industry, a shorter patients’ length of stay (LOS) speeds up overall patient turnover, allowing a hospice to serve more patients and expand its donation network. We measure hospices’ donation reliance using the donation–revenue ratio, which indicates the importance of donations for revenue structure. By exploiting the supply shifter of donation, we adopt the number of donors as an instrument to control for the potential endogeneity issue. Our result suggests that a one-percentage-point increase in the donation–revenue ratio decreases patient LOS by 8%. Hospices that are more reliant on donations serve patients diagnosed with diseases that have shorter life expectancies to achieve a lower average LOS of all patients’ stay. Overall, we find that monetary donations alter the behavior of nonprofit organizations.
Filial Piety Matters: A Study of Intergenerational Supports and Parental Health (with Yang Li, SSM: Population Health, 2022)
Eldercare has become a major challenge in China. As intergenerational support from children remains the primary source of caregiving, this paper investigates the impact of such support on parents' health outcomes. Exploiting data from the China Health and Retirement Longitudinal Study (CHARLS), we adopt the Heckman selection model and ordered probit model with instrumental variables, the firstborn son and firstborn daughter, to control for the potential endogeneity existing between intergenerational support and parents' health outcomes. Our results suggest that intergenerational support, including emotional and financial support, is effective in improving parental health status, including physical and psychological well-being and performance of activities of daily living (ADL) and instrumental activities of daily living (IADL). Emotional support also improves parental cognition. Children have trade-offs between emotional and financial support. Our findings provide insight into more efficient healthcare for the elderly.
From Gateway to Value Ladder -- The Curious Case of Online Mutual Aid in China (with Ze Chen, Runhuan Feng, and Tianyang Wang, 2nd round Revise & Resubmit at Journal of Risk and Insurance) [PDF]
This study examines the complex relationship between Mutual Aid (MA) InsurTech platforms and traditional insurance markets in China, using a dynamic discrete choice model and unique user-level data from a leading MA platform. We illustrate how MA platforms act as cost-effective entry points and potential stepping stones to private insurance, aiding market penetration for major tech companies in the insurance sector. Our findings show that MA participants are increasingly likely to purchase insurance as they engage with MA activities, and we explore several mechanisms underlying these dynamics. Counterfactual simulations highlight the crucial role of strategic information delivery in boosting insurance adoption rates. The study provides new insights into the complex and potentially controversial role of InsurTech in relation to the traditional insurance sector.
Supply Expansion of Long-term Support & Service: Evidence from China's Long-term Care Insurance Pilot (with Yang Li and Wendan Zhang, Revise & Resubmit at Journal of Economic Behavior and Organization) [PDF]
This study investigates how public long-term care insurance (LTCI) fosters market expansion in the Long-Term Services and Supports (LTSS) industry. Using a Difference-in-Differences regression approach and leveraging China's business administrative data, we observe an increase of 10 firms entering markets where the LTCI pilot policy is implemented. We develop a structural model of an entry game incorporating discrete location choices to analyze entrants' strategic behaviors. Our structural estimates indicate a high barrier to entry in the LTSS industry. However, China's LTCI pilot program offers substantial profitability incentives, equivalent to approximately 41% of the entry costs, effectively motivating market entry. Our robustness checks confirm LTCI’s consistent positive effect on market entry and highlight high entry costs as a key barrier. Counterfactual simulations show that nationwide LTCI implementation and lower entry barriers would significantly expand the LTSS market, with geographically targeted policies—especially income equalization and localized incentives—most effective in enhancing regional development. These findings highlight the critical role of public policy in stimulating the development of the LTSS sector amidst growing global demand.
The ACA Medicaid Expansion: Increased Utilization but Reduced Care Quality in Nursing Homes (Revise & Resubmit at B.E. Journal of Economic Analysis and Policy) [PDF]
This study explores the impact of Medicaid expansion on the nursing home industry within the United States, with a specific focus on changes in facility utilization and the quality of care provided. By employing a difference-in-difference (DiD) methodology, I quantify the impact of Medicaid expansion at the nursing home level, uncovering a pronounced augmentation in Medicaid-covered patient-days post-expansion. Concurrently, this analysis detects a reduction in registered nurse (RN) staffing hours per patient-day, which may herald a deterioration in the quality of care. To elucidate the underlying mechanisms of Medicaid expansion, I further apply a difference-in-difference-in-difference (DDD) model, which corroborates the findings from the DiD analysis. Significantly, the DDD results associate the observed decline in care quality directly with the increased usage of services covered by Medicaid. These insights bear critical policy implications, highlighting the imperative to reconcile the expansion of care access with the preservation of service quality in nursing homes.
The Spillover Effect of China's Outpatient Cost-sharing Policy on the Hospitalization Sector (with Xiaoxiao Yan, Yuxi Dong, Yang Li, and Na Liu, Revise & Resubmit at North American Actuarial Journal) [PDF]
The rapid growth in healthcare expenditures in China over the past decades can be partially attributed to the overuse of inpatient services. This study investigates the impact of China's outpatient cost-sharing policy on inpatient medical expenditures. Exploiting a quasi-experimental design centered on outpatient mutual aid reform, we employ a difference-in-difference methodology to analyze the policy effect. Our analysis, which uses inpatient medical records, shows that the policy significantly reduces total inpatient costs and out-of-pocket expenditures. This effect is pronounced in cases involving ambulatory care-sensitive conditions, highlighting the potential for primary care to prevent unnecessary hospital admissions. Furthermore, our findings suggest that the reductions in expenditures are larger for older patients, especially in tertiary hospital cohorts.
Distorted Behavior When Revenue Becomes Capped: Evidence from China's Reimbursement Constraint in Hospitalization (with Yuxi Dong and Ning Zhang) [PDF]
High medical expenditure is a problem in the health care industry. This paper examines the effeteness of the global budget (GB) policy in China that aims to cap the reimbursement amount and thus to control the medical expenditure in the inpatient sector. Using a unique administrative patient-level data set from 2015 to 2016, we analyze the policy effect by a Difference-in-Difference (DiD) model. We find while there is a reduction effect in reimbursement, out-of-pocket expenses raise due to the GB policy. Furthermore, we find the evidence of spill-over effect that outpatient, the unregulated sector, also emerges a sharp raise in medical expenditure. Besides, our results suggest that the reimbursement cap leads to an increased intensity of treatment. We conclude that the GB policy with reimbursement constraint distorts hospitals' behaviors, causing an opposite effect over what it is aimed to be.
Services and Cash: How Long-term Care Insurance Benefit Type Affects Household Behavior in China (with Terence Cheng, Yang Li and Minghao Wu) [PDF]
This study investigates the impact of China’s Long-term Care Insurance (LTCI) pilot program, an innovative program that provides both in-kind (service) benefits and cash allowances. Leveraging variation in benefit types across pilot cities, we analyze how LTCI influences household behavior, including consumption patterns, medical expenditures, and intergenerational support. Our findings indicate that both forms of LTCI benefits increase household consumption and reduces medical costs. Notably, households with mixed benefits — where beneficiaries can choose between in-kind and cash benefits — significantly increase spending on food and housing. By contrast, households receiving only in-kind benefits increase spending on housing, transportation, and clothing. Furthermore, recipients of in-kind benefits report a reduction in informal care provided by their children, pointing to a substitution effect toward formal care services. Households with mixed benefits experience a decline in financial support from their children, indicating a potential crowding-out effect on intergenerational transfers. To further understand the welfare implications of the program, we estimate income and substitution effects driving recipients' behavior, offering insights into the economic and social dynamics shaped by China’s unique LTCI system. Our findings highlight the critical role of policy design in balancing in-kind benefits and cash benefits to achieve sustainable and equitable long-term care solutions.
Anticipating Retirement: Medical Over-consumption Patterns Among Public Sector Employees in China (with Ning Zhang, Xin Cai and Yuxi Dong) [PDF]
As the disparity in medical benefits between public and private sector employees in China narrows upon retirement, this paper investigates the impact of this narrowing gap on their medical behaviors near retirement. Drawing upon the concept of mental accounting and loss aversion, we hypothesize that established interest holders may resort to over-consume medical expenditure and this behavior intensifies as retiring. We empirically study the impact using Chinese administrative patient-level data. Our empirical findings indicate a distinct pattern among employees of public sector institutions. Employees from the public sector are more likely to engage in medical over-consumption before retirement, primarily evidenced by increased expenditures on drugs and examinations for hospitalized patients, with moderate increase in treatments and minimum changes in surgical expenses or length of hospital stay. Moreover, we find that the increase in total expenditure is driven by out-of-pocket payment, indicating irrational behavior rather than moral hazard.
Random Inspection and Quality of Care: Dynamic Enforcement in the Nursing Home Industry (with Wendan Zhang) [PDF upon request]
The inefficient quality of care in the U.S. nursing home industry has been a concern for decades. The center of Medicare and Medicaid (CMS) conducts random inspections to enforce quality improvement. We estimate a dynamic discrete choice model on nursing homes' investment in the quality of care, taking the random inspection as given, to minimize the long-run cost for compliance. Using the U.S. nationwide facility-quarter level data from 2014 to 2018, our structural model suggests the investment cost is approximate $31.12 thousand. Linking our data with literature, we find the average gain in consumer surplus in a nursing home is about $113.69 thousand due to an investment. Our analyses imply that such quality investment boosts social welfare extensively.
Budget with Deadline: Hospitals' Medical Expense Manipulation at the End-of-Month (with Xin Cai and Yuxi Dong)
Quality of Management: Evidence from Hospitals' Mistakes in Digital Operation (with Xin Cai, Yuxi Dong, and Minghao Wu)
Insurers' Over-competition and Market Consequences (with Wenpu Ma and Wenhao Li)