Shifting How Hospitals Get Paid: What It Means for Doctors and Patients

In China, the way hospitals earn money is changing. The old system paid doctors for every test and treatment they gave, called Fee‑for‑Service (FFS). Now the government is moving toward a new model known as Diagnosis‑Related Groups (DRGs), where hospitals receive one set payment for each patient’s diagnosis.

This move is driven by a need to stop healthcare costs from rising too fast. DRGs can help keep bills lower because they limit how much a hospital can charge for the same condition. However, the new system also creates new problems.

• Upcoding – Doctors may feel pressure to “upcode,” or choose a higher‑priced diagnosis code, to get more money.
• Under‑treatment – On the other hand, they might cut back on necessary care because the flat payment does not cover all treatments.

Both behaviors can hurt patients and strain insurance funds.

Researchers studied real doctors to see how they react when the payment system changes. Their findings show that while cost control is a goal, it can also lead to risky practices like over‑coding and under‑treatment. These actions threaten the long‑term health of both patients and the insurance system.

The study highlights a tricky balance. Policymakers must design payment rules that keep costs down without encouraging doctors to compromise care. Transparent monitoring and fair incentives could help achieve this balance.