How does separating government regulatory and operational control of public hospitals matter to healthcare supply?

- Separation reforms of public hospitals in China are examined
- City-level data and the difference-in-difference model method are used
- The changes in healthcare supply in response to the policy reform are estimated
- Separation reform will increase the local healthcare supply

This paper evaluates the effect of regulatory reform separating the operational control and regulatory oversight of public hospitals in China. Using city-level data and a difference-in-difference (DID) model, this paper estimates the changes in healthcare supply in response to the regulatory reform. Based on the DID estimates, in Weifang between 2006 and 2008, the reform led to a 39.3% increase in the number of doctors per 10,000 residents and 40.1% increase in the number of health workers per 10,000 residents. Similarly, in Suzhou between 2005 and 2008 the reform led to increases of 60.5%, 30.8% and 36.6% for hospital beds, doctors and health workers per 10,000 people, respectively. Moreover, the magnitude of this impact appears to increase over time. Furthermore, the effect of the reform is consistent regardless of whether the separation reform takes place inside or outside the government. These findings lead us to conclude that the government should focus only on the regulation of healthcare markets, while leaving hospital operation to the free market.