The effect of performance-related pay of hospital doctors on hospital behaviour: a case study from Shandong, China

The primary concerns of this study were to assess the effects of the bonus system on hospital revenue, cost recovery and productivity, and to explore whether various forms of bonus pay were associated with the provision of unnecessary care. The study drew on longitudinal data on revenue and productivity from six panel hospitals, and a detailed record review of 2303 tracer disease patients (1161 appendicitis patients and 1142 pneumonia patients) was used to identify unnecessary care.The study found that bonus system change over time contributed significantly to the increase in hospital service revenue and hospital cost recovery. There was an increase in unnecessary care and in the probability of admission when the bonus system switched from one with a weaker incentive to increase services to one with a stronger incentive, suggesting that improvement in the financial health of public hospitals was achieved at least in part through the provision of more unnecessary care and drugs and through admitting more patients.There was little evidence that the performance-related pay system as designed by the sample of Chinese public hospitals was socially desirable. Hospitals should be monitored more closely by the government, and regulations applied to limit opportunistic behaviour. Otherwise, the containment of government financing for public facilities may result in an increase in the provision of unnecessary care, an increase in health costs to society, and a waste in social resources.Health policy researchers and policy makers have increasingly recognized that health care providers have a powerful influence on health care provision and the use of health care resources. With the recognition that public hospitals are often productively inefficient, reforms have taken place worldwide to increase the administrative autonomy and financial responsibility of public hospitals [1,2]. Reforms in China are perhaps some of the most radical. Starting from the early 1980s, the government