Effects of Drug Price Changes on Patient Expenditure: Evidence from China's Zero Markup Drug Policy

Global society is dedicated to lowering healthcare costs. In China, the rapid growth in drug expenditure has been a major factor in the surge in patient expenditure. To alleviate the negative effect of this phenomenon, China launched the zero markup drug policy (ZMDP) in 2009. However, there is limited direct evidence of its effectiveness in reducing patient costs. Using claims data from January 2012 through May 2016 for enrollees in China's New Rural Cooperative Medical Scheme (NRCMS) in 25 counties, we investigated the changes in patient expenditure before and after the ZMDP's implementation. We found that the ZMDP significantly reduced outpatients' total expenditure (23.66%), reimbursable expenses (24.42%), out-of-pocket (OOP) costs (54.62%), and the OOP costs ratio (14%). Compared with outpatients, the ZMDP's implementation significantly reduced inpatients' total expenditure (5.82%) and reimbursable expenses (8.61%) but showed no significant relationship between OOP costs and the OOP costs ratio. Thus, it is important to distinguish outpatients from inpatients, as the ZMDP only significantly reduces outpatients' OOP costs. We believe that the difference between outpatients and inpatients in the share of drug expenditure (in the total expenditure) when visiting doctors and the shift from drug expenditure to other expenditure categories can explain the ineffectiveness of the policy for inpatients. Therefore, future reforms should focus on reducing inpatient costs.