Path Selection of China’s Medical Reform Based on Empirical Measurement of Asymmetric Information

Based on the micro individual data from China Health and Nutrition Survey (CHNS) database and the development of China’s medical and health system reform since the reform and opening-up in 1978, this paper applies a two-tier stochastic frontier model to measure the degree of asymmetric information between physicians and patients in China’s medical service market and estimate the impact of bargaining on the final price of health care both holistically and annually. The empirical results show that: 1) The information mastered by physicians and patients have significant but opposing effects on the final medical service price. Physicians hold more information relative to patients and thus have stronger bargaining power. 2) Almost all patients will be forced to accept a medical price higher than the benchmark price by 16.52% on average by receiving excessive and expensive medical services, despite the differences in bargaining power between physicians and patients are highly heterogeneous. 3) The series of medical reforms in China had different impacts on medical care pricing efficiency. Especially, the early medical reforms could impose a positive impact on the efficiency of the medical market in the initial stage. I further propose that the path choice of China’s new round of medical reform should be as follows: It is necessary to insist on government-led efforts to protect the public welfare of medical services, and to introduce market mechanisms to mobilize social resources and improve the efficiency of the medical market. In addition, I point out that the establishment and improvement of the general practitioner system may reduce the degree of information asymmetry between physicians and patients, thus alleviating China's deteriorating physician-patient relationship.