"The biggest reform to China's health system": did the zero-markup drug policy achieve its goal at traditional Chinese medicines county hospitals?

The zero-markup drug policy (ZMDP) was heralded as the biggest reform to China's modern health system. However, there have been a very limited number of investigations of the ZMDP at county hospital level, and those limited county hospital studies have several limitations in terms of sample representativeness and study design. We investigated the overall and dynamic effects of ZMDP at traditional Chinese medicine (TCM) county hospitals. We obtained longitudinal data from all TCM county hospitals in 2004-16 and the implementation year of ZMDP for each hospital. We used differences-in-difference methods to identify the overall and dynamic effects of ZMDP. On average, the ZMDP reform was associated with the reduction in the share of revenue from drug sales (3.1%), revenue from western medicines sales (12.7%), revenue from medical care services (3.6%) and gross hospital revenue (3.4%), as well as increased government subsidies (24.4%). The ZMDP reform was not significantly associated with the number of annual outpatient and inpatient visits. In terms of dynamic effects, the share of revenue from drug sales decreased by 2.5% in the implementation year and by about 5% in the subsequent years. Revenue from western medicine sales fell substantially in the short term and continued to drop in the long term. Government subsidies went up strikingly in the short term and long term, and revenue from medical care services and gross revenue decreased only in the implementation year. The ZMDP achieved its stated goal through reducing the share of revenue from drug sales without disrupting the availability of healthcare services at TCM county hospitals. The success of ZMDP was mainly due to the huge growth in the government's financial investment in TCM hospitals.