Enhancing health system efficiency in China: considering the interaction between use of primary care and the demand for secondary and tertiary care.

This study examines the substitution effects and complementary dynamics between outpatient and inpatient services across different levels of hospital care in China's tiered healthcare system. The data of this study originated from official administrative medical insurance reimbursement records from 2013 to 2019, with a final sample size of 1 520 263 patients. Using individual-level data and controlling for regional variations through fixed-effects models, we identify significant patterns in healthcare utilization that provide actionable insights for enhancing system efficiency. We have found a notable substitution effect: increased utilization of primary care services was negatively associated with the demand for secondary and tertiary care, thereby supporting ongoing health policy reforms. Additionally, outpatient services at primary care facilities could reduce the demand for both outpatient and inpatient services at higher-level hospitals. The homogeneity of outpatient services further facilitated substitution across care levels, allowing primary and secondary care to increasingly manage clinical cases previously handled by tertiary hospitals. Finally, we explored the complementary relationship between outpatient and inpatient services within the same care level, emphasizing highlighting how financial incentives contribute to induced hospitalization in China's healthcare system. These findings suggest that healthcare policies must be adjusted to address systemic inefficiencies and realign financial incentives in order to improve resource allocation and patient care.