The medical arms race and its impact in Chinese hospitals: Implications for health regulation and planning

Abstract

The rapid diffusion of medical technologies is widely recognized as a key driver of healthcare cost escalation. The excessive duplication of technologies gives rise to the so-called medical arms race. Conventional wisdom tends to explain this phenomenon by external reimbursement mechanisms and hospitals' competitive strategies, but has largely neglected the role played by health regulations that may also affect hospitals' technology adoption decisions. This study sheds new light on the medical arms race with evidence from China, which has witnessed an unprecedented expansion of big tertiary hospitals and a keen pursuit of expensive medical technologies. Chinese hospitals aggressively pursue high-tech medical equipment as an opportunistic reaction to the peculiar health regulatory environment. By analysing a panel dataset collected from Shenzhen City, this study reveals a series of important impacts of the medical arms race in Chinese public hospitals. High-tech medical equipment is found to lead to an increase in hospital revenues and patient volumes, but no significant impact is noted on unit costs. While high-tech medical equipment is associated with a discernible improvement in clinical outcomes, no contribution to hospitals' operational efficiency is noted. These findings are interpreted in the context of the broader health regulatory framework and China's public hospital reforms.