This paper examines how physicians in China respond to a pay-for-performance scheme that mismeasures performance. In 2005, China imposed a policy that penalizes hospitals with high drug sale percentage in the total revenue, with the intent to decrease drug expenditure. Using a unique...

This paper examines how physicians respond to financial incentives in China. Faced with the requirement to lower drug expenditure as a percentage of the total medical expenditure, physicians increased non-drug expenditure in addition to decreasing drug expenditure, keeping the total expenditure...