Reforming how physicians are paid in Chinese public hospitals: The bonus scheme, motivation crowding-out and the doctor-patient relationship

China is currently in the midst of carrying out an ambitious national health care reform to overhaul its heavily deteriorated health system and build a universal replacement by 2020. A multitude of misaligned incentives created in the past three decades have powerfully altered the behavioral patterns of Chinese health care providers towards profit-seeking. Overprescribing pharmaceuticals, diagnostic tests and expensive procedures are rampant in public hospitals. Among other explanations, low income and high-powered bonus schemes have been found to be the key drivers behind physicians’ various perverse behaviors. Recent years have seen a rising recognition of the importance of payment reforms. Alternative payment mechanisms such as capitation, global budget and case-mix have been increasingly used in many localities on a pilot basis to pay hospitals. Positive effects have been found. Little is known, however, as to how individual physicians should be paid. This study investigates a new experiment in the Fujian Province that changes physician compensation from a low basic salary+high bonus to an annual salary system that pays physicians higher salaries. It is expected to reduce physicians’ strong profit-seeking incentives. Does this work? How do physicians respond to new incentives? What are the implications to China’s ongoing health care reform? This study uses a qualitative approach to answer these research questions. It contributes fresh evidence to the health policy reform in China and beyond.