Theoretical and empirical analysis of the supplier induced demand in the health care market in China

Supplier-induced demand has in fact been one of the most contentious topics in the economics of health care. According to the SID theory in health economics, the theoretical model about SID in China has been provided, then, based on the Co-integration theory, the empirical analysis has been brought out. The study tells that it is the reduction of government finance to hospitals, not the increase of supply that is the long-term steady determinants of growth of health care expenditure and that the difference of marginal return to hospital among all kinds of services and medicines is the external factor. In order to control the excessive growth of the health care expenditure, three main policy suggestions has been provided: Firstly, we should increase health care service supply; Secondly, eliminate the difference of marginal return to hospital; Thirdly, enhance the government input and perfect the compensate system of medical service; which is also the most important one.