OBJECTIVES: With the development of economy, the intensification of healthy aging and the gradual expansion of health insurance coverage, the rapidly increasing medical expenses have become one of the main challenges facing the reform of China's medical and health care system. The key to effectively controlling the excessive rise of medical expenditures and ensuring the sustainability of medical insurance funds lies in whether the reform of medical insurance payment methods can be effectively promoted. China started a pilot project to modify the DRG payment reform in 2017, and intends to implement a multifaceted and complex medical insurance payment method based on payment by diagnosis-related groups or disease type in 2024. Diagnosis-related group payment system is frequently seen as helpful in containing the development of healthcare costs. However, it also causes moral hazard issues on the supply side, including higher rates of readmission to hospitals and cost shifting. This research aims to explore the impact of diagnosis-related group payment reform on supply-side moral hazard in China.

METHODS: The model in this study was built using interrupted time series analysis, and basic medical insurance claims data for 10% of patients from all secondary and tertiary health care institutions in City A during 2019–2021 were randomly selected. We selected several diseases.

RESULTS: The diagnosis-related group payment reform increased the two-week and one-month readmission rates for patients and dramatically decreased total medical costs and out-of-pocket expenses for inpatients.

CONCLUSIONS: This shows that medical professionals may alter treatment programs and fragment hospital stays in response to the reform.The core goal of the diagnosis-related group reform is to place more financial pressure on healthcare providers and encourage them to take charge of cost management, enhancing the effectiveness of healthcare resource utilization. Medical professionals, however, have the potential to lower expenses while having a negative impact on the standard of service.