OBJECTIVES: As the health care safety net continues to grow in both depth and breadth, the provider payment system will play an increasing role in the resource allocation of health care in China. This paper is intended to assess the primary effects of payment reform of capitation experiment and the supplementary open enrollment policy in Changde city, China.  METHODS: In October 2007, Changde employed a capitation approach to pay for health care under the Urban Resident Basic Medical Insurance (URBMI), while the fee-for-service approach was still used by the Urban Employee Basic Medical Insurance (UEBMI) in the city and other programs as well. Using the national URBMI Household Panel Survey from 2008-2010, we conducted a set of difference-in-difference (DD) models to assess the capitation policy effect on cost and utilization outcomes while controlling for other differences between Changde and other cities.  RESULTS: The study finds the payment reform to reduce its inpatient out-of-pocket cost by 19.7%, out-of-pocket ratio by 9.5%, and length of stay by 17.5%. The total inpatient cost, drug cost ratio, treatment effect, and patient satisfaction showed little difference between FFS and capitation models. The robust tests find the relatively poor health subsample present a similar pattern with the results based on the full sample; as for the population cohort with good and very good self-rated health conditions, the payment reform in Changde has little impact on either providers or patients. CONCLUSIONS: We conclude that the payment reform in Changde led to an decrease in the financial burden of patients for inpatient care and improve hospital efficiency, , without compromising quality of care. The total cost measures remain no change between capitation and FFS settings, which can be  research topics for further studies concerning the long term effect of capitation approaches.