Case Complexity-Based Incentives: How Payment Reform Strengthens Tiered Healthcare in China

Healthcare systems worldwide continue to struggle with hospital-centered utilization and insufficient primary care capacity. In China, the Diagnosis–Intervention Packet (DIP) reform introduces a regional global budget and complexity-based reimbursement, aiming to discourage low-severity admissions in tertiary hospitals while incentivizing the treatment of resource-intensive cases. This study evaluates whether and how the DIP reform reshaped hospital case-mix and strengthened the functioning of China’s tiered healthcare system. Using inpatient records from a tertiary hospital (2019–2020), we applied a two-group interrupted time series design to estimate the reform’s causal impact on case complexity, measured by Relative Weight (RW). We further employed a causal forest model to examine heterogeneity in treatment effects across patient groups. Results indicate a significant post-reform increase in RW among patients covered under the DIP scheme, reflecting a shift toward more complex case-mix and enhanced hospital specialization. Heterogeneity analysis shows that age and department accounted for nearly 90% of variation in treatment effects. The most pronounced increases were observed among children and adolescents (0–18 years) and in neonatology and pediatrics, suggesting that the reform rebalanced pediatric case-mix within tertiary hospitals, increasing the relative share of higher-complexity cases compared to routine, low-severity cases. These findings demonstrate that complexity-based payment incentives can realign hospital behavior and advance functional differentiation in a tiered healthcare system. To ensure sustainable impact, payment reforms should be accompanied by strengthened primary and community care capacity, safeguarding quality and equity as patient flows are redistributed.