Since early 2020, the 2019 coronavirus disease (COVID-19) pandemic has raised widespread concern about its socioeconomic impact ^{[1][2][3][4][5][6]}[1,2,3,4,5,6]. Measures to address COVID-19, such as quarantine, stay-at-home restrictions, or lockdown of cities, have caused significant disruptions to people’s daily life; no one is spared from the shadow of the pandemic. The impact of the COVID-19 pandemic is still being revealed, and numerous studies have reported that the public health measures described above were associated with a marked decrease in health care utilization worldwide, including emergency room visits and hospital admissions for non-COVID-19 patients, such as in Europe ^{[7][8][9][10][11][12][13]}[7,8,9,10,11,12,13], Asia ^[14][15][16][14,15,16], the Americas ^{[17][18][19][20]}[17,18,19,20], and Africa ^[21][22][21,22]. However, the COVID-19 pandemic leads to critical hospital response, and the evidence concerning the effect of these responses on hospital operation strategy remains limited.

It is well known that during approximately the past two years, China has responded to the COVID-19 epidemic with persistent and strict measures, including quarantine, stay-behind restrictions, or lockdown of cities, based on the principles of zero COVID-19 or dynamic zero COVID-19 policies, and most countries also adopted these strict measures in the first encounter with COVID-19 in 2020. However, there was a huge difference between China and most other countries in the response to the first outbreak of COVID-19 in early 2020. Most hospital beds were occupied by patients infected with COVID-19 during the first wave in 2020 in many parts of the world, which was different from what happened in most places except Wuhan in China. Benefit from strict lockdown measures during the first outbreak of COVID-19 in 2020, only Wuhan was the epicenter of infection, and there were not many infections in other regions of China ^{[23][24][25][26]}[23,24,25,26]. However, during the same period, other regions in China also implemented strict home quarantine policies, and residents had to go through a rigorous approval process to seek medical treatment at hospitals. Additionally, a large number of medical personnel were deployed to conduct nucleic acid testing, leading to a shortage of hospital staff. As a result, outpatient and inpatient volumes in hospitals in areas other than Wuhan showed a significant decrease.

There are serious concerns about how hospitals in China would respond to the increased costs and lost revenue of fighting COVID-19, and whether hospitals will compensate for lost revenue by inducing more diagnostic tests and medical consumables to achieve better financial sustainability.

2. Brief Introduction to China’s Healthcare Delivery System

China’s healthcare delivery system is a complex network of public and private providers, governed by policies and regulations aimed at ensuring access to basic health services for its large and diverse population. China has a three-tiered system for healthcare delivery: health organizations and providers operate at county, township, and village levels in rural areas, and at municipal, district, and community levels in urban areas ^[27][28]. Primary care services are provided at community health centers and township healthcare centers, secondary care is provided by district and county hospitals, and tertiary care is provided by large specialty and general hospitals in major cities. Public hospitals are owned and operated by the government, and are organized into tiers according to their level of service. They are typically the largest and most well-funded providers, with strong links to medical education and research institutions. Public hospitals dominate the market for specialized and tertiary care, and employ 64% of practicing physicians, handle 82% of inpatients and 40% of outpatients, and account for about half of China’s total healthcare spending ^[28][29]. Private hospitals, on the other hand, are owned and operated by nongovernmental entities or individuals. They are generally smaller and provide more specialized services than public hospitals, such as cosmetic and reproductive medicine. Historically, private hospitals have been less regulated than their public counterparts, but recent reforms have sought to improve their quality and increase their role in the healthcare delivery system. The private sector has experienced a vast expansion in China’s hospital market in the past decades for both healthcare supply capacity and delivered care ^[29][30], but the public health sector is the main healthcare provider ^[27][28].

3. Compensation Mechanism of Chinese Public Hospitals and Its Potential Influence by COVID-19

Public hospitals in China have been mainly compensated by service charges, drug sales, and government budget allocations in the past decades. However, since 2012, the compensation mechanism of Chinese public hospitals has undergone a relatively large reform, starting with county-level public hospitals and extending to municipal-level public hospitals in 2016. This round reform focused on four interrelated areas: removing the drug mark-up, increased budget allocation, adjustments of fee schedules, and reforming payment methods ^[28][29], as a consequence that public hospitals revenue from service charges and government budget allocations only. Moreover, removing the up to 15% markup for drug sales from public hospitals in China brought about a reduction in drug expenditures expected by the policymakers ^{[30][31][32][33][34][35]}[31,32,33,34,35,36], however, an increase in expenditures for diagnostic tests or medical consumables and hospitalization was observed from different aspects ^{[30][31][32][34]}[31,32,33,35], which was not expected by the policymakers, and government subsidies to public hospitals increased slightly by 2–5% in the 2 to 6 years after the policy was implemented ^[35][36]. All this evidence suggests that China’s public hospitals rely heavily on medical service charges to sustain their operations and development. As mentioned, hospitals in many countries experienced an admission loss during the first encounter with COVID-19 in 2020; It also can be observed a significant admission loss of tertiary hospitals, in line with other studies (Figure 1A) ^[14][16][14,16]. In addition, it can be found that public hospitals of these tertiary hospitals in China received more subsidies for the loss of service charges caused by the admission loss; government subsidies as a percentage of total costs increased from 6.6% in 2019 to 9.3% in 2020 (Figure 1B), however, it is complicated because medical revenue of tertiary hospitals did not decrease between 2019 and 2020 (Figure 1C). Therefore, it can be hypothesized that tertiary hospitals in China have profit compensation motive and activities when observing that the admission count returned to normal after strict measures were relaxed.