Box 2 The relationship between government subsidies and incentive to provide medical services in China’s THCs after 2009

Looking at the reform process of THCs in China (Fig. 1), it is easy to see that the government-market pendulum swings back and forth in the healthcare policy sector during the past decades. Along with this swinging, the government subsidies for THCs increased and decreased, the pendulum swung back to the government in the reform of THCs after 2009. In general, government subsidies are not directly tied to employee incentives in the health care sector, but rather have an impact on incentives through employee salaries. In most economic activities, including healthcare, the incentive to provide services is highly hooked to salary. How do the government subsidies affect the incentive through personnel salaries is shown in Fig. 2. Following the increase in government subsidies to THCs, personnel salaries were limited to a relatively fixed level, based on the average salary of local government workers, with the aim of low-level hooking THCs employees’ incomes with healthcare service revenues. This change led to a result where there was not much difference in personnel salaries between employees who did more or less work. Therefore, when the salary was limited to a relatively fixed level, increasing the government subsidies to THCs would make less incentive to provide medical services that are high risk compared to public health services.