Equity–Efficiency Trade‐offs in Healthcare System Reform: The Perspective of Tiered Diagnosis and Treatment in China

Abstract Efforts to reform healthcare systems globally have long been driven by the inherent tradeoffs between equity and efficiency. Using a patient referral model, we constructed a cost– benefit matrix for both hospitals and patients. We analyzed the effects of nominal tiered diagnosis and treatment (TDT) using medical institutions' monthly report data from Sichuan province spanning 2012 to 2018. Additionally, we assessed the effects of actual TDT based on inpatient medical records data from Sichuan province spanning 2015 to 2018. We further discussed the potential for the TDT model to achieve Pareto improvements in addressing equity–efficiency trade‐offs in healthcare. Our findings suggest that nominal TDT failed to improve patients' medical behaviors. In contrast, actual TDT improved medical efficiency by enhancing patient outcomes and reducing the relative length of hospital stay, while also promoting medical equity by narrowing disparities in out‐of‐pocket expenses and health insurance reimbursements. Moreover, the effects of actual TDT on efficiency and equity varied across hospital types, disease categories, and inpatient populations. Actual TDT has the potential to generate Pareto improvements in managing the equity–efficiency trade‐offs within the healthcare system. Strengthening actual referral behaviors proved crucial for fully realizing the benefits of the TDT model.