| There exists, simultaneously, an unsatisfied demand for hospital specialist services and excessive supply of clinic and district hospital services in urban China's market for hospital care services. Since the 1990s, the government initiated a health insurance system for the population in the urban areas and has made a noticeable progress in expanding the coverage. With rising income and insurance coverage, the question about which type of hospital service to be selected has become an important issue for the urban population. This paper uses multinomial logit model to study the influence of health insurance and other factors on individual's hospital choice in five major cities of China. The objective is to draw some recommendations to mitigate the excess capacity and unsatisfied demand in the market for hospital services.The paper uses the household data of five cities (Shenyang, Hangzhou, Shanghai, Shenzhen, and Beijing) in China to study the determinants affecting individuals' provider choice. The study uses multinomial logit model and finds insurance coverage, income, self-assessed health status, education and city dummy variables affecting the individuals' provider choice in urban China. The expansion of health insurance coverage for urban individuals reduces the prices they pay for obtaining medical services and, therefore, leads to higher possibility of choosing high-quality hospital. The level of income also increases the possibility of visiting high-quality hospital, but the result should be interpreted with caution as time cost of visiting providers is a rough estimation and may not be true reflection of actual cost incurred. Furthermore, individuals with higher educational level and with poor self-assessed health status are more likely to be concerned about their health status and therefore are more likely to choose high-quality providers.In the context of the Chinese reform process, governments, local, provisional and national, do not provide sufficient financial support for providers as they previously did under the central-planned economy. The government is now asking the providers to manage their performance on their own in the market place. On the other hand, governments still restrict health service prices to a very low level. In order to compensate providers' losses in health service provision, the government implements two policies that ensure providers to generate revenues from drug sales and provision of services through the usage of medical equipment. As a result, many basic health service institutions are unsustainable as they cannot get enough revenue as they lack the access to above two sources of revenue generation. The study shows that the improvement of health insurance coverage could increase demand for both basic institutions and high-quality institutions. This is because basic institutions are convenient to access and thus inflict lower time cost for individuals to access these medial services. The new health insurance schemes should provide incentives for individual to choose basic health institution as their first choice. This would reduce the pressure on the large hospitals. But the quality of basic health institutions should also be improved to ensure that they attract patients and are economically viable.This is an exploratory study to investigate the determinants of urban citizens' provider choice. There are a few shortcomings. Firstly, because of the limitation of data, the study does not consider the medical prices and qualities in the model, especially time cost of visiting a hospital. Secondly, the possible nature of insurance's endogeneity is ignored in this paper. However, we assume that it may not be a problematic as the proportion of commercial insurance is only 2.8%; whereas social insurance coverage is 70%. Therefore, the problem of adverse selection may not be so severe.
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