Chinese authorities have launched a rapid probe into multiple psychiatric hospitals in Hubei after local media exposed patterns of irregular admissions and promises of “free” inpatient care that appear designed to extract money from public health insurance. Provinces including Hubei (Xiangyang and Yichang), Liaoning, Guangdong, Hunan and Jiangxi have in recent years disclosed repeated cases of psychiatric hospitals — chiefly private facilities — inflating claims, fabricating treatments and submitting false documentation to the medical insurance system.
The National Healthcare Security Administration moved quickly in early February to convene collective talks with designated psychiatric providers and ordered self-audits with a March 15 deadline, while Hubei set up joint investigation teams. The regulators’ list of suspect practices reads like an operations manual for fraud: inducing or fabricating hospital stays, inventing diagnoses and treatments, forging records and charging for services that were never delivered.
The mechanics of psychiatric care make it unusually difficult to police. Unlike surgery or imaging, much psychiatric treatment relies on assessments, behavioral therapies and rehabilitation exercises that leave little objective machine-generated evidence. A group ‘activity’ in a ward can be billed as a therapeutic session without a clear trace of clinical intensity or benefit, and patients with cognitive impairment or agitation are often unable to corroborate what actually occurred.
Payment rules amplify the problem. Many psychiatric institutions still receive reimbursement on a per‑bed‑day basis rather than by diagnosis-related groups (DRGs) or value-weighted case payments (DIP). Bed-day financing ties hospital revenue to length of stay, creating a direct incentive to prolong admissions or to retain ostensibly cured patients simply to continue claiming funds. Hunan’s insurance authority disclosed that 86.97% of psychiatric inpatient episodes in 2023 were settled by bed-day payments, and bed-day claims grew 27% year on year to some 204,200 cases.
Regulators have not been idle. Provincial insurance bureaus have carried out “flying inspections” and special rectification campaigns: Hunan performed 447 spot checks from 2019–21, flagging problems in every inspected facility and recovering roughly 80.8 million yuan in misused funds. Liaoning reduced 812 registered beds from five psychiatric hospitals and clawed back hundreds of thousands of yuan in inappropriate claims. Yet these corrective actions have been episodic and localized, and fraud keeps resurfacing in different provinces.
Practical enforcement is complicated by broader system constraints. Psychiatric beds and specialist services remain scarce nationally; the number of psychiatric beds rose from 63,000 in 2018 to 77,000 in 2024, but demand continues to outstrip supply. Officials and local communities therefore confront a dilemma: stringent enforcement can shutter problematic private providers, but removing beds without alternatives risks leaving genuinely ill patients with no place to receive long‑term care.
Experts argue the solution lies in smarter oversight rather than blunt closures. Data-driven anomaly detection — comparing regional shares of insurance spending going to psychiatric providers, analyzing length-of-stay distributions, bed-occupancy rates and patterns of psychotropic drug and rehabilitation device use — could flag institutions for targeted audits. Shifting payment models toward DRG-like or case‑based reimbursements, tightening clinical coding standards for psychiatric care and requiring richer electronic documentation of therapy sessions would reduce exploitable ambiguity.
Full accountability will also require better interagency coordination. Hospital licensing and quality oversight fall mainly to health authorities, while the medical insurance agencies police fund use; social assistance, public security and drug regulators each have roles that are often siloed. Experts warn that muddled responsibilities produce “no one’s land” where poor practices thrive. A coherent, cross-ministerial mechanism is therefore essential to combine licensing, clinical review and financial forensics.
Policymakers face a balancing act: they must harden controls to protect public insurance funds and patient welfare without destabilizing fragile psychiatric capacity. That will mean phased enforcement tied to capacity-building — expanding public provision, fast-tracking licensing and oversight improvements, and creating clear transition plans for patients if a facility is closed. Without these parallel steps, anti-fraud campaigns risk aggravating the very access problems that China’s mental-health system is struggling to solve.