This paper aims to explore how private hospitals in China navigate the challenge of balancing regulatory compliance with financial performance following the introduction of the Diagnosis-Related Group (DRG) pricing and payment system, commonly referred to as DRG reform. Specifically, it examines how these hospitals reconcile the co-presence of state, market and managerial logics through management control systems (MCSs).
Using a qualitative multiple-case study approach, data were collected through semi-structured interviews, documentary analysis and site observations at two private psychiatric specialist hospitals at the county-level in Hubei Province. This study uses institutional logics as a theoretical lens and applies Malmi and Brown’s (2008) MCSs framework to analyse the management control practices (MCPs) implemented and how hospitals respond to the co-existence of institutional logics in the context of DRG reform.
This study identifies how state, managerial and market logics are represented in MCPs and corresponding narratives in the selected hospitals. The findings also reveal their responses to the interplay between managerial and market logics, with strategies ranging from compliance with managerial logic, selective coupling of MCPs for accountability purposes to decoupling where market-driven narratives buffer managerial MCPs.
This study extends research on MCSs in hybrid organisations by providing new insights into how private hospitals actively construct narratives to justify MCP choices and develop strategic responses to different institutional logics. It also offers practical implications for policymakers and hospital administrators seeking to achieve favourable outcomes under the DRG reform.
