Abstract: There are several reasons for themechanism of insufficient supply of quality medical services in China.Firstly,the information on the demand for medical services in advance is incomplete,so the service purchasers make their decisions according to the expected average income.Secondly,the classification system and rating evaluation rules of medical institutions enable the service purchasers to get the quality information of medical services.Thirdly,the price control of the medical market,the medical security system and the rising income of the residents make the relative supply cost of medical services of different quality insufficient to offset the added benefits of quality,causing the service purchasers to sign contracts with medical institutions of higher quality.It is suggested that the distorted allocation of medical market resources should be solved by establishing a medical institution system that separates diagnosis and treatment from treatment and reforming the evaluation rules of medical institutions.

Key words: incomplete information, information signaling, price-gap of quality, medical insurance