Association for Public Policy Analysis & Management

More than one in four births are delivered by C-section across the OECD, and they are the most common inpatient surgery in both Canada and the US. While high C-sections rates can be explained by increased health risks related to the trends to delay childbirth, the variations observed within and across countries suggest that something more than the health of mothers and their infant is playing a role in defining the choice of birth delivery methods. Economic research on the prevalence of C-section rate has mostly focused on doctors’ monetary incentives to perform the procedure; fee-for-service remuneration schemes generally compensate C-sections more generously than vaginal deliveries. In this paper, we exploit unique features of the Canadian health care system to investigate if physicians respond to financial incentives when choosing between two potentially substitutable procedures in obstetric care: vaginal delivery and C-section.

Our focus on Canada offers important advantages over the institutional contexts exploited in previous studies that investigate physicians' behavioral response to incentives. Aside from the important time and geographic exogenous variation in the relative price of birth delivery methods in our sample, the health system in Canada is public and universal, which allows us to consider the full population of hospital births within the country rather than a select sample of births (e.g., patients covered by Medicaid). Moreover, obstetric care in Canada is remunerated according to the same parameters for all physicians within the same jurisdiction, who are reimbursed by a single payer. Therefore we are able to estimate responses that are free of the self- selection bias that may arise when physicians can sort across remuneration agreements and patients' insurance types. Finally, different from most hospital financing in other OECD nations, Canadian acute care facilities are primarily funded using a global budget approach in which the volume, complexity and cost of their activities do not influence their annual financial resources. Unlike past studies, our estimates therefore allow us to understand how financial incentives influence physicians' choice of care, free of the impact of financial incentives to hospitals.

Using administrative data from nearly five million hospital records corresponding to birth episodes in ten Canadian provinces over a period of 17 years, we find that doubling the compensation received for a C-section relative to a vaginal delivery increases by 5.6 percentage points the likelihood that a birth is delivered by C-section, all else equal. This estimated response can account up to one ninth of the excess C-sections performed in the country over the period 1994-2010, using benchmarks set by the World Health Organization. We also find that this behavioral response is driven by obstetricians/gynaecologists. In contrast, general practitioners, whose incomes rely less heavily on activities related to obstetric care, do not exhibit price sensitivity in selecting birth delivery methods. We finally provide some empirical evidence that physician responses to financial incentives are greater among patients over 34, which may reflect physicians' greater informational advantage on the risks of different delivery methods for this category of mothers.