Physician Incentives and the Rise in C-sections: Evidence from Canada

More than one in four births are delivered by Cesarean section across the OECD where 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 in obstetric care. Previous studies have investigated physicians' behavioral response to incentives using data from institutional contexts in which they can sort across remuneration schemes and patient types. The single payer and universal coverage nature of Medicare in Canada mitigates the threat that our estimates are contaminated by such a selection bias. Using administrative data from nearly five million hospital records, 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 result is mostly driven by obstetricians, rather than by general practitioners. We also find that physicians' response to financial incentives is greater among patients over 34, which may reflect physicians' greater informational advantage on the risks of different delivery methods for this category of mothers.