The Political Economy of Diagnosis-Related Groups

We provide a political economy interpretation of the variations in the prices of 6 obstetric diagnosis-related groups (DRGs) using Italy as a case study. Italy provides a unique institutional setting since the 21 regional governments can decide to adopt the national DRG system or to adjust/waive it. Using a panel fixed effects model, we exploit the results of 66 electoral ballots between 2000 and 2013 to estimate how obstetric DRGs are affected by the composition and characteristics of regional governments. We find that the incidence of physicians among regional politicians explains variations in DRGs with low technological intensity, such as normal newborn, but not of those with high technological intensity, as severely premature newborn. We further investigate these results by exploiting the implementation of a budget constraint policy. Applying a difference-in-difference strategy, we observe a decrease in the average levels of DRGs after the policy implementation, but the magnitude of this decrease depends on the presence of physicians among politicians and the political alignment between the regional and the national government. Finally, we rely on patient data (6,500,000 deliveries) to assess whether any of the political economy variables have a positive impact on the quality of regional obstetric systems. We find no effect.