The strange case of appropriate C-sections:DRG-tariff regulation, hospital ownership, and market concentration

The aim of this paper is to discuss how different types of hospitals respond to large financial incentives for vaginal deliveries and to financial disincentives for C-sections. We focus on a public health care system based on the quasi–market model. We theoretically and empirically evaluate a government policy equalizing the tariff for C-section and vaginal deliveries at a level such that hospitals face monetary disincentives for C-section and monetary incentives for vaginal deliveries. We first theoretically show that hospital ownership matters insofar different types of hospitals are characterized by different ethical preferences; but ownership interacts with market concentration. We then consider the case-study of Lombardy in Italy. We exploit spatial variation in the presence of for-profit, not-for-profit and public hospitals and in the market concentration at the local level to evaluate the relationship between ownership and the probability of C-section. Our empirical results strongly suggest that competitive pressures from alternative providers tend to homogenize behaviors. However, in local monopolies, we do observe less C-section from private for-profit hospitals than from public and private non-profit hospitals especially when they are medically appropriate.