The Effect of Payment Contracts on C-section Use

C-sections are the leading cause for hospitalization among women and contribute to the rising health care costs. In this paper we quantify the effect of payment contracts (fee-for-service vs. capitation) on c-section rates, health care costs, and post-delivery maternal health outcomes. We estimate a structural model of delivery choice and hospital demand, and a reduced-form pricing model. We find that hospitals are more likely to provide a c-section when it is reimbursed under fee-for-service. However, patients are less likely to choose hospitals covered under fee-for-service. We use our model estimates to compute market outcomes under counterfactual contract regulation and find substantial declines in the number of c-sections and improvements in health outcomes when both c-section and vaginal deliveries are capitated.