Financial Incentives and Inappropriateness in Health Care: Evidence from Italian Cesarean Sections

The purpose of this paper is to examine the effect of financial incentives on the level of inappropriateness in health care. The case of the Italian NHS seems to be especially interesting when considering the effects of financial incentives on providers' behaviors, as decentralization processes have progressively increased the variability among Regional Health Authorities in both the financing and the delivery of health care. In particular, we investigate the effect of DRG tariff differentials on hospital risk-adjusted cesarean rates for first-time mothers during the period 2009-2011. Our main finding is that Italian hospitals respond to financial incentives in obstetrics and that the strategic behavioral response varies by hospital type.