Using Recessions to Gauge Physician Induced Demand: The Case of C-sections

This paper uses changes in unemployment rates around the Great Recession to examine the degree to which physicians may have induced demand. Although much research has been conducted on demand inducement, there are still many conflicting results. During recessions, fewer patients, changes in patient insurance mix, and falling incomes may incentivize physicians to induce demand for services which are reimbursed at higher rates than alternative forms of treatment. Using data on all patients entering a hospital in Florida for child birth between 2005 and 2013, we construct physician-level risk-adjusted Cesarean rates for each year and analyze how these rates are related to county unemployment rates and changes in physicians’ patient insurance mix over time. We also examine the relationships between patient volume and unemployment rates. C-sections in particular, present a viable treatment option to study physician induced demand during recessions because physician payments for c-sections are higher than for natural birth and patient demand for elective procedures as well as overall births may be negatively impacted by recessions. Fujihara et al. (2017), He et al (2015) and Tefft and Kageleiry (2014) generally find pro-cyclical effects on elective surgical procedures.

In Florida, the unadjusted c-section rate for all patients increased from 37.8% in 2005 to 41.1% in 2013. A number of studies attribute the use of c-sections to physician discretion. For instance, Epstein and Nicholson (2009), using a physician-level model on deliveries in Florida and New York, find that variation in c-section rates across physicians within a market is about twice as large as variation between markets. Gruber et al. (1999), Alin et al. (2015), Alexander (2015) and Foo et al. (2017) all find that pay differences result in variations in c-section rates, but Grant (2005, 2008) disputes these findings.

Using Florida discharge data aggregated to the physician level, we examine the impacts of changes in county unemployment rates on various forms of demand inducement. We control for hospital-specific and county-specific characteristics, as well as year fixed effects and physician fixed effects. We find that even after accounting for attributes of patient risk, c-section use was significantly higher during the Great Recession. Preliminary estimation results also indicate that physicians’ adjusted c-section rates increased during the Great Recession among physicians who treat a higher share of privately insured patients. Results also show that risk-adjusted c-section rates were lower for physicians practicing in teaching hospitals. In addition, we find that total physician volume was not significantly impacted by the recession, so these effects cannot be attributed to declining birthrates. While overall patient volume did not significantly change over time, the patient insurance mix changed substantially; the proportion of patients covered by private insurance decreased from 45.3% in 2005 to 39.8% by 2013. During the same period, proportion of patients covered by Medicaid went up 46.6% to 53.1%. Currently, we are in the process of exploring the effects of physician experience, education and gender as well as hospital financial characteristics.