Housing Wealth Shocks and Physician Treatment Choices: Evidence from Childbirth

Abstract

Little is known about how physicians' personal wealth affects their treatment choice, despite the wealth effect is key to evaluating the effectiveness of price regulations and alternative payment models. Using data on physicians' housing portfolios linked to their treatment decisions, this paper provides new empirical evidence on physicians' responses to wealth shocks. I focus on the context of childbirth, where physicians have substantial discretion and significant financial incentives to choose cesarean sections over vaginal deliveries. For identification, I exploit within-physician variation in housing returns during the Great Recession and estimate that a one-standard-deviation decrease in physician housing returns increases C-section rates by 1.56 percentage points, or 3.9%. This wealth effect cannot be explained by demand-side factors and has important implications for medical expenditures and patient health. Finally, I demonstrate that the estimated wealth elasticity of the C-section rate is useful for predicting changes in physician behavior under a transition from Fee-For-Service to bundled payment and under an "across-the-board" fee cut.

JEL Classification: G51, I11, I18, J44