Health care expenditures is a major component of GDP and a competence of local governments in decentralized or federal settings. A remarkable political economic literature explores how multiple layers of government affect the level of taxation, the performance and quality of the public sector, and the level of a country’s deficit. However, little attention has been paid to how politicians and their incentives affect the health care sector. Political interests play a crucial role in the health care arena, as shown in recent work by Bloom et al. (2015, 2015) use the margin of victory in U.K. districts as an instrument for hospital competition at the local level. The instrument captures the fact that the lower the incumbent party’s margin of victory, the less likely a hospital in that district is to close, as politicians do not wish to upset their constituents. This paper contributes to the literature inaugurated by Bloom et al. (2015) by empirically testing, for the first time with respect to health care, the commonly accepted prediction that multi-level governance affect the inefficiency of public expenditures. Our evidence is based on the relationships between characteristics of political institutions and the average levels of diagnosisrelated groups (DRGs), particularly of obstetric DRGs. Based on the cost function of a representative sample of hospitals, DRGs are a common mechanism for paying hospitals and measuring hospital activity within a country with the goal of reducing waste in health care (Kimberly and De Pouvourville, 2008; Paris et al., 2010).