Why is There Regional Variation in Health Care Spending?

One factor: what doctors believe, including false beliefs:

We find patient demand is relatively unimportant in explaining variations. Physician organizational factors (such as peer effects) matter, but the single most important factor is physician beliefs about treatment: 36 percent of end-of-life spending, and 17 percent of U.S. health care spending, are associated with physician beliefs unsupported by clinical evidence.

NBER paper by Cutler et al. HT: Tyler Cowen.

Comments (15)

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  1. Bubba says:

    Oddly enough, there is also a wide, regional variation in the consumption of collard greens and turnip greens. I suspect the same is true of ham hocks and beans. Certainly Texans enjoy more cuisine at taquerias and TexMex restaurants than New Yorkers or folks in New England. How come the busybodies never explore that variation?

  2. Greg Scandlen says:

    Damn it, John. Now I’m going to have to read another 50 page paper to find out how they have dismissed and disrespected patients this time.

  3. David says:

    “if intensive physicians are more likely to hire physicians with similar
    views – the resulting regional differences in beliefs could explain regional variations in
    equilibrium spending”

    Equilibrium spending has proved troublesome because it is near impossible. All states and regions are different, and proponents of National Health Care seem to forget that there is not a one size fits all solution.

  4. Linda Gorman says:

    Still studying dead people…

    “Our primary measure is Medicare expenditures in the last two years of life for enrollees over age 65 with a number of fatal illnesses.”

  5. Bob Hertz says:

    Regional differences are only a problem in a fee-for-service plan like traditional Medicare.

    In such a plan, more frequent interventions and more frequent hospitalizations produce more valid claims and thus more expenses.

    This is true whether doctors innocently believe in a certain practice style, or are cynically trying to raise their own incomes.

    As George Halvorson has pointed out for 20 years in his writing, the problem disappears overnight when you have some kind of bundled payment or block grant.

    If a state had 2% of the Medicare population, then a state would get 2% of the dollars. And not a penny more.

    This would be very disruptive to expensive academic hospitals and their high paid doctors and administrators. I do not underestimate the difficulty of a transition.

  6. Linda Gorman` says:


    Do you believe that genetic susceptibility to disease, disease risk from the environment, and malign occupational exposure to health risks 40 years ago are evenly distributed across North America?

    What about the fact that capitated systems typically undertreat those who are seriously ill?

  7. Bob Hertz says:

    There is a lot of data to work through, but I do not believe that higher medicare spending in some states is due to environmental or occupational illness.

    To use a crude analogy, the extra hospital days in Miami and Los Angeles do not come about because there were a lot of coal miners in Miami and Los Angeles.
    Vast amounts are spent on persons over 85 who were quite healthy almost all of their lives. Female homemakers often took very good care of their health, but then at age 80 they get cancer.

    It is true that capitated systems do less well for those who are near death. Canada and Britain, for example, seem to have consciously chosen to balance their budgets and give lots of social support to active seniors……..but when death is imminent, the spending stops.

    I am not wise enough to know if this is the right course for society.

  8. John Fembup says:

    “I do not underestimate the difficulty of a transition”

    “I am not wise enough to know if this is the right course for society.”

    Right on both counts Bob.