Health Economics

Why pay more for medicine in some places?

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Science  15 Jul 2016:
Vol. 353, Issue 6296, pp. 259
DOI: 10.1126/science.353.6296.259-b

The cost of health care varies widely with geography in the United States, but the role of place-specific supply versus demand has been unclear. Finkelstein et al. studied the migration of elderly Medicare recipients to show that supply features, such as physician preference for aggressive care and the proportion of for-profit hospitals in a region, accounted for 50 to 60% of the variation. Roughly a quarter of the variability was probably due to observable differences in patients' health, with the rest due to patients' preferences and unmeasured health issues. The findings suggest that policies aimed at changing doctors' behaviors by altering incentives could be more promising than those aimed at changing patients' preferences.

Quart. J. Econ. http://economics.mit.edu/files/11482 (2016).

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