Physician Beliefs and Patient Preferences: A New Look at Regional Variation in Health Care Spending

by David Cutler, Jonathan Skinner, Ariel Dora Stern & David Wennberg

Overview — There are large regional variations in rates of medical treatments in the United States and other countries. What drives such variation? This paper develops a model of supply of and demand for health care, and suggests that a large degree of regional variation appears to be explained by differences in physician beliefs about the efficacy of particular therapies. As much as 35 percent of end-of-life Medicare expenditures and 12 percent of overall Medicare expenditures are explained by physician beliefs that cannot be explained by patient preferences or justified by evidence of clinical effectiveness.

Author Abstract

There is considerable controversy about the causes of regional variations in health care expenditures. We use vignettes from patient and physician surveys linked to Medicare expenditures at the Hospital Referral Region to test whether patient demand-side factors or physician supply-side factors explain regional variations in spending. We find patient demand is relatively unimportant in explaining variation in spending after accounting for physician beliefs. Physician organizational factors matter, but the single most important factor is physician beliefs about treatment: 35% of end-of-life spending and 12% of U.S. health care spending are associated with physician beliefs unsupported by clinical evidence.