Geographic variation in health care: The role of private markets

Tomas J. Philipson, Seth A. Seabury, Lee M. Lockwood, Dana P. Goldman, Darius N. Lakdawalla

Research output: Contribution to journalArticlepeer-review

27 Scopus citations

Abstract

The Dartmouth Atlas of Health Care has documented substantial regional variation in health care utilization and spending, beyond what would be expected from such observable factors as demographics and disease severity. However, since these data are specific to Medicare, it is unclear to what extent this finding generalizes to the private sector. Economic theory suggests that private insurers have stronger incentives to restrain utilization and costs, while public insurers have greater monopsony power to restrain prices. We argue that these two differences alone should lead to greater regional variation in utilization for the public sector, but either more or less variation in spending. We provide evidence that variation in utilization in the public sector is about 2.8 times as great for outpatient visits (p < 0.01) and 3.9 times as great for hospital days (p = 0.09) as in the private sector. Variation in spending appears to be greater in the private sector, consistent with the importance of public sector price restraints.

Original languageEnglish (US)
Pages (from-to)325-355
Number of pages31
JournalBrookings Papers on Economic Activity
Issue number1
DOIs
StatePublished - Mar 1 2010

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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