Work in Progress
We measure the importance of increasing returns to scale and trade in medical services. Using Medicare claims data, we document that “imported” medical care — services produced by a medical provider in a different region — constitute about one-fifth of US healthcare consumption. Larger regions specialize in producing less common procedures, which are traded more. These patterns reflect economies of scale: larger regions produce higher-quality services because they serve more patients. Because of increasing returns and trade costs, policies to improve access to care face a proximity-concentration tradeoff. Production subsidies and travel subsidies can impose contrasting spillovers on neighboring regions.
Firms, Markets, and the Division of Labor: The Case of Physicians (with Pauline Mourot)
Why and how do physicians co-locate to provide care? We establish several novel facts regarding this question. First, the number of healthcare establishments grows with an elasticity near one with market size, so that a doubling of population results in twice as many healthcare establishments. Notably, the average size of healthcare establishments does not increase measurably with the market size. We also show that the composition of establishments varies substantially with market size, even though they remain the same size. As market size grows, physicians co-locate more with same-specialty colleagues, individually produce a narrower set of services, and collectively produce a larger set and volume of services. These results suggest that coordination costs substantially constrain establishment size. In addition, they imply that same-specialty colleagues become more valuable as the market size grows due to an increasingly fine division of labor, allowing for production efficiencies.
Technological Innovation and Organization of Expert Work: Evidence from Oncologists (with Pauline Mourot)
The Art of Medicine as Economics: Modeling Clinical Tradeoffs in the Production of Health
Standard economic models assume that monetary costs are the primary constraint to the use of medical care. However, clinical medicine abounds with situations where the use of effective medical treatments is not constrained by monetary costs but by the negative side effects of treatments, which I refer to as “health costs”. Navigating these trade-offs is referred to clinically as “the art of medicine.” I model these trade-offs by making a simple but substantive change to standard economic models of healthcare consumption. Medical treatments have a health cost. Treatment improves health in one dimension but harms it in another, constraining healthcare use. Patients whose medical care is constrained by health costs are unresponsive to monetary price changes. The model provides further predictions about situations in which price will be an effective policy lever and in which moral hazard will be limited. It also provides economists with a framework for thinking about clinical tradeoffs, a central driver of patterns of healthcare consumption.