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

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 percent of end-of-life spending, and 12 percent of U.S. health care spending, are associated with physician beliefs unsupported by clinical evidence.