Market Size and Trade in Medical Services
Dr. Joshua D. Gottlieb
Harris School of Public Policy
University of Chicago
We quantify the roles of increasing returns and trade costs in medical services. Using data on millions of Medicare claims, we document that “imported” medical procedures—defined as a patient’s consumption of a service produced by a medical provider in a different region—constitute about one-fifth of US healthcare consumption. Larger markets specialize in the production of less common procedures, and these procedures are more traded between regions. These patterns reflect economies of scale: larger regions produce higher-quality care because they serve more patients. The revealed-preference estimates of quality have a scale elasticity of 0.77 and are positively related to external measures of quality of care. We use our estimates to evaluate the proximity-concentration tradeoff associated with various policy options for improving access to care.