PRODUCTIVITY SPILLOVERS IN HEALTHCARE: EVIDENCE FROM THE TREATMENT OF HEART ATTACKS.

A large literature in medicine documents variation across areas in the use of surgical treatments that is unrelated to outcomes. Observers of this phenomena have invoked "flat of the curve medicine" to explain these facts, and have advocated for reductions in spending in high-use areas. In contrast, we develop a simple Roy model of patient treatment choice with productivity spillovers that can generate the empirical facts. Our model predicts that high-use areas will have higher returns to surgery, better outcomes among patients most appropriate for surgery, and worse outcomes among patients least appropriate for surgery, while displaying no relationship between treatment intensity and overall outcomes. Using data on treatments for heart attacks, we find strong empirical support for these and other predictions of our model, and reject alternative explanations such as waste or supplier induced demand, for geographic variation in medical care.