Market Size and Trade in Medical Services
Working Paper 31030
DOI 10.3386/w31030
Issue Date
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.