Take a walk down practically any major thoroughfare in the city of Boston, and you’ll be hard pressed to go more than a few blocks without running into a hospital. The cities of Cambridge and Boston have nine hospitals and medical centers between them, and a whopping two dozen hospitals are packed into the greater Boston metropolitan area.
Knowing that state-of-the-art medical help is always close at hand is probably a comforting feeling. But it shouldn’t be. The presence of so many hospitals in Boston — along with high numbers of physicians, particularly specialists — contributes to the enormous amount of unnecessary medical care that gets delivered in the state. Unless Massachusetts finds a way to limit growth in the supply of both hospitals and specialists, the state’s efforts to control health care spending are likely to be thwarted.
How can more hospital beds and more doctors lead to worse care and higher spending? Basic economics would suggest that more hospitals competing with one another would lead to lower costs, but that’s not the case in health care. Competition among hospitals in Boston has provoked a medical arms race for the newest gadgets and most cutting-edge treatments that has helped drive prices up, not down. The prestige of the city’s hospitals is known worldwide, and over the last decade two of the city’s largest and most reputable hospitals negotiated extremely favorable rates with Blue Cross Blue Shield and other private insurers.
Of course, how much money gets spent on health care isn’t just a matter of prices. It’s also a function of the volume of services delivered. If Bostonians undergo more CT scans, then Medicare, the state, and employers have to spend more on health care. Ditto when Bostonians see more doctors in a year, and spend more days in the hospital. It turns out, health care prices aren’t the only thing that are high in Boston. So is the sheer amount of care patients receive when compared with many other cities.
My colleagues at the Dartmouth Atlas Project have used Medicare claims data to look at spending patterns around the country, and the variation is striking. In Seattle, for example, a city with comparable demographics to Boston’s and its own state-of-the-art medical centers, Medicare spent was about $7,000 per beneficiary per year between 2003 and 2007. In Boston, Medicare’s bill per beneficiary was $2,000 higher. Most of that gap was due to differences in the way medicine is practiced in the two cities.
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