How Oversupply Creates Demand: A Tale Of Two Cities

BECAUSE OF THE UNCERTAINTY PRINCIPLE, doctors often err on the side of overtreating padents so, in the language of economics, excess "supply" creates its own demand. Research that Wennberg and his colleagues undertook in Boston and New Haven in the early 'Bos illustrate these upsidedown economics.

Both cities had then, as they do now, sophisticated university teaching hospitals offering top-quality health care to patients. But Bostonians were twice as likely as their Connecticut cousins to be hospitalized for a range of conditions: joint replacements, chronic bronchitis, coronary surgery, lower-back pain, gastroenteritis. The two cities demonstrated no discernible differences in population mortality rates.

The same phenomena are seen around the nation, Wennberg contends: high health-cost cities like Des Moines, lowa, are characterized by high numbers of hospital beds and medical specialists per capita, while lower-cost communities like lowa City aren't.