Place or patient as the driver of regional variation in healthcare spending – Discrepancies by category of care

We study how much regional variation in healthcare spending is driven by place- and patient-specific factors using a random sample of 53,620 regional migrants in Sweden. We find notable differences depending on the category of care, with place-specific factors having a significantly larger impact on specialized outpatient care compared to inpatient and pharmaceutical care. The place effect is estimated to 75% of variation in specialized outpatient care, but 26% or less in variations in inpatient care, and 5% in prescription drug spending. We also find that the empirical estimator has a substantial impact on the estimates of the place-specific effect. The results based on the traditional approach in the literature with two-way fixed effects and event-study models produce much larger estimates of the place-specific effect compared to results based on recently developed heterogeneity-robust models. For total healthcare spending, the traditional two-way fixed effects model estimates a place effect of 78%, while the heterogeneity-robust estimator finds a place effect around 10%. This finding indicates that previous results in this literature, all based on traditional two-way fixed-effects regressions, should be interpreted with care.