A close acquaintance of Mark Jones recently made a six-hour
drive from her home in northwest Minnesota to Minneapolis
Many small community hospitals dot this largely rural
region, and several larger regional hospitals are less than
two hours away. But they didn’t offer what she needed.
More and more rural residents are driving to distant hospitals, said Jones,
who is executive director of the advocacy group Minnesota Rural Health Association.
“It’s quite the burden,” he said, with travel costs, time off work, and
being far from friends and family.
For many health economists, this
phenomenon illustrates the disparity
between rural and urban health care,
which they blame on a shortage of doctors
in rural regions. But Jonathan Dingel,
a former visiting scholar with the
Institute and University of Chicago Booth
School of Business economist, thought it
possible that rural patients are traveling
to urban hospitals because the quality of
medical services there is better than at
home. That is, they’re engaging in trade.
Using millions of Medicare claims,
Dingel and his colleagues show in a
recent Institute working paper that this
is the case.
“Once you recognize that there’s
trade, that means that improving production
in a region is not the same thing
necessarily as improving consumption
in a region,” he said. “We can be more
creative in thinking about the potential
set of policy instruments that we might
use to improve medical access.”
In other words, if the goal is to improve
rural residents’ access to high-quality
medical services, pouring more resources
into rural hospitals may not be the best
policy. The better policy could be subsidizing
travel to urban hospitals.
The inherent advantage
of larger markets
To arrive at their conclusions, Dingel’s
group analyzed 229 million medical services
billed to Medicare in 2017.
Those claims showed that $1 in $5
went to pay for medical services performed
outside the patients’ home hospital
markets. The smaller the market’s
population, the more rural it tends to be and the more its residents “import”
medical services, meaning they travel
to another market to purchase those
services. In fact, rural markets
are much more likely to be “net importers,”
meaning residents spend more
on medical services outside the region
than outside patients spend on services
inside the region.
Dingel’s group used a common
health economics definition of a hospital
market as a region where most patients
go to the same large regional hospital for
advanced, nonemergency medical services.
In some parts of the U.S., regional
markets can be vast. For example,
patients in the Billings, Montana, market
may drive as many as 375 miles to reach
their regional hospital.
When those patients seek to import
medical services from another market,
they may drive much farther. According
to Dingel’s calculations, the average
patient in the Billings metropolitan area
travels 625 miles for medical services.
The key to understanding why they
drive such long distances is in the concept
“economies of scale.” Dingel’s
group found that the more a market produces
a medical procedure, the higher
the procedure’s quality. That gives
larger markets an advantage because
they have more demand, which leads to
more production. On average, a 10 percent
increase in production, measured
in dollars billed to Medicare, leads to a
6 percent increase in quality, inferred
from the distance patients were willing
to travel beyond the nearest region
offering the same procedure.
One of the drivers of this phenomenon
is doctor experience. For any given
procedure, doctors in larger markets are
likely to have performed it more times
than doctors in smaller markets have.
The patient base for the procedure is
likely to be larger in larger markets,
allowing doctors to specialize in that
procedure instead of having to perform
many other procedures as well. The
Medicare data show that patients will
seek out experience.
“Practice does make perfect,” Dingel
said. “Doctors that are repeatedly doing
the same procedure are going to be better
at that procedure than somebody who is
rusty and hasn’t performed it very often.”
The best bang for the subsidy buck
The advantage large markets have in
quality and patients’ willingness to travel
for that quality has implications for
policymakers who have long favored
subsidizing rural health care to maintain
access for rural residents.
Dingel’s group modeled several subsidy
scenarios. In one, they increased
Medicare reimbursements by 30 percent
in Paducah, Kentucky, a rural market
that is a net importer. They did the same
in Boston, an urban market that is a
net exporter. The significantly higher
payments to doctors led to a significant
increase in the quality of medical services
for both markets. But the number
of patients who benefited decreased in the Paducah scenario and increased in
the Boston scenario.
If the goal is to improve rural residents’
access to high-quality medical services,
the better policy could be subsidizing
travel to urban hospitals.
The difference is in surrounding markets,
which together have a much larger
population than either Paducah or Boston.
In the Paducah scenario, quality
increased in Paducah enough to keep
more Paducahans at home but not
enough to attract outside patients. But
with fewer Paducahan patients traveling
to surrounding markets, production
and quality in those markets decreased,
affecting more patients than just those
In contrast, the increased quality in
Boston attracted even more patients from
surrounding markets. Production and
quality decreased in those surrounding
markets, but both their patients and Boston
patients gained from higher quality
From a patient perspective, subsidizing
markets without an advantage in medical
services can be a win for some and a
loss for others, but subsidizing markets
that have this advantage can be a win-win.
“There is a lot to be said about investing
in nationally recognized centers
for highly specialized procedures and
the care that is associated with them
because of the expense,” said Jones. It’s
hard to justify providing these services in
areas where demand isn’t high, he said.
At the same time, he said, not everyone
can afford to travel. “Rural residents
are poor. It’s another determinant in
When Dingel’s group modeled subsidies
for travel, they found that travel
increased from Paducah to surrounding
markets and quality improved in those markets, a win-win for Paducahans and
residents of the surrounding markets.
The subsidies required for lower-income
patients were higher than for higher-income
patients to achieve the same level
of health care access.
The working paper doesn’t offer policy
recommendations based on these
results, but by treating medical services
as a tradeable product, it opens the door
for a different kind of policy discussion.
And those discussions are occurring.
Jones said he was at a conference
chatting with some colleagues about the
obstetrician shortage in rural areas when
someone suggested an air service ferrying
urban obstetricians to rural patients
for high-risk deliveries.
It’s not a perfect solution, he said, but
recruiting doctors to rural areas hasn’t
been very effective either. “We need
to be able to attract rural doctors, but
thinking that we’re just going to spend
money and it will solve our problems—maybe [the air service] is the better way
to invest our money.”