Editor’s Note: This paper has been published in the Review of Economic Studies.
Motivated by wide cross-sectional variations in intensity of care that are unrelated to quality of care, researchers and policymakers commonly claim that healthcare providers waste considerable resources, engaging in so-called “flat-of-the-curve” medicine. A key yet elusive prediction of this hypothesis is that providers ought to be able to cut back on care without sacrificing quality. This article examines the effects of a particular form of provider cutbacks – those generated by physicians working in high-pressure peer group environments. Using expansive, time-stamped discharge data from 137 hospital-based emergency departments, I document that physicians systematically alter their pace and intensity of care across frequently shuffled peer groups. Peer groups that induce a physician to work faster also induce her to order fewer tests and spend less money. Contrary to the flat-of-the-curve hypothesis, these cutbacks lead to large reductions in quality of care. This evidence, paired with the fact that slower physicians do not produce better average outcomes, suggests that cross-physician differences in resource utilization reflect substantial differences in physician productivity within a hospital.