The Determinants of Productivity in Medical Testing: Intensity and Allocation of Care

A large body of research has investigated whether physicians overuse care. There is less evidence on whether, for a fixed level of spending, doctors allocate resources to patients with the highest expected returns. We assess both sources of inefficiency exploiting variation in rates of negative imaging tests for pulmonary embolism. We document enormous across-doctor heterogeneity in testing conditional on patient population, which explains the negative relationship between physicians' testing rates and test yields. Furthermore, doctors do not target testing to the highest risk patients, reducing test yields by one third. Our calibration suggests misallocation is more costly than overuse.