The marked variation among metropolitan areas in payments to physicians underscores the lack of consensus among physicians about which services are required. Moreover, the practice style in a given community appears to be influenced not by the aggregate supply of physicians but rather by the mixture of primary care physicians and specialists.

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The sharp increase and wide geographic variation in radical prostatectomy rates make the evaluation of this surgical procedure a pressing issue. The rising rate of radical prostatectomy among men aged 75 years and older merits special attention.

Previous studies have shown that the admission rates for a few surgical procedures, such as hysterectomy, vary extensively among hospital market areas, apparently because of differences in physicians' practice styles. To see whether such variations occur for most causes of admission, we classified all nonobstetrical medical and surgical hospitalizations in Maine for the years 1980 through 1982 into diagnosis-related groups (DRGs) and measured the variations in admission rates among 30 hospital market areas. Hysterectomy rates varied 3.5-fold, but 90 per cent of medical and surgical admissions fell into DRGs for which admission rates were even more variable, suggesting that professional discretion plays an important part in determining hospitalization for most DRGs. Losses in hospital revenues resulting from the DRG payment system could be offset if physicians modified their admission policies to produce more profit, well within the current limits of medical appropriateness. If this occurred, the net effect of a DRG program would be to exacerbate hospital cost inflation. We conclude that, to be successful, cost-containment programs based on fixed, per-admission hospital prices will need to ensure effective control of hospitalization rates.