The authors use microdata on 230 million Medicare claims to study the pattern of specialization and trade in medical services within the United States. Trade – care provided by physicians to patients who reside in a different hospital referral region – accounts for almost 30% of patient care in the average region. Consistent with economies of scale in healthcare production, less populous regions produce less medical care per capita. Larger markets tend to be net exporters of medical services, especially procedures that are less common. Despite declining with bilateral distance faster than trade in manufactures, trade in medical services substantially equalizes patient care. Due to trade, consumption varies with market size half as much as production does.

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