The New Yorker’s Atul Gawande has an excellent piece this week about why healthcare costs vary from one city to another. Gawande focuses on the cultural reasons behind geographical differences in healthcare costs. In some cities, influential doctors or institutions have emphasized that medicine is a business so physicians should try to maximize their profits. In others, doctors and institutions have emphasized that medicine is a healing profession, so physicians should try to maximize the quality of the care they provide, even if that translates to lower income.
But there may also be a more economic element to the answer. Gawande notes that there is a correlation between doctors’ expenses and their healthcare decisions:

Brenda Sirovich, another Dartmouth researcher, published a study last year that provided an important clue. She and her team surveyed some eight hundred primary-care physicians from high-cost cities (such as Las Vegas and New York), low-cost cities (such as Sacramento and Boise), and others in between. The researchers asked the physicians specifically how they would handle a variety of patient cases. It turned out that differences in decision-making emerged in only some kinds of cases. In situations in which the right thing to do was well established – for example, whether to recommend a mammogram for a fifty-year-old woman (the answer is yes) – physicians in high- and low-cost cities made the same decisions. But, in cases in which the science was unclear, some physicians pursued the maximum possible amount of testing and procedures; some pursued the minimum. And which kind of doctor they were depended on where they came from….
(P)hysicians from the most expensive cities did the most expensive things.

It’s possible that higher costs force doctors to think more like businesspeople and make them at the margin more likely to try to maximize profits, while doctors facing lower costs can worry less about their income.
If that’s so, then consider the case of New York City. Cheap borrowing costs and lax regulations in this decade allowed the financial sector to become inordinately profitable. That, in turn, lifted wages for support personnel, real estate costs for doctors’ businesses and homes, and so forth, which in turn incentivized doctors to order questionable tests and procedures for their patients.
In other words, distortions in the financial sector may have contributed to inefficient resource allocation in the seemingly unrelated sector of medicine.
It’s the sort of contagion from the housing bubble that few would have predicted.

Germany’s Opel might have a Canadian owner soon.

With its current owner, General Motors, facing a very-likely bankruptcy, Germany desperately wanted a new owner for Opel to save it from insolvency, save thousands of workers from unemployment and save the politicians from failing in re-elections.

After hours of talks with Italian automaker Fiat and Canadian auto parts supplier Magna International, GM has reached an agreement, in principle, to rescue the German unit.

The two sides have been trying to agree on a memorandum of understanding that would serve as the basis for bridge financing of 1.5 billion euros ($2.1 billion) as well as a trustee solution that would protect Opel from creditors in case GM files for Chapter 11.

A framework agreement has been reached, per sources, but the MOU has not been signed yet. Fiat, which wanted to create a global auto empire after buying a stake in Chrysler, doesn’t look like it’s going to get very far in that goal any time soon. With Magna in, Fiat is out. Stay tuned for the final details on the fate of Opel.

With property markets stabilising and hopes that the worst of the financial crisis is behind us, Europe’s banks are now looking to resolve their next biggest problem: 225 billion pounds of loans backed by UK commercial property.

As Sinead Cruise and I wrote earlier today, banks are now organising to sort through this massive debt pile, picking the good from the bad, foreclosing on properties and selling off what they can.

“Lenders have long turned a blind eye to breaches of covenants as long as they met interest demands by collecting rents. But they are now abandoning this softly-softly approach as the British economy worsens, planning foreclosures on a scale not yet seen in this cycle.”

“Until now, banks have only repossessed as a last resort because they feared they would be unable to sell assets in the debt-starved investment market. But a flurry of fund launches and opportunistic rights issues has ratcheted up competition among buyers in the sector, stoking hopes for less costly exits.”

Real-estate investors are lining up for a rush of deals in the third and fourth quarters of the year, as many banks are waiting for the fine details of the government’s asset insurance scheme, due to be published in July, before they make final decisions on what to do with their loan books.

The consequences are big for the banks and serious for the British economy. Industry experts say that without a clear-out of their exposure to property banks are unlikely to start lending again on a large scale.

Reuters’ Emily Chasan will be sending live updates from the Chrysler sale hearing in U.S. Bankruptcy Court on Friday starting at 9 a.m. Read her updates on DealZone or follow the DealZone Twitter account.

Barclays Capital is thinking big. As Reuters banking correspondent Steve Slater wrote earlier:

“Barclays Capital, the investment bank arm of Britain’s Barclays Plc (BARC.L), will hire more than 750 staff this year as part of its plan to win leading positions in equities and M&A advisory, a top executive said.

“The bank, which bought the U.S. business of Lehman Brothers in September, is now expanding in Europe and Asia. It is also targeting a top three spot in prime services to take advantage of a retreat by rivals servicing hedge funds, he said.

“Barclays Capital (BarCap) has hired 450 people in equities and plans to hire another 250 by the end of the year, said Jerry del Missier, president of BarCap. It plans to hire about 65 merger and acquisition (M&A) advisers this year, he said.

“It’s certainly our intention to be a leading global player in equities and advisory over the next three years,” del Missier told Reuters in an interview this week.”

Read the full story here. And see an earlier story on two key M&A hires here.