It doesn’t seem to be demand side factors, but rather what doctors believe, including false beliefs. That is scary. There is a new NBER paper by David Cutler, Jonathan Skinner, Ariel Dora Stern, and David Wennberg and the abstract is this:
There is considerable controversy about the causes of regional variations in healthcare expenditures. We use vignettes from patient and physician surveys, linked to Medicare expenditures at the level of the Hospital Referral Region, to test whether patient demand-side factors, or physician supply-side factors, explains regional variations in Medicare spending. We find patient demand is relatively unimportant in explaining variations. Physician organizational factors (such as peer effects) matter, but the single most important factor is physician beliefs about treatment: 36 percent of end-of-life spending, and 17 percent of U.S. health care spending, are associated with physician beliefs unsupported by clinical evidence.
There is an earlier ungated version here (pdf).