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Various studies have demonstrated that hospitals with larger numbers of patients with a specific diagnosis or procedure have lower mortality rates. In some instances, these results have been interpreted to mean that physicians and hospital personnel with more of these patients develop greater skills and that this results in better outcomes--the "practice-makes-perfect" hypothesis. An alternative explanation is that physicians and hospitals with better outcomes attract more patients--the "selective-referral pattern" hypothesis. Using data for 17 categories of patients from a sample of over 900 hospitals, we examine the patterns of selected variables with respect to hospital volume. To explore the plausibility of each hypothesis, a simultaneous-equation model is also used to test the relative importance of the two explanations for each diagnosis or procedure. The results suggest that both explanations are valid, and that the relative importance of the practice or referral explanation varies by diagnosis or procedure, in ways consistent with clinical aspects of the various patient categories.