This study used data from Medicare files, the American Hospital Association's Annual Survey of Hospitals, and the 1990 census to investigate whether Medicare fees for breast-conserving surgery (BCS) and mastectomy (MST) affected the rate of BCS across 799 3-digit ZIP code areas in 1994. The full model, which was based on the conceptual framework of the supply of and demand for different treatments, explained 51 percent of the variation in BCS rates. Medicare fees were statistically significant and had the hypothesized effects: a 10 percent higher BCS fee was associated with a 7 to 10 percent higher BCS rate, while a 10 percent higher MST fee was associated with a 2 to 3 percent lower proportion receiving BCS. Other significant economic variables were proximity to a radiation therapy hospital, a teaching hospital or a cancer center, and the percentage of elderly women with incomes below the poverty rate, which were negatively related to the BCS rate. Variations in age, race, and metropolitan populations had small or insignificant effects. The single most important was the percentage of cases with one or more comorbidities.