The economics of medical procedure innovation

David Dranove, Craig Garthwaite, Christopher Heard, Bingxiao Wu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This paper explores the economic incentives for medical procedure innovation. Using a proprietary dataset on billing code applications for emerging medical procedures, we highlight two mechanisms that could hinder innovation. First, the administrative hurdle of securing permanent, reimbursable billing codes substantially delays innovation diffusion. We find that Medicare utilization of innovative procedures increases nearly nine-fold after the billing codes are promoted to permanent (reimbursable) from provisional (non-reimbursable). However, only 29 percent of the provisional codes are promoted within the five-year probation period. Second, medical procedures lack intellectual property rights, especially those without patented devices. When appropriability is limited, specialty medical societies lead the applications for billing codes. We indicate that the ad hoc process for securing billing codes for procedure innovations creates uncertainty about both the development process and the allocation and enforceability of property rights. This stands in stark contrast to the more deliberate regulatory oversight for pharmaceutical innovations.

Original languageEnglish (US)
Article number102549
JournalJournal of Health Economics
Volume81
DOIs
StatePublished - Jan 2022

Keywords

  • CPT Codes
  • Diffusion of medical innovation
  • Medical procedure innovation
  • Property rights

ASJC Scopus subject areas

  • Health Policy
  • Public Health, Environmental and Occupational Health

Fingerprint

Dive into the research topics of 'The economics of medical procedure innovation'. Together they form a unique fingerprint.

Cite this