TY - JOUR
T1 - The economics of medical procedure innovation
AU - Dranove, David
AU - Garthwaite, Craig
AU - Heard, Christopher
AU - Wu, Bingxiao
N1 - Funding Information:
We are grateful to the editor and two anonymous referees for their valuable comments and suggestions. We are particularly thankful to the American Medical Association for sharing the data. We would like to thank participants at the 19th Annual International Industrial Organization Conference and the 2021 International Health Economics Association, and at the seminar series of Rutgers University. We declare no financial or personal relationship that could cause a conflict of interest regarding this article.We are grateful to the editor and two anonymous referees for their valuable comments and suggestions. We are particularly thankful to the American Medical Association for sharing the data. We would like to thank participants at the 19th Annual International Industrial Organization Conference and the 2021 International Health Economics Association, and at the seminar series of Rutgers University. We declare no financial or personal relationship that could cause a conflict of interest regarding this article.
Publisher Copyright:
© 2021 Elsevier B.V.
PY - 2022/1
Y1 - 2022/1
N2 - 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.
AB - 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.
KW - CPT Codes
KW - Diffusion of medical innovation
KW - Medical procedure innovation
KW - Property rights
UR - http://www.scopus.com/inward/record.url?scp=85121981699&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85121981699&partnerID=8YFLogxK
U2 - 10.1016/j.jhealeco.2021.102549
DO - 10.1016/j.jhealeco.2021.102549
M3 - Article
C2 - 34979301
AN - SCOPUS:85121981699
VL - 81
JO - Journal of Health Economics
JF - Journal of Health Economics
SN - 0167-6296
M1 - 102549
ER -
