The Economics of Medical Procedure Innovation

David Dranove, Craig Garthwaite, Christopher Heard and Bingxiao Wu

No 29438, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: I0 I1 O3 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-com, nep-hea and nep-tid
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Published as David Dranove & Craig Garthwaite & Christopher Heard & Bingxiao Wu, 2022. "The economics of medical procedure innovation," Journal of Health Economics, vol 81.

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