The economics of medical procedure innovation

David Dranove, Craig Garthwaite, Christopher Heard and Bingxiao Wu

Journal of Health Economics, 2022, vol. 81, issue C

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.

Keywords: Medical procedure innovation; CPT Codes; Diffusion of medical innovation; Property rights (search for similar items in EconPapers)
JEL-codes: I11 I18 O33 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: The Economics of Medical Procedure Innovation (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:81:y:2022:i:c:s016762962100134x

DOI: 10.1016/j.jhealeco.2021.102549

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