Understanding Incentives in Health Care - Executive Summary

Abstract

First I empirically show how market structure influences the split of producer surplus innovators receive for successful innovation in the biotechnology pharmaceutical industry. After identifying the drivers of firms' values for adding a new drug to their product portfolio, I show that when the distribution of marketing rights for products in a physician specialty are concentrated in a single firm, the bargaining position of the innovator is weakened and this effect becomes more severe as the size of the physician specialty increases. Next, I examine the effect of state legislation restricting physician investment in magnetic resonance imaging (MRI) facilities on the usage and availability of MRI technology. I find this legislation decreases the number of MRI machines available by 12% and shifts where procedures are performed from hospital to non-hospital based facilities.

Keywords: market structure, innovator, biotechnology, pharmaceutical, drug, distribution, legislation