Can Medical Progress Be Sustained? Implications of the Link between Development and Output Markets

48 Pages Posted: 9 May 2011 Last revised: 28 Mar 2015

See all articles by Anup Malani

Anup Malani

University of Chicago - Law School; University of Chicago Pritzker School of Medicine; Resources for the Future; National Bureau of Economic Research (NBER)

Tomas Philipson

University of Chicago; National Bureau of Economic Research (NBER)

Date Written: May 2011

Abstract

There is considerable debate about the impact of health care reform on the growth in medical spending. Medical innovation is thought to be a central contributor to that growth. We argue that there is a unique linkage between reforms that affect output markets for medical care and medical R&D costs. This linkage is due to the fact that potential consumers of medical care are also potential participants in clinical trials that are required to develop new medical products. Therefore, reforms that increase the quality or reduce the price of already developed treatments reduce the incentive of patients to participate in trials of experimental treatments. This delays development and reduce the returns to in innovation. We provide evidence of this "subject market effect" by considering the impact of changes in the quality of conventional care on development. We document a dramatic drop in trial recruitment following introduction of break-through HIV/AIDS therapies in 1996. We conclude by discussing additional positive and normative implications of the subject market effect that link input and output markets for medical products.

Suggested Citation

Malani, Anup and Philipson, Tomas J., Can Medical Progress Be Sustained? Implications of the Link between Development and Output Markets (May 2011). NBER Working Paper No. w17011. Available at SSRN: https://ssrn.com/abstract=1833149

Anup Malani (Contact Author)

University of Chicago - Law School ( email )

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773-702-9602 (Phone)
773-702-0730 (Fax)

HOME PAGE: http://www.law.uchicago.edu/faculty/malani/

University of Chicago Pritzker School of Medicine

Chicago, IL 60637
United States

Resources for the Future

1616 P Street, NW
Washington, DC 20036
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Tomas J. Philipson

University of Chicago ( email )

Graduate School of Business
1101 East 58th Street
Chicago, 60637

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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