The Economics of Medical Procedure Innovation

68 Pages Posted: 1 Nov 2021 Last revised: 9 Jun 2023

See all articles by David Dranove

David Dranove

Northwestern University - Kellogg School of Management

Craig Garthwaite

Northwestern University; National Bureau of Economic Research (NBER)

Christopher Heard

Northwestern University

Bingxiao Wu

Rutgers University

Date Written: October 2021

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.

Suggested Citation

Dranove, David and Garthwaite, Craig and Heard, Christopher and Wu, Bingxiao, The Economics of Medical Procedure Innovation (October 2021). NBER Working Paper No. w29438, Available at SSRN: https://ssrn.com/abstract=3953964

David Dranove (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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Craig Garthwaite

Northwestern University ( email )

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National Bureau of Economic Research (NBER)

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Christopher Heard

Northwestern University ( email )

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Bingxiao Wu

Rutgers University ( email )

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United States
8479120795 (Phone)

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