How much do physician-entrepreneurs contribute to new medical devices?

OBJECTIVES: As recent public and private initiatives have sought to increase the transparency of physician-industry financial relationships (including calls for restricting collaboration), it is important to understand the extent of physicians' contributions to new medical devices. We quantify the contribution of information from physician-founded startup companies to 170 premarket approval (PMA) applications filed by 4 large incumbent medical device manufacturers over the period 1978-2007. We ask: Are incumbents more likely to incorporate information from physician-founded firms than nonphysician-founded firms? METHODS: We matched the text in 4 incumbent medical device firms' PMAs (Medtronic, Johnson & Johnson, Boston Scientific, and Guidant) to the text in patent applications of 118 startup companies that received investment from these incumbents between 1978 and 2007. We use a text-matching algorithm to quantify the information contribution from physician and nonphysician-founded startups to incumbent firms' PMAs. We analyze correlates of backward citations and degree of overlap between incumbents' PMAs and startups' patents using negative binomial and tobit regressions. FINDINGS: On average, physician-founded companies account for 11% of the information in PMAs, compared with 4% from nonphysician-founded companies. Regression results show that incumbents are significantly more likely to cite physician-founded companies' patents and to incorporate them into new devices. CONCLUSIONS: Physicians are an important source of medical device innovation. The results suggest that restrictions on financial relationships between providers and industry, while potentially improving patients' trust, may result in reduced medical innovation if physicians found fewer startups or if incumbent firms reduce investments in physician-founded startups.

Smoking initiation and the iron law of demand.

We show, with three longitudinal datasets, that cigarette taxes and prices affect smoking initiation decisions. Evidence from longitudinal studies is mixed but generally find that initiation does not vary with price or tax. We show that the lack of statistical significance partly results because of limited policy variation in the time periods studied, truncated behavioral windows, or mis-assignment of price and tax rates in retrospective data (which occurs when one has no information about respondents' prior state or region of residence). Our findings highlight issues relevant to initiation behavior generally, particularly those for which individuals' responses to policy changes may be noisy or small in magnitude.

Is there a Medicaid penalty? The effect of hospitals' Medicaid population on their private payer market share.

This study examines whether privately insured patients avoid hospitals with large Medicaid populations. I use a conditional logit model of hospital choice to determine whether the size of a hospital's Medicaid population affects the probability that a privately insured patient will choose that hospital. I focus on the metropolitan area of Tampa, Florida, in the years 1994-1996. I control for hospital fixed effects, hospital-specific time trends, patients' driving time to the hospital, and interactions between patient and hospital characteristics. I also instrument for the Medicaid population using the predicted Medicaid population. The results show that privately insured patients are less likely to choose a hospital if it served a larger number of Medicaid patients who were admitted through the emergency department in the previous 6 months. The effect persists over time-an additional 6-month lag cuts the effect in half. Capacity constraints do not seem to be the reason for the effect. I show that the Medicaid effect size could have a moderate effect on the profits of some hospitals. Although limited in scope, this study suggests that hospitals may experience a negative effect on their private revenues when they admit a large population of Medicaid patients.

Just passing through: the effect of the Master Settlement Agreement on estimated cigarette tax price pass-through.

In 1998, cigarette manufacturers and state attorneys general in the United States settled a group of lawsuits in an agreement known as the Master Settlement Agreement (MSA). Among the provisions of this agreement were a set of mandated escrow payments to the states that would be based on cigarette sales. The result of these provisions is that the apparent relationship between taxes and prices changed substantially following implementation of the MSA. This article estimates whether the MSA escrow amounts are reflected in prices and compares the pass-through rate of state and federal cigarette taxes only and the rate when one adds escrow payments. We find much different pass-through rates for the two measures. State and federal taxes are not fully passed to smokers. In years that escrow payments were made, cigarette prices increased by more than the sum of the state and federal taxes and the escrow payments.

Does major illness cause financial catastrophe?

OBJECTIVE: We examine the financial impact of major illnesses on the near-elderly and how this impact is affected by health insurance. DATA SOURCES: We use RAND Corporation extracts from the Health and Retirement Study from 1992 to 2006.(1) STUDY DESIGN: Our dependent variable is the change in household assets, excluding the value of the primary home. We use triple difference median regressions on a sample of newly ill/uninsured near elderly (under age 65) matched to newly ill/insured near elderly. We also include a matched control group of households whose members are not ill. RESULTS: Controlling for the effects of insurance status and illness, we find that the median household with a newly ill, uninsured individual suffers a statistically significant decline in household assets of between 30 and 50 percent relative to households with matched insured individuals. Newly ill, insured individuals do not experience a decline in wealth. CONCLUSIONS: Newly ill/uninsured households appear to be one illness away from financial catastrophe. Newly ill insured households who are matched to uninsured households appear to be protected against financial loss, at least in the near term.

The revolution in health care antitrust: new methods and provocative implications.

CONTEXT: In recent years, federal courts have permitted hospital consolidations and other potentially anticompetitive actions by accepting hospitals' claims that they compete in expansive geographic markets. Recent events, including two actions by the U.S. Federal Trade Commission, suggest that antitrust is undergoing a sea change, thanks in part to new methods for defining geographic markets. This article reviews the recent history of hospital antitrust, describes the methods used to define markets, and illustrates the new methods by considering two consolidations recently proposed by a New York regulatory agency. METHODS: The new methods for defining geographic markets rely on estimates from conditional choice models using patient-level hospitalization data. These estimates are the raw material for computations of price effects derived from a theoretical model of hospital pricing in a managed care environment. FINDINGS: Applying these methods to two proposed consolidations in New York shows that one of the mergers would likely raise prices by a substantial amount without the promise of offsetting efficiencies but that the other would not have this effect. CONCLUSIONS: New methods for geographic market definition may fundamentally alter how courts will evaluate antitrust challenges. Although additional research is necessary to refine the predictions of these new methods, consolidating hospitals, as well as any other hospitals engaging in potentially anticompetitive conduct, can no longer anticipate a friendly reception in the courtroom.

Learning, forgetting, and hospital quality: an empirical analysis of cardiac procedures in Maryland and Arizona.

This paper sets out an empirical model of learning with forgetting and uses it to estimate how much hospital quality improves with experience. The size of the learning effect and the depreciation rate are estimated for two cardiac procedures in Maryland and Arizona. Models are estimated using patient survival as the outcome of interest. The results show that learning does not appear to be a factor in hospital quality for either procedure or for surgery generally. From a policy standpoint, based on these results, regulations in Maryland that seek to concentrate these two procedures among a small number of providers could not be justified on the grounds that higher volume would increase the quality of care.

Start spreading the news: a structural estimate of the effects of New York hospital report cards.

Research on the effects of publicly reported hospital quality report cards on patient market shares is mixed. Higher-ranking hospitals do not consistently experience increases in market share. We argue that this may be because the report cards do not always convey "news" about quality; in some cases the rankings conform with prior beliefs about quality. We develop a structural model of the "news" in report cards and estimate the model using data from New York State in 1989-1991. We show hospitals with negative news in the original 1990 report cards experienced a decrease in market share, but that a misspecified model might continue to find no report card effect.

Coupons and advertising in markets for addictive goods: do cigarette manufacturers react to known future tax increases?

We develop and test a pricing model for a monopolist that sells an addictive good. The model illustrates the conditions under which a monopolist lowers the price he charges youth when a future tax is imposed. Using household survey data, we investigate whether individuals use "cents-off" coupons in a way consistent with the price discrimination implied by the model. We find evidence that all smokers, not just the young, are more likely to use coupons prior to a tax increase if they are exposed to more advertising. With our data we cannot test whether cigarette manufacturers selectively offer youth price discounts in other ways.