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Can Medical Progress be Sustained? Implications of the Link Between Development and Output Markets

  • Anup Malani
  • Tomas J. Philipson

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.

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File URL: http://www.nber.org/papers/w17011.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17011.

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Date of creation: May 2011
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Handle: RePEc:nbr:nberwo:17011
Note: HC HE
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  1. Philipson, Tomas, 1997. "The evaluation of new health care technology: The labor economics of statistics," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 375-395.
  2. Amitabh Chandra & Douglas O. Staiger, 2007. "Productivity Spillovers in Health Care: Evidence from the Treatment of Heart Attacks," Journal of Political Economy, University of Chicago Press, vol. 115, pages 103-140.
  3. Lakdawalla, Darius & Sood, Neeraj, 2013. "Health insurance as a two-part pricing contract," Journal of Public Economics, Elsevier, vol. 102(C), pages 1-12.
  4. Sylvain Chassang & Gerard Padro i Miquel & Erik Snowberg, 2010. "Selective Trials: A Principal-Agent Approach to Randomized Controlled Experiments," NBER Working Papers 16343, National Bureau of Economic Research, Inc.
  5. Neeraj Sood & Dana Goldman, 2006. "HIV Breakthroughs and Risky Sexual Behavior," The Quarterly Journal of Economics, MIT Press, vol. 121(3), pages 1063-1102, 08.
  6. Malani, Anup, 2008. "Patient enrollment in medical trials: Selection bias in a randomized experiment," Journal of Econometrics, Elsevier, vol. 144(2), pages 341-351, June.
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