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1. An Introduction to the Changing Economics of Technological Innovation in Medicine
Pages 1-20

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From page 1...
... It became apparent that the critical issue was not medical technology per se but a combination of economic, professional, and social incentives in our health care system that tend to diminish the importance of costs in decisions about patient care. For example, the establishment of Medicare and Medicaid in 1965 greatly increased the demand for medical services, thus increasing indirectly the demand for medical technology.
From page 2...
... Within the broad range of policies that affect innovation, this volume focuses on the impact of United States regulatory and payment policies. In the final chapters, the policy environment for industrial innovation in the United States is compared with that in Europe and Japan.
From page 3...
... However, both autonomous choice and knowledge of the alternatives are often severely limited for patients, and health care professionals usually determine the kind and level of medical interventions needed. Although patients are the ultimate users, providers are the primary users for those that develop new medical technology.
From page 4...
... · New technologies in addition to their benefits may often entail a certain element of risk. However, the beneficial or adverse effects of medical technology are considered to be quintessentially different from those of many other technologies because, as Renee Fox observes, they affect "basic and transcendent axes of the human condition: life, conception and birth, body and mind, .
From page 5...
... A case in point is the strong interdependence that exists among pre-marketing approval, patent, and payment policies. Regulatory policies for pre-marketing approval of drugs traditionally have exerted a strong influence on the dynamics of pharmaceutical innovation.
From page 6...
... The loss of market share to much-lower-priced generic drugs has been exacerbated by the more stringent payment policies of the 1980s. Historically, drugs have been the least expensive of all medical technologies; with higher patient coinsurance rates and out-of-pocket fees, they were not main targets for cost savings.
From page 7...
... Reimbursement of off-label use has become controversial, for many payers interpreting their contracts restrictively have designated off-label drugs as investigational and excluded them from coverage. This would be less of a problem if FDA approval could be obtained rapidly for additional indications via so-called supplemental NDAs, but the FDA tends to give supplemental NDAs low priority for review.
From page 8...
... , there is a strong trend toward industry mergers and consolidation to create economies of scale in research and marketing. Although the pharmaceutical industry generally has been very profitable and recent advances in research seem to present exciting opportunities for the development of new drugs, the papers in this volume underscore that the risks for pharmaceutical R&D have recently increased and may constitute impediments to drug development in the long run.
From page 9...
... Except for complex and costly devices, such as lithotripters or imaging devices, medical device innovation does not require the large R&D investment required for drug development. Furthermore, a high level of incremental innovation characterizes the development of new medical devices.
From page 10...
... . This dramatic difference has not been overlooked by the industry approximately 55 substantially equivalent 510(k~s are filed for each PMA filed (20~.~° Foote reviews the trade-offs and conflicts among the various policies that affect device innovation (17~.
From page 11...
... The incentives for capitated plans, such as HMOs and PPOs, to restrict utilization are somewhat different from those for hospitals under PPS. Because HMOs receive a fixed amount per enrollee and also deliver outpatient care, they have less incentive to (inappropriately)
From page 12...
... Foote discusses interim coverage as a more appropriate payment alternative that is, covering costly devices for a designated period of time during which providers can gather information on costs and effectiveness. THE DYNAMICS OF SURGICAL INNOVATION Although surgical procedures typically involve the use of drugs and devices, their defining characteristics may be the special combination of surgical skills and abilities they entail.
From page 13...
... As a result, new surgical procedures generally are not systematically evaluated for safety and efficacy, and controlled clinical trials are often undertaken only after their diffusion. In this context payment policies take on a quasi-regulatory rigor.
From page 14...
... First, Burstall argues that Europe cannot compete with the United States in basic science, partly because of Europe's smaller government support for academic and related research. Second, legislation to restore effective patent life has not yet been enacted in Europe.
From page 15...
... Pre-marketing regulatory policies are less stringent in Europe; most nations tend to confine themselves to safety and technical performance criteria and do not include efficacy. Hutton contends that changes in payment policies, such as a growth in hospital budgeting systems, have had a greater impact on device innovation than regulatory policies.
From page 16...
... CONCLUDING OBSERVATIONS This society generally values technological innovation in medicine. Over time, a set of public policies has evolved to encourage the development of new medical technology.
From page 17...
... Effective patent life refers to the period between approval of the product and the patent expiration date. Officially, a U.S.
From page 18...
... The rationale behind this asymmetry is that device innovators usually are small firms that could not afford to run clinical studies unless they were able to recover costs during the development period. Devices also tend to cost much more than most experimental drugs.
From page 19...
... Kahn A The dynamics of medical device innovation: an innovator's perspective.
From page 20...
... Medical device innovation and public policy in the European Economic Community. In this volume.


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