Are the returns to technological change in health care declining?

Whether the U.S. health care system supports too much technological change—so that new technologies of low value are adopted, or worthwhile technologies become overused—is a controversial question. This paper analyzes the marginal value of technological change for elderly heart attack patients in 1984–1990. It estimates the additional benefits and costs of treatment by hospitals that are likely to adopt new technologies first or use them most intensively. If the overall value of the additional treatments is declining, then the benefits of treatment by such intensive hospitals relative to other hospitals should decline, and the additional costs of treatment by such hospitals should rise. To account for unmeasured changes in patient mix across hospitals that might bias the results, instrumental–variables methods are used to estimate the incremental mortality benefits and costs. The results do not support the view that the returns to technological change are declining. However, the incremental value of treatment by intensive hospitals is low throughout the study period, supporting the view that new technologies are overused.

Evaluating the federal role in financing health-related research

This paper considers the appropriate role for government in the support of scientific and technological progress in health care; the information the federal government needs to make well-informed decisions about its role; and the ways that federal policy toward research and development should respond to scientific advances, technology trends, and changes in the political and social environment. The principal justification for government support of research rests upon economic characteristics that lead private markets to provide inappropriate levels of research support or to supply inappropriate quantities of the products that result from research. The federal government has two basic tools for dealing with these problems: direct subsidies for research and strengthened property rights that can increase the revenues that companies receive for the products that result from research. In the coming years, the delivery system for health care will continue to undergo dramatic changes, new research opportunities will emerge at a rapid pace, and the pressure to limit discretionary federal spending will intensify. These forces make it increasingly important to improve the measurement of the costs and benefits of research and to recognize the tradeoffs among alternative policies for promoting innovation in health care.