Innovation Acquisition and Conflict of Interest in the VI Healthcare Systems

Abstract

This study investigates market failures resulting from physician-hospital integration, specifically the suboptimal use of costly new technologies due to financial conflicts of interest. According to classic theory, vertically integrated systems ( hospital + physician practices) can gain competitive advantages through management or technology, fostering innovation. However, common management policies may create conflicts of interest, reducing the use of innovative, expensive procedures. We focus on Medicare reimbursement system, hypothesizing that unequal policies lead to hospitals becoming dominant decision-makers due to their negotiating power. Using the case of Transcatheter Aortic Valve Replacement (TAVR), where Medicare initially reimbursed hospitals later than physicians, we test this hypothesis both theoretically and empirically.