Role of Medicare Policy in Innovation Diffusion

Abstract

This study examines whether Medicare reimbursement schemes play a critical role in addressing market failures, particularly the slow adoption of innovative and consumer-beneficial technologies. It paper examines the role of Medicare financial incentives, market dynamics, and altruism in the hospital-level decision in adoption of new medical technologies along with their intertwine with the Medicare reimbursement policy. Using Medicare claims data, we study the case of Transcatheter Aortic Valve Replacement (TAVR)—a high-benefit but initially unprofitable procedure—around a 2015 reimbursement reform. While traditional strategic motives such as entry deterrence, patient steering, and learning-by-doing contribute to adoption decisions, we find that expectations of future reimbursement increases also play a critical role. These results suggest that, under certain conditions, delaying financial incentives may be an effective strategy to encourage early uptake of valuable innovations. (draft coming soon)