UC Davis

In this dissertation, I investigate how patients and providers respond to changes in healthcare technology with information and resource constraints. The following chapters are three diverse approaches to this core inquiry.

Pharmaceutical innovations in the 20th century were transformative in the prevention and treatment of cardiovascular disease. Yet, the efficacy of medication may be lower than clinical expectations due to adjustments in perceived risk that cause changes in behaviors, a phenomenon known as risk compensation. In Chapter 1, the 1973 FDA approval of new classes of drugs to treat high blood pressure and high cholesterol is used to identify the effect of medication availability on nonsmoking, adherence to a diet, and body mass index. Results show that medication approval significantly decreases the probability of engaging in healthy behaviors, evidence of risk compensation. Once a diagnosis of cardiovascular disease (CVD) is received, a patient has updated information about the state of her health which may induce the adoption of healthy behaviors. For smoking, a diagnosis of CVD does partially attenuate the risk-compensation effect of medication. After medication is approved, individuals at high risk of CVD have increased take-up -- an indication that risk screening is implemented. Also, a CVD diagnosis prompts medication use as a complement to multiple healthy behaviors. The evidence demonstrates the importance of promoting healthy behaviors to a broad population and increasing risk-factor salience prior to diagnosis.

Chapter 2 provides new evidence on how technology affects healthcare markets by focusing on one area where adoption has been particularly rapid: surgery for prostate cancer. Over just six years, robotic surgery grew to become the dominant intensive prostate cancer treatment method. Changes in patient volume due to robot adoption are estimated using a difference-in-differences design. Results indicate that adopting a robot drives prostate cancer patients to the hospital. Estimating changes in patient volume at the market level tests whether this result reflects market expansion or business stealing. The findings here are significant but smaller, suggesting that adoption expands the market while also reallocating some patients across hospitals. Marginal patients are relatively young and healthy, inconsistent with the concern that adoption broadens the criteria for intervention to patients who would gain little from it. The chapter concludes by discussing implications for the social value of technology diffusion in healthcare markets.

Chapter 3 returns to the consideration of pharmaceutical drugs with a theoretical look at the way information, through advertising, impacts the decision of a generic pharmaceutical manufacturer to enter the market after patent expiration. Brand-name pharmaceutical firms with patent protection advertise in two ways: to physicians as detailing and direct-to-consumers through mass media. Prior research shows that each type of advertising uniquely influences markets. Physician advertising generates goodwill that the brand retains after patent expiration while direct-to-consumer advertising (DTCA) expands demand for the entire class of drugs. A potential generic competitor’s entry decision is based on its evaluation of future market conditions, which are affected by brand loyalties created by detailing and market size, as determined in part by DTCA. A two-stage vertical differentiation model is used to develop testable hypotheses that physician advertising is necessary for entry to avoid Bertrand competition, but in high levels acts as an entry deterrent. Conversely, DTCA promotes entry through market expansion. During the period of patent protection, the brand firm optimally chooses levels of detailing and DTCA to maximize expected profits over the patent-protection period and the period after patent expiration, anticipating the effects of its actions on generic entry. The analysis concludes by considering the impacts of pharmaceutical advertising and generic entry on consumer welfare.