Medical Technology Diffusion and Physician Market Structure

Over the last 50 years, innovation in medical technology has been a key driver improving life expectancy. However, a large body of research has documented significant variation in the timing, intensity and appropriateness of the use of medical care across regions, hospitals, physicians and patients. In most circumstances, physicians are the key agent in determining whether a patient receives a given medical technology, but physician adoption of medical technology is not well understood. Of particular interest is the impact of physician market structure on technology adoption. In this paper, we study the diffusion of drug eluting coronary artery stents which became available mid-2003 in the Medicare population. Our study population includes all Medicare beneficiaries undergoing a percutaneous coronary intervention during 2003-2004. Linking Medicare claims to physician demographic data from the American Medical Association and to hospital characteristics from the American Hospital Association Survey, we estimate the role of competition among physicians on the decision to use drug eluting stents while controlling for patient, physician and hospital characteristics.  We account for the endogeneity of physician competition by exploiting exogenous variation in the distance between patient and physician location. Our findings reveal that physicians who face more competition are more likely to use the drug eluting stents. This finding provides the first empirical evidence, based on generalizable data, on the theoretically ambiguous relationship between competition and technology adoption in the context of a medical technology.