New medical products, such as novel drugs and devices, and health information technology (HIT) have transformed American medicine—often for the better, but sometimes for the worse. In the United States, the benefits of new medical technology are widely assumed to be worth the associated increase in costs, on average, over all technologies and over all patients for whom they are used. However, this is not true for some technologies, nor is it true for how some technologies are used. The Institute of Medicine (IOM), among other groups, has noted that what Americans get for their health care dollar often...

In this project, we considered U.S. spending and the health effects of medical products, whether invented in the United States or elsewhere. The medical products within the scope of our inquiry were new drugs (including biologics), devices (including diagnostics), and two kinds of HIT: EHRs and telemedicine. In this chapter we describe the context in which decisions about inventing such products are made, emphasizing the potential rewards that inventors can expect from selling their products and the influences of U.S. markets. We focus on U.S. markets because—unlike markets in other countries—the operation of these markets might be improved...

Using a variety of methods, we explored how new medical products affect U.S. health care spending and relationships between spending changes caused by the availability of medical products and the associated changes in U.S. population health. Then we sought to identify policy options that could improve the existing mix of incentives for product invention.

We conducted literature reviews to identify key issues in product invention, understand the context for medical product invention, and generate a preliminary list of policy options. We supplemented this information with 50 one-on-one interviews with health care industry leaders, drug and device inventors, regulators, health care...

The decisions made by inventors of and investors in new medical products are driven by two key considerations. The first is a technical assessment of whether the new technology can be successfully brought to market. The probability of success is influenced by perceptions of two types of risks: scientific risk (Will the technology work?) and regulatory risk (Will the government approve it for use?).

The second consideration is financial: Are the expected payoffs large enough to justify the costs incurred to bring the product to market? As we suggested in Chapter Two, the answer to this question is greatly influenced...

We have described how several features of the U.S. health care environment create socially undesirable financial incentives for medical product inventors and investors. Our policy goals would be advanced by altering these incentives. The literature, our interviews, our case studies, and discussions with other experts suggest that the decisions of health care inventors and investors are strongly influenced by (1) the costs and risks of product invention, (2) the costs and risks of FDA review (“approval”), and (3) market rewards and risks (“adoption”). Policy options can change the relative costs, rewards, and risks at one or more stages of the...

The rate of growth of U.S. spending on health care seems to have declined in recent years, and some ongoing trends will help reduce spending. The facts remain, however, that spending on health care in the United States constrains our opportunities to further major public and private priorities other than health, and there is substantial room for reducing spending in ways requiring only fairly small sacrifices in population health.

Many have pointed to new medical technologies, including new drugs and devices, as a leading source of high levels and growth rates of spending on health care. Previous studies have explored...