Doctoral Dissertation Research in Economics: The Effect of Deregulation on the Cost, Availability, and Quality of Health Care

University Of California-San Diego, La Jolla CA

Investigators

Abstract

The U.S. Food and Drug Administration (FDA) regulates a wide array of health care products to ensure their safety and efficacy before they can be sold to consumers. While these regulations are intended to protect consumers, they also inevitably make it more expensive and time-intensive for companies to bring new medical technology to the market. These hurdles could leave consumers with fewer products to choose from or even delay their access to potentially life-saving medical technology. Without the threat of new entrants, existing firms are able to charge higher prices, knowing that consumers have few alternatives. Focusing on medical devices, the author(s) asks whether relaxing FDA regulation could increase the quality and accessibility of health care and combat rising costs. This project combines new data on millions of medical products with statistical analysis to understand how deregulation affects competition, prices, quantity, and quality in the market for medical devices. Specifically, the author(s) will study an FDA deregulation event in 2015 that deregulated some medical devices but not others. The results of this study will be valuable for policymakers who seek to make informed decisions about how to balance the benefits of product regulation against the costs it imposes on firms and consumers. Products regulated by the U.S. Food and Drug Administration (FDA) account for 20 cents out of every dollar Americans spend (Food and Drug Administration, 2021). On the one hand, these regulations — which often take the form of pre-market approval processes — aim to ensure the safety and efficacy of consumer products. On the other hand, pre-market approvals can impose substantial costs on manufacturers, which prevent firm entry and can even reduce product safety (Rogers, 2022). This project considers how FDA regulation interacts with market forces and the resulting effect on the cost and quality of products in an important sector: medical devices. The author(s) bring together detailed data on market entry, device transactions, and insurance claims with econometric methods to answer this question. They exploit a 2015 FDA deregulation event that removed pre-market testing for 250 medical device types as a “natural experiment” and use difference-in-difference and event study techniques to compare the effects on deregulated versus unaffected device types. They first use FDA registration data to assess the effects on market structure, like the number and types of firms that sell these devices. Next, they use fine-grained data on millions of medical device purchases made by healthcare providers to study the effects on prices and quantities of devices purchased. Finally, they use insurer claims and consider whether the prices, quantity, and quality of procedures that use these devices change. The project’s findings will provide policymakers with a better understanding of how regulation interacts with market forces and causes ripple effects throughout the supply chain in an important industry. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.