Principal investigator: Bruno Benevit
Original title: Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices
Authors: Matthew Grennan and Robert J. Town
Location of the Intervention: United States
Sample Size: 494.304 product-hospital-month observations
Sector: Regulation
Primary Variable of Interest: Wellness
Type of Intervention: Regulation on the entry of products
Methodology: GMM, Logit
Summary
Innovative products, while potentially representing gains in societal well-being, also pose risks due to their novelty and, consequently, limited information available. To reduce potential consumer insecurities regarding these risks, regulations and certifications for products entering the market can provide relevant information to consumers. To assess how such regulations affect innovation and consumers, this study compared product entry regulations and information requirements in the European Union and the United States. The results indicate that stricter market entry requirements may lead to increased consumer surplus.
- Policy Problem
Product innovation is often associated with the expectation of creating value for consumers, potentially increasing people's well-being. However, the innovation process involves risks in terms of operationalization, costs, or even lack of public acceptance, with consumers potentially apprehensive about the safety of new products on the market. In this sense, products commonly undergo a battery of tests before being commercialized, providing a way to signal the safety of new products through approvals and certifications (GRENNAN; TOWN, 2020).
In oligopolistic markets, such concerns can become more pronounced as public and private incentives tend to diverge, leading to the establishment of regulations and certifications in response to risks to consumer safety. Currently, the need for safety certifications for goods and services is widespread in various markets, such as the automotive, electronics, finance, healthcare, and toy markets.
In the context of the pharmaceutical market, product testing provides consumers with more information, reducing uncertainty regarding the safety and efficacy of new drugs introduced to the market. However, routine testing procedures can ultimately lead to lower product availability due to delays in market entry and higher entry costs. In this regard, there are considerable differences between the regulations of the pharmaceutical markets in the United States and the European Union, allowing for the identification of the cost-benefit relationship associated with more or less restrictive regulations in these markets.
- Policy Implementation Context
The pharmaceutical markets of the United States (US) and the European Union (EU) present significant differences in several aspects, from the regulatory process to consumer access to medicines. In the US, the Food and Drug Administration (FDA) plays a central role in the approval and regulation of medicines, requiring rigorous clinical trials to demonstrate safety and efficacy before a drug can be marketed. Furthermore, in the US, generic drugs have a separate regulatory pathway and are often introduced to the market at more affordable prices after the expiration of patents on brand-name drugs.
On the other hand, in the European Union, the drug approval process is decentralized, with each member country being responsible for its own drug regulatory agency. However, a centralized authorization system exists for certain medicines, which simplifies the approval process and allows a drug to be marketed in all EU countries after approval by the European Medicines Agency (EMA). This can result in faster availability of new medicines for European consumers. Additionally, generic medicines are approved based on a centralized EU procedure, which can lead to faster competition and lower prices for consumers.
Another significant difference between the US and EU pharmaceutical markets is the pricing and reimbursement system. In the US, the drug market is dominated by private insurers and government health programs, such as... Medicare and MedicaidIn the US, many countries operate government-funded healthcare systems that negotiate drug prices and reimbursement directly with drug manufacturers. This often results in higher drug prices in the US. Meanwhile, in the EU, many countries operate government-funded healthcare systems that negotiate drug prices on behalf of consumers, which can result in lower drug prices, although it may potentially restrict access to more expensive medications.
- Evaluation Details
To identify an exogenous variation in information provision regimes, the authors explored the fact that the EU approval process requires less intensive pre-market testing from manufacturers. This difference results in a faster and less expensive process than in the US for any Class III device, devices categorized as “necessary for life support” and requiring FDA approval through randomized clinical trials.
In this study, the object of analysis was the market of stents Coronary artery bypass grafts (CABGs) are Class III medical devices widely used to treat coronary artery disease. stents Coronary devices have been constantly improved over time and with great success in terms of sales and impact on health in the US and the EU. The two types of stents The most common are the simple metallic (BMS), which was first introduced in the United States in 1994, and the drug-eluting (DES), which was first introduced in the US in 2003 and was coated with a polymer and drug to inhibit scar tissue growth.
According to the authors, the difference between the two regions is attributed to historical political processes that are not correlated with market demand for Class III devices. Therefore, it is possible to observe the market outcomes for various new devices that are invented and enter the European Union, where regulatory requirements are less stringent, as well as to examine the EU market outcomes for devices that are simultaneously undergoing testing in the US and for those that are not.
The study primarily used data from internal hospital surveys collected by MarketTrack do Millennium Research Group's (MRG), providing monthly data on prices and quantities for all stents Coronary artery bypass grafts were implanted in a large number of hospitals in the United States and the European Union from 2004 to 2013. The sample comprised 494.304 product-hospital-month observations across 372 hospitals in the US and 416 hospitals in the EU. To capture the approval period and time to market of products in the markets of both regions, product-month variation in clinical trial participation in the US was combined with approval dates from journal articles, conference abstracts, press releases, and product catalogs. According to the data obtained by the authors, 49% of stents Drugs used in the EU were unavailable in the US, indicating a large regulatory difference between the two regions (GRENNAN; TOWN, 2020).
- Method
The study adopted several methodological approaches when analyzing the medical device industry in the EU and the US. The authors began the study by examining patterns in adoption, diffusion, and learning with respect to stents by region and FDA clinical trial status, observing the time since introduction into the region for three subsets of data: the US, the EU for products in clinical trials to enter the US, and the EU for other products. Thus, the mean and standard deviation of an adherence measure that considers the regional share of products in relation to the reported number of angiographies were considered (a measure proxy of potential utility), as well as the proportion of observations with no use of stents at the product-hospital level. Additionally, a series of robustness analyses were also performed to verify the validity of these estimates.
Next, the study provided an empirical model considering the agents of demand, supply, and regulation of stentsThe model incorporated important institutional details of this industry, allowing for the decomposition of the various drivers of product use, the translation of patterns into measures of well-being, and the exploration of equilibrium outcomes under counterfactual scenarios in medical device regulation. The demand model assumes that consumers (physicians) have heterogeneous preferences regarding design characteristics and face uncertainty about stent performance. The supply model considers the production and market entry behavior of device manufacturers, and how the generation of product information impacts consumer well-being in the face of different regulations. Finally, the model also considers the behavior of regulators, where this agent decides on the duration of clinical trials and the approval of a given product considering the expected health gains, aiming to maximize social surplus.
The study presents an oligopoly equilibrium and consumer welfare model to assess the effects of different regulatory approaches in the industry of stents Coronary arteries. By considering the interaction between manufacturers, regulators, and consumers, researchers can derive conclusions through Logit models about how product testing and entry policies affect competition, product quality, and overall consumer well-being. This approach allows for the identification of parameters necessary to explain the... trade-offs between faster access to new products and the need to ensure the quality and safety of medical devices.
Finally, the study employs a generalized moment algorithm (GMM) to estimate the model parameters and test the relationships between testing requirements, product entry, and market behavior. Based on the parameters of this model, the authors performed simulations to test theoretical hypotheses about the importance of clinical trials considering various regulatory policies – with testing periods ranging from 0 to 5 semesters – and the consequent value of the information generated by these different scenarios and the... trade-offs between broader access to products and consumer safety.
- Main results
The results presented evidence of a positive informational effect of FDA-mandated clinical trials on the EU market. The results suggest that the pattern of gradual increase in the use of EU products undergoing trials in the US is not driven solely by market- or product-specific factors. For EU products in US trials, uptake is comparatively lower after introduction and gradually increases over time on the market, stabilizing after approximately two years. This trend indicates that consumers learn from US trials and increase average usage as uncertainty decreases.
An analysis of volatility and the proportion of non-utilization of stents The study shows that learning occurs only for products in US trials, and not for those that are not. This suggests that US trials are contributing to learning about product efficacy. The results suggest that the pattern of gradual increase in the use of products in the EU that are in US trials is not driven solely by specific market or product factors. However, it should be noted that the results indicate that increased information does not always result in increased use, as in the case of the CoStar product, where final clinical trial results revealed lower efficacy compared to products with different technologies, indicating qualitative sensitivity to information.
Demand estimates suggested that consumers, specifically physicians, have clear preferences and are sensitive to the attributes of... stentsThe demand for coronary stents is influenced by factors such as price, brand preferences, and suitability of the device. stent to the patient. Furthermore, there is evidence of risk aversion on the part of physicians in the selection of stents, indicating the consideration of factors beyond price in decision-making.
Estimates of variation in product performance indicate significant uncertainty about their perceived effectiveness, suggesting that consumers face the possibility that the product will not meet expectations. This uncertainty is even more pronounced for products exclusive to the EU. Furthermore, the model corroborated the existence of a significant learning mechanism in the EU from clinical trials conducted in the US, while experiential learning was insignificant. Evidence of a lack of isolated learning in specific hospitals was also identified, indicating that information on product performance is shared consistently among hospitals.
Regulatory simulations indicated that the ideal regulatory policy needs to consider the risk of new products failing to meet health expectations. Clinical trials, especially those conducted in the US, provide valuable information, reducing perceived risks for consumers. For example, increasing trial duration beyond six months did not result in significant well-being gains. A lack of trials could drastically reduce the stent market, highlighting the importance of clinical trials in guiding consumer choices and improving overall well-being.
The results presented use a model to investigate the impact of uncertainty on the quality of medical products, specifically in the cardiac stent market. Initially, in a scenario with an absence of clinical trials and keeping company strategies constant, the market for stents This would be halved. Furthermore, simulations indicated that a 1-month increase in clinical trials would generate significant improvements in consumer well-being due to the provision of extra information. However, no statistically significant differences in well-being were identified for clinical trials lasting between 18 and 30 months (the maximum period). Finally, estimates indicated that the EU's total well-being surplus would decrease by 6,4% if the US ceased conducting clinical trials with longer durations than the European region.
- Lessons in Public Policy
This article examined the impact of uncertainty on the quality of medical products, specifically stents Coronary diseases, and how this uncertainty influences consumer behavior and regulatory policies. To this end, the role of clinical trials conducted in the US, with stricter regulation, compared to the EU market, in reducing uncertainty about the efficacy of products and their effects on consumer demand was examined.
The results highlighted the importance of clinical trials in reducing uncertainty about the quality of medical products, especially those... stents Coronary care. It has been found that increased duration of clinical trials in the US has resulted in significant improvements in consumer well-being in both regions. Furthermore, a lack of clinical trials can lead to a significant reduction in the market for... stents Coronary care, highlighting the importance of these tests in guiding consumer choices and developing effective regulatory policies. These results have important implications for the formulation of public policies related to the regulation of medical products and their implications for consumer well-being.
References
GRENNAN, M.; TOWN, RJ Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices. American Economic Review, v. 110, no. 1, p. 120–161, 1 Jan. 2020.
