Diane Alexander, University of Pennsylvania, Wharton

Provider Payments and Innovation: The Case of the Wearable Artificial Kidney

Abstract

We demonstrate how provider payment structure can steer both treatment choices and ultimately innovation for a disease therapy, using End Stage Renal Disease (ESRD) as a case study. Patients that receive dialysis for ESRD have two broad treatment options: dialysis in a center or at home. We document three broad payment regimes for dialysis since the 1970s; initially home dialysis was favored, then in-center dialysis, and finally home dialysis again. We first document that patterns of treatment modality follow the patterns of payments. Next, we use patent data to show that these changes in payments also changed the direction of innovation. When in-center dialysis was favored, the number of patents with traits important to the profitability of dialysis centers (monitoring and safety) increased, whereas when the regime switched, the number of patents with traits important to home dialysis (portability) increased. In control technologies facing similar challenges over the same time period, there is no such divergence in innovation along these traits. Payment systems that favor a certain treatment may have ramifications not only for procedure use, but also for the composition and direction of innovation.

Diane Alexander is an Assistant Professor of Health Care Management at the Wharton School at the University of Pennsylvania. Her research is predominantly in health care, studying the economics of the provision of health care services and the actions of health care providers. More broadly, she is also interested in the interactions between environmental policies and health, as well as between health care and education. Her work has been featured in media outlets including the Washington Post, Bloomberg, CityLab, Vox, and Scientific American, as well as podcasts such as Freakonomics radio and Vox’s The Weeds.

She has studied the roles played by new types of providers in health care delivery, focusing on retail and urgent care clinics; the role of nurse practitioners and physician assistants in access and health; and how payment incentives influence physician decision-making. In a strand of work focusing on the interaction of environment and place on health outcomes, she has studied the role of residential segregation in explaining persistent racial health disparities, and the effect of pollution on health, utilizing the excess diesel emissions from the Volkswagen emissions cheating scandal as a natural experiment.

Prior to joining Wharton, Alexander was an economist at the Federal Reserve Bank of Chicago. She received a B.A. in economics from the University of California at Berkeley and a Ph.D. in economics from Princeton University.

You can read more about Diane Alexander here

CEBI contact: N. Meltem Daysal