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CRES-Seminar Randall Ellis

CRES-Seminar Randall Ellis

Provider agency, health care innovation, pricing, and regulations

  • Date: May, 16th At 12:00
  • Room: 24.013 (Ciutadella Campus, Mercè Rodoreda Building. Universitat Pompeu Fabra, Barcelona)


Abstract: Although there is a rich literature on how health insurance affects static health care decisions made by consumers and providers, much less is written about how health insurance affects the research and development of new drugs, medical procedures and health care technologies. Notably lacking in the innovation literature is sufficient recognition of how doctors and hospitals, not consumers, choose intensity of treatment, prescription drugs, and in some cases prices, and how this in turn affects the types of innovations that are most attractive in health care markets. This paper first uses a static model to extend the literature on provider agency to highlight how insurance distorts consumption, pricing and quality decisions, and undermines the profit incentives to invest in cost-reducing process innovations on existing products. We then use the results of this agency model in a two period model of innovation that shows how these incentives affect new product innovations that emphasize health improvement over cost reduction. We then reexamine empirical evidence by others to highlight that low cost effective innovations are concentrated in services paid for by either health insurance or the government. We end with a discussion of how public policies and pricing regulations could be changed so as to better promote cost-saving, welfare-improving innovations in health care.


Bio: Randall P. Ellis, Ph.D., is a professor in the Department of Economics at Boston University, where he has been on the faculty since 1981. He earned his Ph.D. in economics from MIT after attending Yale University and the London School of Economics and Political Science. For 35 years his research has focused on health economics, spanning both US and international economics topics, and including the economics of health in developing countries. Dr. Ellis is Past President of the American Society of Health Economists and an associate editor of the Journal of Health Economics and American Journal of Health Economics. An entrepreneur, he co-founded DxCG, Inc. in 1996 (now part of Vescend, Inc.), a healthcare information and consulting firm, in which he currently has no economic interest. Dr. Ellis was principal or co-investigator on numerous research projects that developed Diagnostic Cost Group (DCG) and Hierarchical Condition Category (HCC) models, with funding from the Centers for Medicare & Medicaid Services (CMS) and others. CMS now uses HCC models to risk adjust payments to Medicare Advantage health plans, Part D plans and the Health Insurance Exchanges. This body of risk adjustment work received the AcademyHealth 2008 Health Services Research Impact Award. Dr. Ellis has written and coauthored over 140 articles, reports and papers. Many have focused on risk adjustment, but others explore provider response to reimbursement systems; optimal insurance; health plan competition; the economics of mental health; health demand modeling in developing countries; and the cost-effectiveness of cancer screening. His recent research funding has been from the National Institute of Mental Health, Verisk Health, and The Commonwealth Fund. More information here.