Endogenous Technology Adoption and Medical Costs.

Summary Despite the claim that technology has been one of the most important drivers of healthcare spending growth over the past decades, technology variables are rarely introduced explicitly in cost equations. Furthermore, technology is often considered exogenous. Using 1996-2007 panel data on Swiss geographical areas, we assessed the impact of technology availability on per capita healthcare costs covered by basic health insurance while controlling for the endogeneity of health technology availability variables. Our results suggest that medical research, patent intensity and the density of employees working in the medical device industry are influential factors for the adoption of technology and can be used as instruments for technology availability variables in the cost equation. Our results are similar to previous findings: CT and PET scanner adoption is associated with increased healthcare costs while increased availability of PTCA facilities is associated with reductions in per capita spending. Nevertheless, our results suggest that the magnitude of these relationships is much greater in absolute value than that suggested by previous studies which did not control for the possible endogeneity of the availability of technologies.