Personalized Medicine When Physicians Induce Demand

David H. Howard, Jason Hockenberry, Guy David

NBER Working Paper No. 24054
Issued in November 2017
NBER Program(s):Health Care

Advocates for “personalized medicine” tests claim they can reduce health care spending by identifying patients unlikely to benefit from costly treatments. But most tests are imperfect, and so physicians have considerable discretion in how they use the results. We show that when physicians face incentives to provide a treatment, the introduction of an imperfect prognostic test will increase treatment rates. We study the interaction of incentives and information in physicians’ choice between conventional radiotherapy and intensity modulated radiation therapy (IMRT) for Medicare patients with breast cancer. IMRT is far more costly. Patients with left-side tumors are more likely to benefit from IMRT, though it is unnecessary for the vast majority of patients. IMRT use is 18 percentage points higher in freestanding clinics, where physician-owners share in the lucrative fees generated by IMRT, than in hospital-based clinics. Patients with left-side tumors are more likely to receive IMRT in both types of clinics. However, IMRT use in patients with right-side tumors (the low benefit group) treated in freestanding clinics is actually higher than use in patients with left-side tumors (high benefit group) treated in hospital-based clinics. Prognostic information affects use but does nothing to counter incentives to overuse IMRT.

download in pdf format
   (193 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24054

Published: Physicians’ Financial Incentives to Personalize Medicine, David H. Howard, Jason Hockenberry, Guy David. in Economic Dimensions of Personalized and Precision Medicine, Berndt, Goldman, and Rowe. 2019

Users who downloaded this paper also downloaded* these:
Graves, Garbett, Zhou, and Peterson w24134 The Value of Pharmacogenomic Information
Einav and Finkelstein w24055 Moral Hazard in Health Insurance: What We Know and How We Know It
Foster and Gehrke w24041 Start What You Finish! Ex Ante Risk and Schooling Investments in the Presence of Dynamic Complementarities
Park, Basu, Coe, and Khalil w24038 Service-level Selection: Strategic Risk Selection in Medicare Advantage in Response to Risk Adjustment
Chandra, Garthwaite, and Stern w24026 Characterizing the Drug Development Pipeline for Precision Medicines
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us