Stress Testing Cardiac Care Markets through Deregulation

The diffusion of technological innovation depends on incentives, regulations, and firms’ strategic behaviors. We study these intersections within cardiac procedure markets following Medicare’s expansion of non-hospital facility options for treatment, enabled by clinical advancements. State-level regulations restrain federal pro-competition policy. Where market entry occurs, business stealing is concentrated among the lowest cost treatment settings, rather than high-cost hospitals––increasing Medicare spending by approximately $2.5 million. Medicare policy also generates externalities for untargeted procedures and other payers, except when hospitals and physicians are vertically integrated. Federal rulemaking interacts with and is mitigated by complex market dynamics––including in potentially unanticipated ways.