BACH Quarterly Newsletter

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March 2022          May 2022          

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Featured Faculty Publications in Healthcare

Carlson School faculty members consistently produce influential research in healthcare that is published in top industry journals. Learn more about recent and forthcoming publications by Carlson's world-renowned faculty. 


Faculty Healthcare Reference List


Check back regularly as this list is continually updated.

Management Science (forthcoming)

Authors: Joshua L. Krieger, Xuelin Li, and Richard T. Thakor

How do innovative firms react when existing products experience negative shocks? We explore this question with detailed project-level data from drug development firms. Using FDA Public Health Advisories as idiosyncratic negative shocks to approved drugs, we examine how drug makers react through investment decisions. Following these shocks, affected firms increase R&D expenditures, driven by a higher likelihood of acquiring external innovations, rather than developing novel projects internally. Such acquisition activities are concentrated in firms with weak research pipeline. We also find that competing developers move resources away from the affected therapeutic areas. Our results show how investments in specialized commercialization capital create path dependencies and alter the direction of R&D investments.

Read the paper here

The Review of Corporate Finance Studies (forthcoming)

Authors: Adam Jørring, Andrew W. Lo, Tomas J. Philipson, Manita Singh, and Richard T. Thakor

Firms conducting biomedical research and development (R&D) face very high costs and risks, which makes financing difficult, creating a “funding gap” that impedes biomedical innovation. We propose and analyze a new class of simple financial instruments, Food and Drug Administration (FDA) hedges, which allow biomedical R&D investors to potentially better share the pipeline risk associated with FDA approval with the capital market. We first explain the market failure that FDA hedges can prevent to help increase investment in biomedical R&D, thus providing a microfoundation for such hedges. Then, using historical FDA approval data, we examine the pricing of FDA hedges and mechanisms under which they can be traded. Using unique data sources, we find that FDA approval risk—a major risk in biomedical R&D—has a low correlation across drug classes, as well as with other assets and the overall market. We argue that this zero-beta property of scientific FDA risk could be an additional source of gains from trade, between developers looking to offload FDA approval risk and issuers of FDA hedges looking for diversified investments. 

read the paper here

Journal of Financial and Quantitative Analysis (forthcoming)

Authors: Richard T. Thakor and Andrew W. Lo

The interaction between product market competition, R&D investment, and the financing choices of R&D-intensive firms on the development of innovative products is only partially understood. To motivate empirical hypotheses about this interaction, we develop a model which predicts that as competition increases, R&D-intensive firms will: (1) increase R&D investment relative to assets in place that support existing products; (2) carry more cash; and (3) maintain less net debt. Using the Hatch-Waxman Act as an exogenous shock to competition, we provide causal evidence which supports these hypotheses through a differences-in-differences analysis that exploits differences between the biopharma industry and other industries, and heterogeneity within the biopharma industry. We also explore how these changes affect innovative output, and provide novel evidence that increased competition causes companies to increasingly ``focus'' their efforts, i.e., there is a decline in the total number of innovations, but an increase in their economic value.

read the paper here

Journal of Accounting Research (forthcoming)

Authors: Cyrus Aghamolla and Richard T. Thakor

This paper investigates the effect of mandatory disclosure requirements for private firms on their decision to go public. Using detailed project-level data for biopharmaceutical firms, we explore the effects of a legal reform---the Food and Drug Administration Amendments Act (FDAAA)---which exogenously required that biotechnology and pharmaceutical firms publicly disclose information regarding clinical trials. Exploiting cross-sectional heterogeneity in firms' exposure to the regulation based on their internal development portfolios, we find that affected firms are significantly more likely to transition to public equity markets following the reform. We also find that firms that go public due to the increased disclosure requirements subsequently reduce the size of their project portfolios while shifting to safer investments acquired externally. We additionally explore the main hypothesis using a second empirical setting that considers a 2006 German legal reform which enhanced the enforcement of mandatory disclosure requirements for private firms. 

read the paper here

Journal of Financial Economics (forthcoming)

Authors: Cyrus Aghamolla and Richard T. Thakor

This study investigates whether a private firm's decision to go public affects the IPO decisions of its competitors. Using detailed data from the drug development industry, we identify a private firm's direct competitors at a precise level through a novel approach using similarity in drug development projects based on disease targets. The analysis shows that a private firm is significantly more likely to go public after observing the recent IPO of a direct competitor, and this effect is distinct from "hot" market effects or other common shocks. Furthermore, our effects are centered on firms that operate in more competitive areas. We additionally explore peer effects in private firm funding propensities more broadly, such as through venture capital or being acquired, and find results consistent with a competitive channel.

read the paper here

American Journal of Health Economics, March 2022

Authors: Conor Ryan, Roger Feldman, and Stephen T. Parente

We use a novel data set from a private online marketplace to estimate the demand for individual health insurance among a set comprising many high-income households across 18 states. Households earning more than 4 times the federal poverty level (FPL) are willing to pay $30 to $135 per month to increase the actuarial value of their insurance by 10 percentage points, much less than households earning less than 2.5 times FPL. Higher-income households are also less likely to forgo insurance due to a premium increase. These results are important for understanding the effect of health reform proposals targeting higher-income populations.

read the paper here

JAMA Health Forum, January 2022

Authors: Stephen T. Parente & Karoline Mortensen

The Health Resources and Services Administration (HRSA) within the US Department of Health and Human Services (HHS) began covering COVID-19 related testing and treatment costs for those without health insurance during the COVID-19 pandemic in April 2020. The Provider Relief Fund (PRF) operates a Medicare-like fee-for-service claims reimbursement system, reimbursing health care clinicians and facilities for each uninsured claim at the Medicare payment rate. As of September 2021, $2.5 billion had been paid by HRSA for COVID-19 treatment of uninsured patients with COVID-19. A policy choice was made to create the PRF rather than implement an emergency expansion of Medicaid or a special marketplace enrollment period. To our knowledge, there has been no analysis of the distribution of funds to health care professionals and facilities treating uninsured patients. This study aims to evaluate this method of distribution of disbursement relative to the number of uninsured people in a state.

read the paper here

Social Science Research Network (SSRN), December 2021

Authors: Mochen Yang and Xuan Bi

Limited access to large-scale data is one of the key obstacles to building machine learning and artificial intelligence applications in healthcare, partly due to a reluctance of information exchange among healthcare institutions out of privacy and data security concerns. To address this issue, federated machine learning techniques have been proposed that enable decentralized model training via an orchestrating platform. Despite its superior privacy protection property, a lack of systematic understanding of the economic incentives and strategic trade-offs in federated learning deters its wide adoption in practice. In this paper, we use an iterated prisoner's dilemma (IPD) framework to characterize the decisions - to share information or not - faced by participants (e.g., healthcare institutions) in a federated learning partnership, and to derive boundary conditions under which stable information exchange can arise. 

read the paper here

Journal of Policy Analysis and Management, December 2021

Authors: Alice Chen, Elizabeth Munnich, Stephen T. Parente, and Michael Richards

Medicare is a roughly $700 billion public program, with physician payments representing one of its largest expenditures. Medicare's prices are also administratively set, which leaves the structure of payment changes subject to a political process that may introduce idiosyncratic features and even perverse incentives. At the same time, physician responses to changes in Medicare reimbursements are likely to vary according to the policy's duration, scope, and size. We study a setting where broad federal laws contained specific provisions that financially benefit a narrow group: Alaskan physicians. 

read the paper here

Management Science, June 2021

Authors: Kartik K. Ganju, Hilal Atasoy, and Paul A. Pavlou

Electronic health record (EHR) systems allow physicians to automate the process of entering patient data relative to manual entry in traditional paper-based records. However, such automated data entry can lead to increased reimbursement requests by hospitals from Medicare by overstating the complexity of patients. The EHR module that has been alleged to increase reimbursements is the Computerized Physician Order Entry (CPOE) system, which populates patient charts with default templates and allows physicians to copy and paste data from previous charts of the patient and other patients’ records. To combat increased reimbursements by hospitals from Medicare, the Centers for Medicare & Medicaid Services implemented the Recovery Audit Program first as a pilot in six states between 2005 and 2009 and then, nationwide in the entire United States in 2010. We examine whether the adoption of CPOE systems by hospitals is associated with an increase in reported patient complexity and if the Recovery Audit Program helped to attenuate this relationship. 

read the paper here

Social Science Research Network (SSRN), May 2021

Authors: Jeffrey McCullough, Kartik K. Ganju, and Chandy Ellimoottil

We examine telemedicine utilization during the COVID-19 pandemic. Advocates have argued that telemedicine can overcome barriers in accessing healthcare and protect patients from contracting COVID-19. Rural and poor patients, for example, would not need to make expensive and time-consuming trips to healthcare facilities when using telemedicine. Conversely, telemedicine adoption may depend on broadband access and technology skills, which could create a digital divide and exacerbate disparities. We study these questions using data on virtual and conventional care from a large commercial insurer. 

read the paper here

National Bureau of Economic Research, April 2021

Authors: Cyrus Aghamolla, Pinar Karaca-Mandic, Xuelin Li, and Richard T. Thakor

This study examines the link between credit supply and hospital health outcomes. Using detailed data on hospitals and the banks that they borrow from, we use bank stress tests as exogenous shocks to credit access for hospitals that have lending relationships with tested banks. We find that affected hospitals shift their operations to enhance their profit margins in response to a negative credit shock, but reduce the quality of their care to patients across a variety of measures. In particular, affected hospitals exhibit significantly lower attentiveness in providing timely and effective treatment and procedures, and are rated substantially lower in patient satisfaction. This decline in care quality is reflected in health outcomes: affected hospitals experience a significant increase in risk-adjusted, unplanned 30-day readmission rates of recently discharged patients and in risk-adjusted 30-day patient mortality rates. Overall, the results indicate that access to credit can affect the quality of healthcare hospitals deliver, pointing to important spillover effects of credit market frictions on health outcomes.

Read the paper here.

Working paper, August 2020

Authors: Dennie Kim, Russell J. Funk, and Aks Zaheer

Network perspectives in organizational research have focused primarily on how the embeddedness of actors shapes individual, or nodal, outcomes. Against this backdrop, a growing number of researchers have begun to adopt a wider lens on organizational networks, shifting the focus to collective, or whole network, performance. Yet, efforts to understand the relationship between whole network structure and whole network performance have produced conflicting findings, which suggests that a different approach may be needed. Drawing on macrostructural sociology, we propose a "whole network morphology" framework, which argues the whole network structure-performance relationship is contingent on other fundamental—relational and cultural—whole network dimensions. Subsequently, we undertake an application of our framework, through which we demonstrate how a morphological view helps address conflicting findings on the structure-performance relationship. 

read the paper here

Management Science, July 2020

Authors: Kartik K. Ganju, Hilal Atasoy, Jeffery McCullough, and Brad Greenwood

Although significant research has examined how technology can intensify racial and other outgroup biases, limited work has investigated the role information systems can play in abating them. Racial biases are particularly worrisome in healthcare, where underrepresented minorities suffer disparities in access to care, quality of care, and clinical outcomes. In this paper, we examine the role clinical decision support systems (CDSS) play in attenuating systematic biases among black patients, relative to white patients, in rates of amputation and revascularization stemming from diabetes mellitus. Using a panel of inpatient data and a difference-in-difference approach, results suggest that CDSS adoption significantly shrinks disparities in amputation rates across white and black patients—with no evidence that this change is simply delaying eventual amputations. 

read the paper here

Production and Operations Management, June 2020

Authors: Paola Martin, Diwakar Gupta, and Karthik V. Natarajan

In recent years, several Global Health Organizations (GHOs) have experimented with market-based procurement contracts to encourage pharmaceutical companies to bring late-stage vaccines to developing-country markets. Pharmaceutical companies often find such markets financially unattractive because the opportunity cost of capacity commitment is high, developing countries have limited ability to pay, and demand is uncertain. A contract design recently implemented by one GHO offers the manufacturer a per-dose sales subsidy, which is paid by the GHO, on top of the base price paid by developing countries. The subsidy is required because the base price is not enough, by itself, to induce the manufacturer to commit capacity for developing-country markets. A natural question that arises in this context is whether, within a fixed budget, alternate contract designs lead to higher capacity commitment. This study proposes and analyzes three contract designs that include the current practice and two alternatives inspired by contracts studied in the operations management literature. It also considers two types of budget constraints that may arise in practice and quantifies the impact of each type of budget constraint on the manufacturer’s capacity commitment. 

Read the paper here

The Journal of Portfolio Management, July 2019

Authors: Andrew W. Lo and Richard T. Thakor

Thanks to a combination of scientific advances and economic incentives, the development of therapeutics to treat rare or orphan diseases has grown dramatically in recent years. With the advent of Food and Drug Administration–approved gene therapies and the promise of gene editing, many experts believe we are at an inflection point in dealing with these afflictions. In this article, the authors propose to document this inflection point by measuring the risk and reward of investing in the orphan drug industry. They construct a stock market index of 39 publicly traded companies that specialize in developing drugs for orphan diseases and compare the financial performance of this index, which they call ORF, to the broader biopharmaceutical industry and the overall stock market from 2000 to 2015. 

read the paper here

Medical Care, March 2019

Authors: Dennie Kim, Russell J. Funk, Phyllis Yan, Brahmajee K. Nallamothu, Aks Zaheer, John M. Hollingsworth

Medicare accountable care organizations (ACOs) seek to enhance care coordination and improve outcomes through formal clinical integration. This focus on formal integration ignores, however, actual patterns of interactions among providers around shared patients. To determine whether such informal clinical integration is associated with ACO participants’ readiness to deliver coordinated care, we analyzed national Medicare data. Specifically, we studied the relationship between health system ACO participation and mortality rates following heart bypass surgery, using network analysis to compare participating and non-participating health systems by their baseline level of informal clinical integration. We found that ACO participation was only associated with lower mortality rates in health systems with high informal clinical integration. These findings suggest that formal clinical integration alone may be insufficient to improve outcomes. Provider groups with low informal clinical integration may not be as “ready” to act as ACOs, dampening overall program performance.

read the paper here

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