Measuring Clinical Effectiveness in Practice: Evidence from EPO in Dialysis

with Paul Eliason, Ben Heebsh, Ryan McDevitt, and Jimmy Roberts
Revise and Resubmit at American Economic Review
Recent draft available here. BibTeX citation available here.
Note that this paper previously circulated as “The Effect of Bundled Payments on Provider Behavior and Patient Outcomes: Evidence from the Dialysis Industry.”

Abstract: We use a large change in financial incentives following a Medicare payment reform to measure the clinical effectiveness of epoetin alfa (EPO), Medicare’s largest Part B drug expense before the reform. We find that a 1% increase in EPO successfully reduces anemia in dialysis patients by 0.09% but increases the risk of heart attack by 0.3% and death by 0.4%. Because clinical trials do not account for providers’ responses to financial incentives or patient heterogeneity, our results provide novel evidence about the health consequences of drugs as used in the field and prospective payment models targeting their use.