NBER WORKING PAPER SERIES PERSONALIZED MEDICINE WHEN PHYSICIANS INDUCE DEMAND. David H. Howard Jason Hockenberry Guy David

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1 NBER WORKING PAPER SERIES PERSONALIZED MEDICINE WHEN PHYSICIANS INDUCE DEMAND Davd H. Howard Jason Hockenberry Guy Davd Workng Paper NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambrdge, MA November 2017 We thank partcpants n NBER's Economcs of Personalzed Medcne conference for helpful comments and advce. Ths work was supported by NCI grant R01CA A1. The vews expressed heren are those of the authors and do not necessarly reflect the vews of the Natonal Bureau of Economc Research. NBER workng papers are crculated for dscusson and comment purposes. They have not been peer-revewed or been subject to the revew by the NBER Board of Drectors that accompanes offcal NBER publcatons by Davd H. Howard, Jason Hockenberry, and Guy Davd. All rghts reserved. Short sectons of text, not to exceed two paragraphs, may be quoted wthout explct permsson provded that full credt, ncludng notce, s gven to the source.

2 Personalzed Medcne When Physcans Induce Demand Davd H. Howard, Jason Hockenberry, and Guy Davd NBER Workng Paper No November 2017 JEL No. I11,I18 ABSTRACT Advocates for personalzed medcne tests clam they can reduce health care spendng by dentfyng patents unlkely to beneft from costly treatments. But most tests are mperfect, and so physcans have consderable dscreton n how they use the results. We show that when physcans face ncentves to provde a treatment, the ntroducton of an mperfect prognostc test wll ncrease treatment rates. We study the nteracton of ncentves and nformaton n physcans choce between conventonal radotherapy and ntensty modulated radaton therapy (IMRT) for Medcare patents wth breast cancer. IMRT s far more costly. Patents wth left-sde tumors are more lkely to beneft from IMRT, though t s unnecessary for the vast majorty of patents. IMRT use s 18 percentage ponts hgher n freestandng clncs, where physcanowners share n the lucratve fees generated by IMRT, than n hosptal-based clncs. Patents wth left-sde tumors are more lkely to receve IMRT n both types of clncs. However, IMRT use n patents wth rght-sde tumors (the low beneft group) treated n freestandng clncs s actually hgher than use n patents wth left-sde tumors (hgh beneft group) treated n hosptalbased clncs. Prognostc nformaton affects use but does nothng to counter ncentves to overuse IMRT. Davd H. Howard Department of Health Polcy and Management Emory Unversty 1518 Clfton Road NE Atlanta, GA dhhowar@emory.edu Jason Hockenberry Department of Health Polcy and Management Rollns School of Publc Health Emory Unversty 1518 Clfton Rd Atlanta, GA and NBER jason.hockenberry@emory.edu Guy Davd The Wharton School Unversty of Pennsylvana 202 Colonal Penn Center 3641 Locust Walk Phladelpha, PA and NBER gdavd2@wharton.upenn.edu

3 Introducton Advances n genetcs and artfcal ntellgence promse to launch an era of personalzed medcne. Dagnostcs and algorthms wll help doctors dstngush between patents who are and are not lkely to beneft from a treatment. Dscussons of the mpact of personalzed medcne on treatment patterns and costs often proceed as f physcans wll use nformaton n a socally optmal manner. For example, proponents of personalzed medcne clam t wll reduce health care spendng (for example, PhRMA 2015; Food and Drug Admnstraton 2013) by dentfyng patents unlkely to beneft from costly therapes. However, physcans often face ncentves to provde costly treatments. Further complcatng matters, many tests do not defntvely dentfy patents who wll and wll not beneft from a treatment. Instead, they provde another prognostc factor to consder alongsde the standard clncal varables (Hunter et al. 2016). In ths paper we consder how physcans ncentves and nformaton on patents ablty to beneft from treatment nteract to shape treatment decsons. Usng the standard physcannduced demand model, we show that the ntroducton of a test that predcts patents ablty to beneft from treatment wll lead to an ncrease n the share of patents recevng t. Also, treatment rates for patents most lkely to beneft from treatment wll be more responsve to ncentves. We evaluate the nteracton between ncentves and patents ablty to beneft usng the case of ntensty modulated radaton therapy (IMRT) for breast cancer. Physcans dffer n ther ncentves, based on whether they practce n a freestandng or hosptal-based clnc. Patents dffer n ther ablty to beneft from IMRT, based on whether the tumor s n the left or rght breast. Patents wth left-sde tumors are more lkely to beneft from IMRT. A problem wth studyng the mpact of personalzed medcne tests on treatment s that most are not routnely ordered. Thus, t s only possble to observe the mpact of test results on treatment for a selected subsample of patents. In the case of IMRT, physcans observe tumor lateralty for all patents. Tumor lateralty s also as good as randomly assgned n terms of beng uncorrelated wth educaton, ncome, or other factors related to patents recept of advanced technology. We can study how lateralty affects treatment decsons wthout havng to consder physcans ntal decson to obtan the nformaton or ts relaton to other prognostc varables. 2

4 We fnd that IMRT use s much hgher among women treated at freestandng clncs. Physcans at freestandng and hosptal-based clncs vary ther use of IMRT based on tumor lateralty. However, use of IMRT among patents wth rght-sde tumors (low beneft) treated n freestandng clncs s hgher than the use of IMRT among patents wth left-sde tumors (hgh beneft) treated n hosptal-based clncs, suggestng that ncentves exert a powerful nfluence on treatment thresholds n ths settng. Also, consstent wth theory, dfferences n the use of IMRT between patents treated n freestandng and hosptal-based clncs are larger, though nonsgnfcant, for patents wth left-sde tumors. The mplcaton s that the ntroducton of personalzed medcne tests wll not necessarly reduce costs, and decsonmakers should evaluate the potental mpact and cost savngs from personalzed medcne tests n lght of the ncentves facng the physcans who wll act on the nformaton. In related work, Dnan et al. (2015) report that recept of the 21-gene recurrence score assay, a test that predcts breast cancer patents ablty to beneft from chemotherapy, dd not reduce the use of chemotherapy among breast cancer patents. However, only 10% of the patents n the sample receved the test, makng t dffcult to ndependently dentfy the mpact of the test because the physcans who ordered t may favor a more aggressve treatment approach. A model of treatment choce We modfy the standard physcan-nduced demand model to show how allowng physcans to set dfferent nducement levels for dfferent patent groups affects the overall nducement rate and how fnancal ncentves nfluence the relatve nducement rates n each group. To revew, n the standard model physcan utlty s a functon of ncome and the level of nducement: u ( y, ). Inducement rases ncome va ts mpact on the share of patents treated, but physcans pay a psychc cost for actng aganst ther best assessment of patent and socetal welfare. For smplcty, we assume physcans labor supply s fxed. Income s y = rx(), where r s the rembursement rate and x() descrbes how the share of patents treated vares wth nducement. Partal dervatves (McGure and Pauly 1991) are u > 0, u < 0; u < 0, u < 0 ; and, x > 0, x = 0. We assume addtve separablty: u = 0 y y yy 3

5 Assume there are two patent types who dffer n ther ablty to beneft from treatment. The benefts of treatment vary wthn these groups, and so the dsutlty of nducng demand vares wthn each group. Physcans utlty for hgh-beneft types s u H ( y, ). Physcans utlty for low-beneft types s u L ( y, ), where u H L ( y,0) = u ( y,0) and the dsutlty of nducng demand among low-beneft patents s larger (.e., more negatve) and decreases at a faster rate: L u < u H < 0, L u < u H < 0. Physcans margnal utlty of ncome and the relatonshp between nducement and ncome, x (), do not vary by patent type. If physcans can set dfferent nducement levels for hgh- and low-beneft patents, the utlty-maxmzng nducement level s hgher for hgh-beneft patents: that the utlty-maxmzng nducement for low-beneft patents s defned by H L. To see ths, note u x = u (see Fgure 1). At the utlty-maxmzng level of nducement for low-beneft patents, the margnal utlty of ncome exceeds the margnal utlty of nducement for hgh-beneft patents, y L u x ( y L L L H L ) = u ( ) > u ( ). y Snce physcan utlty for hgh-beneft patents s ncreasng at L, then H L. 4

6 Fgure 1: Utlty maxmzng nducement levels u y x L H -u L -u H L H Inducement level If physcans cannot dstngush between hgh- and low-beneft patents, they maxmze 1 L y, ) + u ( y, ), assumng that half of patents are each type. Let M ndcate the level of 1 H u ( 2 2 nducement that maxmzes ths sum. A test that allows physcans to dstngush between hgh- and low-beneft patents wll cause average nducement levels (and, by extenson, the share of patents recevng the treatment) to rse: 1 M. To see ths, note that M L 1 H + 2 > 2 wll fall n the nterval between L and H and s defned by H L u x + u = [ u x + u ]. y y 5

7 Snce u ( ) s sngle-peaked, utlty for low-beneft patents (the term n the brackets on the rght) s declnng for H < L > and utlty for hgh-beneft patents (the term on the left) s ncreasng for. In the nterval between L and H physcans margnal utlty for low-beneft patents decreases at a faster rate than physcans margnal utlty for hgh-beneft patents ncreases L because u < u H < 0 for all. Therefore, physcans margnal utltes for hgh- and low-beneft patents must ntersect (whch defnes 1 L 1 H + 2 > 2 M. M ) at a pont n the nterval between L and 1 H +,.e. L The mpact of a change n the rembursement rate on nducement s ambguous. If the ncome effect s strong enough, an ncrease n rembursement rates could lead to a decrease n nducement. Regardless of whether an ncrease n the rembursement rate ncreases or decreases nducement, nducement levels for hgh-beneft patents are more responsve to fee levels (when physcans can set separate nducement levels). The terms denomnators of the dervatves of H H u and L u enter postvely n the and L wth respect to the rembursement rate (see equaton 2 n McGure and Pauly). The denomnator wll be larger n absolute terms, and the dervatve smaller, for low-beneft patents snce u < u. L H For the sake of smplcty and tractablty, we assumed that physcans utlty for hghbeneft patents does not depend on the nducement rate for low beneft patents and vce versa. There are two ways n whch they may nteract. Frst, the dsutlty of nducng demand for hghbeneft patents may depend on the level of nducement for low-beneft patents. Followng McGure and Pauly, who model how physcans chose treatment rates when there are two payers, we assume they are ndependent. Second, an ncrease n the nducement level for low beneft patents wll affect ncome and the margnal beneft of addtonal nducement for hgh-beneft patents va ts mpact on ncome. We gnore ths second-order effect. Clncal background Women wth early stage breast cancer are typcally offered the choce between mastectomy and breast conservng surgery (also known as lumpectomy). Followng breast 6

8 conservng surgery, where surgeons remove vsble masses of tumor cells, most patents undergo radaton therapy to kll any remanng cells. Therapy s delvered on an outpatent bass. Conventonal external beam radaton therapy can damage healthy cells near the target ste, leadng radaton oncologsts to seek methods of delverng radaton that spare the tssue surroundng the target. Unlke conventonal beam radaton, IMRT uses sophstcated treatment plannng software to ensure that the target area receves a consstent, unform dose whle mnmzng the delvery of radaton to nearby tssue. IMRT s commonly used as a prmary therapy for head and neck cancer and prostate cancer. Randomzed trals comparng IMRT to conventonal radotherapy n breast cancer patents (Mukesh et al. 2013; Pgnol et al. 2008) have found that IMRT reduces the rate of cosmetc sde effects and self-lmtng skn peelng and rrtaton. However, there are no dfferences n qualty of lfe, tumor recurrence rates, and survval rates. Based on the lack of evdence that IMRT s assocated wth clncally sgnfcant benefts, the Amercan Socety for Radaton Oncology (2013) recommends aganst routne use of IMRT n breast cancer patents followng breast conservng surgery: Whle IMRT may be of beneft n select cases where the anatomy s unusual, ts routne use has not been demonstrated to provde sgnfcant clncal advantage. Medcare spendng s $6,000 to $8,000 hgher for breast cancer patent who receve IMRT compared to conventonal radotherapy (Roberts et al. 2013; Smth et al. 2011). Radotherapy rsks damagng the heart. The rsk s hgher for women wth tumors n the left breast, whch s closer to the heart, and the value of IMRT s hgher for women wth leftsded tumors. Some Medcare clams processors and Medcare Advantage plans nclude the followng language n ther IMRT coverage polces, Indcatons wll nclude some left breast tumors due to rsk to mmedately adjacent cardac and percardal structures, though t would only rarely f ever be medcally necessary for tumors of the rght breast. Even for women wth left-sded tumors, the value of IMRT s questonable for most patents. The ncreased use of relatvely nexpensve technques and technologes, lke breath-holdng or shelds, has probably reduced the exposure of the heart to radaton (Recht 2017). 7

9 Physcans treatment settng Cancer patents can receve radotherapy at freestandng clncs, most of whch are owned by the radaton oncologsts who practce there, or hosptal-based clncs. Hosptal-based clncs may be staffed by employed radaton oncologsts or radaton oncologsts n ndependent groups. Delvery of IMRT s a complex, mult-step process that ncludes treatment plannng, physcan management, magng procedures, and treatment delvery. Clncs bll separate Current Procedural Termnology (CPT) codes for each step. Some are blled only once, others are blled on a recurrng bass. Radology clncs bll a code for treatment delvery for each sesson. There s no professonal fee assocated wth the code, but the faclty fee for IMRT treatment delvery n a freestandng clnc s approxmately $500, accountng for a substantal share of the total revenues assocated wth IMRT. Medcare sets faclty fees to cover average costs, ncludng the cost of acqurng IMRT equpment. The dfference between average and margnal costs may be especally large for captal-ntensve servces lke IMRT. By comparson, the fee for treatment delvery of conventonal beam radaton therapy s around $100. Radaton oncologsts who have an ownershp stake n a freestandng clnc receve a share of the group s profts, whch are generated by the provson of servces lke IMRT that have large faclty fees. Radaton oncologsts who practce n hosptal-based clncs do not. (It would be llegal under Medcare ant-kckback regulatons for hosptals to gve them a bonus based on the faclty fees they generate.) For ths reason, physcans n freestandng clncs face extra ncentves to provde IMRT compared to physcans n hosptal-based clncs. Prevous studes have found that prostate cancer patents treated by urology groups that acqure IMRT equpment (Bekelman et al. 2013; Carreyrou and Tamman 2010; General Accountng Offce 2013; Mtchell 2013) and breast cancer patents treated n freestandng clncs are more lkely to receve IMRT (Roberts et al. 2013; Smth et al. 2011). In other clncal settngs, a number of studes have shown that when physcans assume ownershp stakes n facltes or equpment, ther procedure volume rses (Baker 2010; Barro et al. 2006; Hollenbeck et al. 2010; Hollngsworth et al. 2010a; 2010b; 2011; Izuka 2007; 2012; Mtchell 1992; 2005; 2008; 2010l, Nallamothu et al. 2007; Shrebat and Baker 2012). These results suggest that the ncentves nherent n physcan ownershp affect physcans treatment decsons, though there 8

10 are alternatve explanatons. Physcans responses could reflect the convenence of havng equpment on-ste, or physcans may purchase ownershp stakes n antcpaton of planned changes n practce patterns. Orthopedc surgeons who want to specalze n outpatent surgeres may buy ownershp stakes n ambulatory surgery centers. Physcans who beleve that a treatment s effectve may be more lkely to take an ownershp stake n the faclty or equpment necessary to delver t. The settng for our study dffers n some mportant respects from that of prevous studes of physcan ownershp. Most prevous studes examne changes or dfferences n the volume of a partcular procedure. Changes may reflect specalzaton. In our case, all patents receve treatment, ether IMRT or another form of radotherapy. Radaton oncologsts may specalze by tumor ste but do not specalze by treatment modalty. Also, t s safe to assume that by the start of our study perod, 2008, all radaton therapy clncs had the capablty to perform IMRT, even f they never used t n breast cancer patents. Dfferences n use between freestandng and hosptal-based clncs are not attrbutable to dfferences n the convenence or avalablty of IMRT. Data Usng SEER-Medcare data, we estmate the mpact of clnc type (freestandng versus hosptal-based) and tumor lateralty on the recept of IMRT. SEER-Medcare ncludes tumor regstry records from regonal SEER tumor regstres lnked wth Medcare clams for Medcareelgble benefcares. The SEER regstres capture 100% samples of cancer patents from Calforna, Georga, Iowa, Hawa, Utah, Kentucky, Lousana, New Mexco, Connectcut, Detrot, and Seattle. From SEER Medcare we selected a sample of women who were dagnosed wth early or regonal stage breast cancer between 2008 and 2013 (the latest year avalable), were 66 years of age or older, were contnuously enrolled n fee-for-servce Medcare n the 24 month wndow centered on the dagnoss date, underwent breast conservng surgery, and receved postoperatve radotherapy. Detals are presented n Table 1. 9

11 Table 1: Sample constructon Included Excluded Crtera 37,347 Had breast conservng surgery wthn 90 days of dagnoss between 2008 and ,010 8,337 Had a clam for radotherapy 23,285 5,725 Age 66 and contnuously enrolled n Medcare 23, Stage at dagnoss known 23, Early or regonal stage (non-metastatc) The prmary outcome s the recept of IMRT versus another form of radaton therapy. The prmary ndependent varable s provder type. We classfed a patent as recevng treatment at a freestandng clnc f her ntal radotherapy clam appeared n the Natonal Clams Hstory fle (freestandng clncs bll as physcan offces). All other patents were classfed as treated at hosptal-based clncs, whch bll as hosptal outpatent departments. We used a smlar approach to categorze the type of provder where the patent receved surgery. Fgure 2 shows that the share of patents recevng treatment at freestandng clncs dd not change over the study perod. 10

12 Fgure 2: The share of patents treated at freestandng clncs Percent recevng treatment at freestandng clncs Year of surgery Trends n treatment patterns Fgure 3 shows the proporton of patents recevng IMRT by provder type. For ths descrptve analyss, we nclude women dagnosed after Intally, patents n hosptal-based clncs were slghtly more lkely to receve IMRT. However, by 2008, 29% of patents treated n freestandng clncs receved IMRT compared wth only 12% percent of patents treated n hosptal-based clncs. 11

13 Fgure 3: The share of patents recevng IMRT 35 Freestandng Percent recevng IMRT Hosptal-based Year Patents who dd not receve IMRT ether underwent conventonal beam radaton or brachytherapy. Brachytherapy requres the mplantaton of a catheter to delver the radoactve seeds. In breast cancer patents the mplantaton typcally occurs durng surgery, whch precedes radotherapy, and so radaton oncologsts have less nfluence over the use of brachytherapy. The share of patents recevng brachytherapy was 10.6% n freestandng clncs and 10.4% n hosptal-based clncs. Regresson-adjusted dfferences We estmated a probt regresson to measure dfferences n the recept of IMRT between freestandng and hosptal-based clncs, adjusted for observable patent characterstcs. Table 2 presents sample means of the varables ncluded n the model. Most of the markers of dsease severty tumor sze, whether cancer s detectable n the lymph nodes near the breast, and whether the stage at dagnoss s local or regonal are smlar between patents treated n hosptal-based and freestandng clncs. 12

14 Table 2: Patent characterstcs Radotherapy clnc type All patents Freestandng Hosptal P-value % Freestandng clnc Left-sde tumor Tumor sze >2 cm Postve lymph nodes Local stage ER postve <0.01 Age Race <0.01 Whte Black Asan Hspanc Other Regon <0.01 Pacfc East North Other Medcad coverage <0.01 Rural/less urban <0.01 Year N 23,123 8,132 14,991 ER postve: estrogen receptor postve tumor. 13

15 The frst column of Table 3 dsplays margnal effects from a probt regresson. The dependent varable equals 1 f the patent receved IMRT and 0 f the patent receved another form of radotherapy. Standard errors are clustered at the clnc level. Controllng for patent characterstcs, patents who receved radotherapy n freestandng clncs are 18 percentage ponts more lkely to receve IMRT. The proporton of patents recevng IMRT s 7 percentage ponts hgher among patents wth tumors n the left breast. Most of the coeffcents on the other varables are small and nonsgnfcant. Table 3: Margnal effect on the lkelhood of recevng IMRT from probt regressons Probt IV probt Margnal effect (95% CI) IV probt, patents who receved surgery n hosptals only Freestandng clnc 0.18 (0.11, 0.25) ** 0.17 (0.03, 0.32) * 0.16 (0.03, 0.30) * Left-sde tumor 0.07 (0.05, 0.09) ** 0.08 (0.06, 0.10) ** 0.08 (0.06, 0.10) ** Tumor sze >3 cm 0.00 (-0.02, 0.01) 0.00 (-0.01, 0.02) 0.01 (-0.01, 0.03) Postve lymph nodes 0.00 (-0.05, 0.05) 0.00 (-0.05, 0.04) 0.00 (-0.05, 0.05) Local stage (-0.06, 0.03) (-0.07, 0.02) (-0.07, 0.03) ER postve 0.00 (-0.02, 0.02) 0.01 (-0.01, 0.02) 0.01 (-0.01, 0.03) Age (-0.00, 0.02) 0.01 (0.00, 0.02) * 0.01 (0.00, 0.02) * Age (-0.04, 0.01) 0.00 (-0.03, 0.02) (-0.03, 0.02) Black 0.03 (-0.01, 0.07) (0.01, 0.08) ** 0.04 (-0.00, 0.08) + Asan (-0.08, 0.02) (-0.15, -0.01) * (-0.14, 0.01) + Hspanc (-0.11, 0.04) (-0.12, 0.00) (-0.12, 0.02) Other (-0.09, 0.01) (-0.13, -0.02) ** (-0.14, -0.02) * Medcad coverage (-0.06, -0.00) * (-0.06, 0.00) (-0.07, -0.01) * Rural/less urban (-0.11, -0.01) * (-0.11, -0.00) * (-0.12, -0.01) * (0.00, 0.05) * 0.02 (0.00, 0.05) * 0.02 (-0.00, 0.04) (-0.01, 0.04) 0.02 (-0.01, 0.04) 0.01 (-0.02, 0.03) (-0.02, 0.04) 0.01 (-0.02, 0.04) 0.00 (-0.03, 0.03) (-0.03, 0.04) 0.00 (-0.03, 0.04) (-0.04, 0.03) (-0.04, 0.03) (-0.04, 0.03) (-0.05, 0.02) N 23,123 23,123 19,092 +p<0.10;*p<0.05;**p<

16 We estmated an nstrumental varables model to confrm that dfferences n the recept of IMRT are not based by unobserved patent characterstcs. We used the type of provder where patents receved surgery as an nstrument. Patents receve surgery n one of three types of provders 1) freestandng surgery centers, 2) hosptals wth radaton oncology clncs, and 3) hosptals that do not have radaton oncology clncs. We hypotheszed that patents who receved surgery n hosptals wth radaton oncology clncs were more lkely to receve radotherapy at a hosptal-based clnc. The dentfyng assumpton s that the characterstcs of patents that determne the type of faclty at whch they receve surgery are unrelated to the factors that determne whether they receve IMRT, condtonal on radotherapy clnc type. The excluson restrcton would be volated f patents wth unobservable tumor characterstcs related to ther ablty to beneft from IMRT were more or less lkely to receve surgery n hosptals wth radotherapy clncs. To the extent that patents wth unusual tumor anatomy are more lkely to be referred to a partcular type of faclty, they are probably more lkely to go to a large hosptal that has an onste radotherapy clnc. However, lmtng the sample to women undergong breast conservng surgery reduces varaton n tumor anatomy. Fgure 3 shows the proporton of patents who receve post-operatve radotherapy by surgery provder type. Compared to patents who receve surgery n freestandng surgery centers and patents who receve surgery n hosptals that do not offer radotherapy, patents who receve surgery n hosptals that do offer radotherapy are about 4 and 3 percentage ponts more lkely to receve post-operatve radotherapy. However, these dfferences are small n percentage terms gven that 78% of patents receve post-operatve radotherapy. 15

17 Fgure 4: Proporton of patents undergong post-operatve radotherapy by surgcal provder type 85 Percent undergong radotherapy Hosptal, w/o radotherapy Hosptal, w/ radotherapy Freestandng Year of surgery Table 4 shows patent characterstcs by surgery provder type (as opposed to radaton therapy provder type). Patents treated at freestandng and hosptal-based clncs look farly smlar, at least based on observable characterstcs. What dfferences do exst suggest that patents n freestandng clncs have worse prognoses. However, the tumor characterstc that s most closely related to patents ablty to beneft from IMRT, tumor lateralty, does not dffer. 16

18 Table 4: Patent characterstcs by surgery provder type Freestandng Surgery provder type Hosptal wthout radotherapy % Hosptal wth radotherapy P-value Left-sde tumor Tumor sze >3 cm <0.01 Postve lymph nodes <0.01 Local stage <0.01 ER postve <0.01 N 4,031 6,066 13,026 Table 5 shows the proporton of patents recevng radotherapy n a freestandng clnc and IMRT across surgery provder types. Among patents recevng surgery n a freestandng surgery center, 39.1% receve radotherapy n a freestandng clnc. Among patents recevng surgery n hosptals wthout a radotherapy clnc, 68.3% receved radotherapy n a freestandng clnc compared to only 18.5% of patents who receved surgery n a hosptal wth a radotherapy clnc. Patents treated at hosptals wthout radotherapy centers are more lkely to receve IMRT, reflectng the fact that 68.3% receved radotherapy n freestandng clncs. Condtonal on radotherapy clnc type, IMRT use s smlar across surgery provder types, provdng support for the valdty of surgery settng as an nstrument. 17

19 Table 5: Recept of IMRT by surgery provder type Radotherapy faclty All Freestandng Surgery provder type Hosptal wthout Hosptal wth Freestandng clnc 35.2% 39.1% 68.3% 18.5% IMRT 18.5% 17.3% 25.6% 15.6% IMRT by provder type Freestandng 30.6% 29.0% 31.8% 29.6% Hosptal 12.0% 9.8% 12.2% 12.4% N 23,123 4,031 6,066 13,026 The second set of regresson results n Table 3 shows margnal effects from an IV probt model, ft n a sngle step usng maxmum lkelhood, wth standard errors clustered at the clnc level. The nstrument s a dchotomous varable equal to 1 f the patent receved surgery at a hosptal that offers radaton therapy. The coeffcent on the nstrument from a frst stage lnear probablty model that assessed the mpact of the nstrument and the other ndependent varables on the lkelhood of recevng radaton therapy n a freestandng clnc s (.e., 38 percentage ponts) and s sgnfcant at the 1% level. The F-statstc assocated wth the nstrument s 152. Results from the IV probt model are smlar to those from the baselne model. The thrd set of regresson results are from an IV probt model estmated on the subsample of patents who receved surgery at hosptals, where observable patent characterstcs are smlar between hosptals wth and wthout radotherapy clncs. Margnal effects are smlar to those from the other models. Followng Davd and Neuman (2011), we also examned dfferences n the use of IMRT by faclty type among physcans who practce n both types. Among the 998 physcans who treated at least 5 patents over the study perod, there are 78 who treated at least 20% but no more than 80% of ther patents n freestandng clncs. We term these physcans spltters, reflectng the fact that they treated patents n both settngs. We estmated the mpact of treatment settng on the lkelhood of recevng IMRT among patents treated by spltters. Patents treated by spltters n freestandng clncs were 12 percentage ponts (95% CI: 5 to 19 percentage ponts) 18

20 more lkely to receve IMRT. Ths result provdes addtonal evdence that there s a causal relatonshp between clnc type and treatment. Practce settng and personalzed medcne Fgure 5 shows clnc-level treatment patterns by tumor lateralty for clncs that treated at least 30 patents between 2008 and Crcles above the 45 degree lne ndcate clncs where the share of patents wth left-sde tumors who receved IMRT exceeds the share of patents wth rght-sde tumors who receved IMRT. There s substantal heterogenety n clnc treatment patterns. Freestandng clncs seem to be dsproportonally represented among clncs that have IMRT use rates above 50% and cluster around the 45 degree lne. Fgure 5: Radology group-level IMRT rates Left sde o Rght sde Hosptal-based Freestandng 45 The sample ncludes radology groups that treated at least 30 breast cancer patents over the study perod and used IMRT n at least one. 19

21 Table 6: Dfferences n the use of IMRT by clnc type and tumor lateralty Radotherapy clnc type Freestandng Hosptal Dfference % Rght 26.1 (24.8, 27.5) 8.5 (7.8, 9.1) 17.6 (16.2, 19.1) Left 35.1 (33.6, 36.5) 15.3 (14.5, 16.1) 19.7 (18.1, 21.4) Dfference 8.9 (7.0, 10.9) 6.9 (5.8, 7.9) 2.1 (-0.2, 4.3) Table 6 shows unadjusted rates and dfferences n the use of IMRT by clnc type and tumor lateralty. Physcans n both types of clncs personalzed medcne, n the sense that patents wth left-sde tumors were more lkely to receve IMRT. However, patents were more lkely to receve IMRT f they were treated n a freestandng clnc, regardless of tumor type. In fact, patents wth rght-sded tumors n freestandng clncs were more lkely to receve IMRT compared to patents wth left-sded tumors treated n hosptal-based clncs. The dfference n IMRT use between patents wth left- and rght-sde tumors s 2.1 percentage ponts hgher n freestandng clncs. The adjusted dfference, from a probt model that ncludes an nteracton between clnc type and tumor lateralty, s 2.2 (-2.0 to 6.2) percentage ponts. The confdence nterval s wde, but the pont estmate s consstent wth the predcton that treatment rates among hgh-beneft patents are more responsve to ncentves 20

22 Fgure 6: The share of patents recevng IMRT, by tumor lateralty 40 Freestandng, Left Percent recevng IMRT Freestandng, Rght Hosptal-based, Left Hosptal-based Rght Year Fgure 6 dsplays trends n the share of patents recevng IMRT by lateralty. Interestngly, dfferences n the use of IMRT between patents wth left- and rght-sde tumors grew larger over tme, at least untl Ths contrasts wth typcal patterns of use of new technologes, where ntally physcans use them n patents most lkely to beneft and then gradually expand use to other patents. Physcans, especally ones n hosptal-based clncs, appear to have become more dscrmnatng over tme. Perhaps these patterns reflect greater attenton to cardac-related morbdty from radotherapy. Conclusons Personalzed medcne has the potental to help physcans better match patents to treatments and reduce costs n the process. However, the effects of new tests and algorthms wll depend on the fnancal ncentves facng physcans. When physcans face ncentves to nduce demand, addtonal nformaton may lead to hgher levels of treatment. We cannot test the predcton drectly, but the data are consstent wth another predcton: that treatment rates n the hgh beneft patent group are more responsve to ncentves. 21

23 Consstent wth pror studes, we fnd that patents treated n freestandng clncs were sgnfcantly more lkely to receve IMRT. Our nstrumental varables analyss and analyss of treatment patterns by physcans who treat patents n both clnc types suggests that the relatonshp s causal. We fnd that women wth rght-sde tumors treated n freestandng clncs were more lkely to undergo IMRT than women wth left-sde tumors treated n hosptal based clncs. Ths result mples that payers wll need to lnk coverage polces to the results of personalzed medcne tests (and enforce these polces) f they hope to leverage personalzed medcne to reduce overtreatment. Smply requrng that physcans perform the tests may be nsuffcent when tests are mperfect. Broadly speakng, our results hghlght the challenge of maxmzng the beneft of tests that mperfectly predct patents ablty to beneft from a treatment n an envronment where physcans compensaton s lnked to the volume or ntensty of treatments they provde. References Amercan Socety for Radaton Oncology. Choosng Wsely. Fve Thngs Physcans and Patents Should Queston Bekelman, Justn, Gta Suneja, Thomas Guzzo, Crag E. Pollack, Katrna Armstrong, and Andrew J. Epsten, Effect of practce ntegraton between urologsts and radaton oncologsts on prostate cancer treatment patterns. Journal of Urology 190(1), Baker, Laurence C., Acquston of MRI Equpment by Doctors Drves up Imagng Use and Spendng. Health Affars 29, Barro, Jason R., Robert S. Huckman, and Danel P. Kessler, The Effects of Cardac Specalty Hosptals on the Cost and Qualty of Medcal Care. Journal of Health Economcs 25, Carreyrou, John, and Maurce Tamman, A devce to kll cancer, lft revenue. Wall Street Journal, December 7, Davd, Guy, and Mark Neuman, Physcan Dvson of Labor and Patent Selecton for Outpatent Procedures. Journal of Health Economcs, March (2),

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