The effect of competition and regulation on the diffusion of major medical technologies in German and United States hospital

The effect of competition and regulation on the diffusion of four technologies (CT-scanner, ultra sound, extracorporeal shock wave lithotripter, and mega voltage radiation therapy) in hospitals in the United States and West Germany is investigated. Although expensive technologies improve diagnosis and treatment outcomes, they contribute to increasing health care costs. Competition or regulation has been prescribed to moderate the cost increase.;The present analysis capitalizes on differences in market structure and regulation between the U.S. and Germany as well as across states in each of the two countries to uncover regulatory and competitive effects on the diffusion of innovations.;A twenty-one year panel was constructed from the American Hospital Association's annual Hospital Surveys. The German data are original data, collected by means of a hospital questionnaire. Additional information was obtained from secondary sources. Hypotheses relating regulation and competition to the speed with which technologies are adopted are tested using hazard models, which offer the advantage over previous research of allowing for unmeasured heterogeneity and controlling for the effect of time varying covariates on the rate of adoption.;The results show that competition has little effect on the adoption of treatment technologies, but in the U.S. increases the speed with which diagnostic technologies are adopted, suggesting a medical arms race. Certificate of Need regulation appears to slow the adoption of treatment technologies. In both countries CON laws are a reaction to the adoption behavior of hospitals. This suggests that policies designed to affect the purchase of expensive equipment by hospitals should distinguish between treatment and diagnostic technologies.