Innovation Diffusion under Budget Constraints: Microeconometric Evidence on Heart Attack in France

We study the diffusion of innovative procedures for heart attack treatment, focusing on its impact on the distributions of the cost and length of hospital stays. We perform microsimulations on a sample of 5,681 stays in French public hospitals to evaluate the impacts of adoption of new techniques by hospitals, dissemination of new techniques within hospitals, and changes in patients' characteristics. Between 1994 and 1997, French public hospitals faced two main causes of rise in costs: diffusion of innovative procedures and a worsening of patients' state. However, they were financed by a global budget, and their budgets increased very slowly. We show that they deal with their financial constraints by reducing greatly the length of stays for patients at the bottom of the distribution. This appears to have enabled hospitals to finance the diffusion of angioplasty. Obviously, such a strategy cannot be sustained in the long run without jeopardizing the quality of care.