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Health Policy and Technology (2013) 2, 168–173

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nCorresponding auics and Political ScieWC2A 2AE, UK. Tel.:

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Use of innovation payments to encouragethe adoption of new medical technologiesin the English NHS

Corinna Sorensona,b,n, Michael Drummondb,c, Grahame Wilkinsona,b

aLondon School of Economics and Political Science, London, UKbEuropean Health Technology Institute for Socio-Economic Research, Brussels, BelgiumcUniversity of York, York, UKAvailable online 19 June 2013

KEYWORDSMedical technology;Reimbursement;Financing;Innovation

ont matter & 20130.1016/j.hlpt.2013

thor at: LSE Healtnce, Cowdray Hou+44 20 7955 7397.sorenson@lse.ac.

AbstractObjectives: This study aimed to investigate the use of innovation payments in the English NHS.Methods: A structured on-line survey was developed to explore the use of innovationpayments. The survey was disseminated to NHS hospital finance managers. A total of 20surveys (n=20) were returned.Results: The majority (70%) of responding hospitals have applied for innovation payments. Inone-third of cases, the payment was for medical devices, followed by drugs (31%), diagnostics(19%), and other technologies (15%). Innovation payments were generally requested becausethe existing HRG tariff did not reflect the cost of the technology. Processes for determining thepayment varied across hospitals, with rates based on supporting evidence of the technology'sbenefits most common. While a good concept in principle, only about one-third of respondentsbelieved innovation payments were effective in meeting their aims in practice.Conclusions: Improvements to the current approach to innovation payments are needed.& 2013 Fellowship of Postgraduate Medicine. Published by Elsevier Ltd. All rights reserved.

Introduction

Technological innovation in health care is highly valued bypatients, clinicians, politicians, and the general public.Advances in medical technology have greatly improved theability to prevent, diagnose, and treat a large number ofdiseases and conditions reducing mortality and increasing

Fellowship of Postgraduate Medi.05.001

h, London School of Econom-se, Houghton Street, London; fax: +44 20 7955 6803.uk (C. Sorenson).

quality of life [8,6]. In parallel, however, new technologiesare considered a significant driver of increasing health carecosts [7,15,4,10,17] and policies have been devised with theaim of balancing technological innovation and affordability[20].

The hospital payment system is one important potentialfactor influencing the adoption and use of technologicalinnovation in health care [11,21,3], especially as many newtechnologies are first used in the inpatient sector. Prospectivepayment systems, mainly the use of diagnosis-related groups(DRGs), are the principal means of hospital payment in themajority of OECD countries. Each DRG is associated with aspecific cost weight or tariff, which is usually based on the

cine. Published by Elsevier Ltd. All rights reserved.

169Use of innovation payments in the English NHS

average level of resources used to treat patients within thatDRG. These fixed, prospective payments encourage hospitalsto operate efficiently, but also put hospitals at risk for highercosts above the payment rate. Conversely, hospitals benefit bykeeping costs below.

In the literature, there is general consensus that DRG-based payments incentivize hospitals to reduce costs peradmission and/or to increase the number of admissions[1,16]. Concerning the effect of such payments systems ontechnological innovations, most studies assume that theyincentivize the adoption of and use of these interventions,which lead to reduced costs per admission and do notnegatively affect quality of care [22,13]. However, whentechnologies are initially introduced into the health system,information about their performance and costs in routinepractice is unavailable [14]. Until sufficient information isgenerated, hospitals are reimbursed based on historic costpatterns that do not always adequately reflect currentservice provision, particularly the changing use of technol-ogy. This may provide disincentives for hospitals to intro-duce cost-increasing technologies, even if they improve thequality of care, until the reimbursement system is updatedto compensate for their additional costs [20]. Recentresearch suggests that while most European countriesupdate their classification systems annually, albeit withsome variation across countries, the data used for updatingand adjusting cost weights and prices are normally twoyears old or more [19]. Moreover, the use of cost-shiftingtechnologies may be hindered. For example, some technol-ogies may allow a procedure to take place in another setting(e.g., inpatient to outpatient). However, such settings maybe outside the DRG system and/or reimbursed at lowerrates, which would disincentivize use of the technology,despite the fact that use in an ambulatory or communitysetting may reduce the overall cost of care.

Consequently, most countries with DRG-based hospitalpayment systems have developed mechanisms to accountfor technological innovation in health care, in order to avoidcompromising patient access to quality-increasing, but cost-increasing technological innovations [20,5,12]. One parti-cular mechanism is the use of short-term payment arrange-ments to provide additional funding to hospitals usingcertain medical technologies, in order to encourage adop-tion where existing financing may be absent or insufficient.There are different types of such arrangements employedby European countries, including separate payments, sup-plementary payments, and cost-outlier funding [19].

Separate payments involve either additional funding,negotiated nationally or locally, or retrospective reimburse-ment of hospital reported total costs, typically in cases wheninformation about costs and effects of a technology is stillrelatively limited. These payments fall outside the DRGsystem and therefore do not require an assigned procedurecode, which allows a high degree of flexibility with regardto the conditions under which payments are granted. Suchpayments are currently employed in England, France,Germany, Ireland, and the Netherlands. In contrast toseparate payments, supplementary and cost-outlier fundingfocus on the general DRG system by excluding certain high-cost technologies and reimbursing them separately to alle-viate substantial differences between incurred costs andstandard payments rates. Supplementary payments, which

are used in England, France, Germany, the Netherlands, andPortugal, are made on top of the standard DRG payment rate,which can be negotiated or take the form of retrospectivereimbursement of reported costs above the standard tariff ofindividual providers. Cost-outlier funding retrospectivelyreimburses costs above a statistically determined thresholdor provides payments based on weighted or negotiated costs.This type of arrangement is only offered in a few countries,including Finland and some Swedish county councils.

Previous research has focused on describing these typesof short-term funding instruments and identifying in whichcountries they are employed [19,18]. However, there arefew available studies that examine the actual implementa-tion and use of such payment arrangements in selectcountries and for certain types of technologies. This studyaims to meet this gap by exploring the use of separatepayments for medical technologies in the English NationalHealth Service (NHS). We focus in particular on the use ofseparate payments applied to medical technologies,because there is often limited evidence on the comparativebenefits and costs of these technologies when they firstcome to market. This is largely due to European regulatorystandards for medical technologies, which do not requireevidence on relative efficacy, effectiveness, or cost-effectiveness for market authorization [2,23]. Rather, med-ical technologies must demonstrate adequate performanceand safety only. However, given that patient access for newand innovative technologies is largely dependent onnational coverage and reimbursement determinations,which are increasingly underpinned by such evidence, theuse of separate payments may provide a viable mechanismto make innovative devices available to patients whileadditional data is collected to inform longer-term financingarrangements, such as the creation of a new DRG or updatedtariff.

The paper is structured as follows: we first provide a briefoverview of the separate payment mechanism in England,describing associated criteria and procedures, followed by apresentation of our research methods. The paper then turnsto the study findings and closes with a discussion of theopportunities and challenges offered by separate paymentsand ways to improve their use to support the adoption ofnew medical devices in the NHS.

Overview of innovation payments in theEnglish NHS

Introduced in 2003, the prospective Payment by Results(PbR) system was developed to better link the allocation offunds to hospitals to the activity they undertake through theuse of Healthcare Resource Groups (HRGs). Given that HRGtariffs are based on historic data on clinical practice, newtechnological innovations are often excluded from PbR.Local ‘flexibilities’ were therefore introduced to allowcommissioners and providers to agree prospectively on localfunding arrangements to reflect developing practice.

‘Innovation payments’ were developed to allow suchfunding for new devices, medicines, and other technologiesand treatments, including new applications of existingtechnologies. They provide additional payments for use ofthe innovation that is considered better than the standard

C. Sorenson et al.170

care covered by the national tariff [9]. In such instances,commissioners and providers must agree that payment isintended primarily for a new technology, although a limitedof other technologies may be eligible, including those codedto a relatively high-volume HRG where the activity withinthe HRG is heterogeneous in nature (e.g., myocardialinfarction), those delivered in a limited number of centers,and technologies of disproportionate cost relative to theHRG tariff. Moreover, innovation payments may be appro-priate if new technology allows procedures normally carriedout in the inpatient setting to be conducted in outpatientcare. Payments would then cover costs over and above theexisting outpatient tariff (e.g., cost of a necessary device).

In general, agreed innovation payments must meet anumber of criteria and conditions. Firstly, in agreeingpayments, commissioners should have regard to any existingevidence on the cost-effectiveness of the technology,including any available guidance from the National Institutefor Health and Clinical Excellence (NICE), Health TechnologyAssessments (HTAs), or other relevant national bodies. Ifappropriate, the device or procedures should be included onthe NICE list of Interventional Procedures. Secondly, com-missioners should also consider the procurement arrange-ments for devices identified as being suitable for funding.Thirdly, the amount of the innovation payment fundingshould be agreed in advance and only relate to the addi-tional costs associated directly with technology and its userelative to the cost of the alternative treatment. Finally,payment arrangements are required to be fixed for amaximum of three years. In exceptional circumstances,payments may be extended, with agreement from bothcommissioners and providers. To ensure longer-term fundingarrangements for new technologies, the details of agreedinnovation payments are encouraged to be sent to theDepartment of Health for consideration in subsequentphases of PbR development.

Methods

A structured on-line survey instrument was developed togain insights into the use of innovation payments. Thesurvey was developed based on identified gaps in theliterature and on some initial findings from a parallel studyon international DRG-based hospital systems led by two ofthe authors (CS and MD). The survey included a mix ofclosed- and open-ended questions on the use of andinvolvement in innovation payments; the agreement pro-cess, such as details on what technologies were involvedand why, the specifics of the arrangement, time to agree-ment, procedures for determining payment rates, and theduration of the innovation payment; cost-benefit considera-tions and whether evidence of value was used in determiningpayments; impacts on existing financing and procurementsystems; and, perceptions of the effectiveness of innovationpayments to encourage the adoption of new technologies intothe NHS. The survey instrument is available by request fromthe authors.

An invitation to participate with a link to the on-linesurvey was disseminated to a targeted list of 196 NHShospital Finance Managers via a senior official affiliatedwith their professional association (Healthcare Financial

Management Association). Invitations were disseminated inthree different phases to ensure the survey reached as manymanagers as possible. Several email reminders were sentout to participants to encourage timely return of thesurveys. We also capitalized on an opportunity to attend ameeting of the London Providers Group, a consortium ofLondon hospital Finance Managers responsible for the PbRsystem, to disseminate the survey and obtain their directfeedback on innovation payments and ideas for improve-ment. Overall, a total of 20 surveys (n=20) were completedand returned. Where reported, the majority were Founda-tion Trust hospitals (86%), followed by teaching hospitals(14%). Respondents were dispersed across the country:West Midlands (n=1), Northeast (n=1), Southwest (n=1),Southeast (n=2), London (n=4), East of England (n=1),Northwest (n=2), and East Midlands (n=2).

The survey results were collated in Microsoft Excel. Theinterview data were analyzed across the main topicscovered by the survey as noted above, and key themesand examples of best practice were identified.

Results

Experience with innovation payments

The majority (70%) of responding hospitals have soughtsupport from commissioners to approve innovation pay-ments. In 35% of cases, the payment arrangement was formedical devices, followed by drugs (31%), diagnostics (19%),and other technologies (15%). Respondents highlightedspecific technologies where innovation payments have beennegotiated, including Transcatheter Heart Valves, Neuromo-dulation Implants, Renal Nerve Ablation Therapy, CervicalDisk Implants, and Lower Limb Trauma Reconstruction. Inmost cases (85%), innovation payments were requestedbecause the existing HRG tariff did not reflect the cost ofthe technology or procedure.

Terms of negotiated payments

Under the negotiated terms, 79% were accepted for innova-tion payments and received full or partial funding. Theprocesses for determining the payment rate varied betweenhospitals. In 64% of cases, rates were determined based onsupporting evidence, while another 29% and 7% weredetermined using the manufacturer's list price and directnegotiations with the supplier, respectively. As highlightedby one respondent, negotiating payments for a particulartechnology is fairly straight-forward, but becomes challen-ging in cases where a device is used within a procedure andthe procedure itself is not included (or paid for sufficiently)in the PbR system. In these contexts, commissioners requiresignificantly more information to support the request for aninnovation payment. Although the Department of Healthguidance on innovation payments requests that the impacton existing procurement arrangements be considered duringthe negotiation process, only 36% of respondents did soduring their experiences with such payments.

One half of respondents indicated that it generally takesabout one to three months to agree innovation payments,while others suggested a longer time frame of four to six

171Use of innovation payments in the English NHS

months (20%) or over a year (14%). The remaining respondentsemphasized that the time taken is often context dependent,depending on the evidence required or available to supportthe request. Once negotiated, payment arrangements aretypically put into place for one to three years.

The Department of Health recommends that all agreedinnovation payments be reported back to them to not onlymonitor the use of this particular payment flexibility, butimportantly to use any associated information generatedduring the payment period to inform ongoing PbR develop-ment. However, only about one-third of respondents reportinformation on innovation payments to the Department.More commonly, the specifics on such arrangements arecommunicated to the Head of Finance within the hospital orassociated Primary Care Trust (PCT). In no cases had theterms of the agreement been reported to relevant procure-ment managers.

Use of evidence in determining payments

Respondents indicated that it was not uncommon forcommissioners to request evidence before making a decisionon whether to accept or reject requests for innovationpayments. Around 79% of respondents noted that evidenceon the therapeutic benefit(s) of the technology underconsideration is used in agreeing payments. Over half(56%) of respondents indicated that evidence on cost-effectiveness or cost-savings is also an important considera-tion when negotiating payments. Other evidence consideredincludes reduced hospital admissions and length of stay. Inall cases, NICE guidance is consulted, where available, as aprimary source of evidence on the clinical- and cost-effectiveness of a technology. Other sources of evidenceconsidered include available clinical and cost-effectivenessstudies and HTAs conducted in other countries. The majority(64%) of respondents noted that any new available evidencecan be submitted and considered even after the innovationpayment is initially agreed. Such evidence assumes a role inarguing for additional or prolonged financial support for useof the technology or informing future PbR updates orrevisions.

Perceptions of effectiveness

Respondents generally had some reservations concerning theuse of innovation payments. Although all respondents agreedthat innovation payments make good sense in principal, onlyabout one-third (36%) agreed that they effectively supportthe adoption of new technologies. In particular, respondentsidentified a number of barriers in the actual use andimplementation of innovation payments. For example, somecommissioners are not inclined to agree payments and fundanything above the PbR tariff. This may be the result ofdifferences in available funds or the preferences and knowl-edge level of individual commissioners, irrespective of thevalue afforded by the technology under consideration.Commissioners can also employ different processes andstandards for agreeing innovation payments. Taken together,respondents highlighted that innovation payments, as cur-rently fashioned, may exacerbate “post-code prescribing”

across the NHS, resulting in regional or local variations inpatient access to new technology.

Other barriers relate to the differing perspectives onvalue held by different stakeholders. Physicians, for exam-ple, tend to focus on the patient-level benefit s of atechnology, while managers and commissioners center onfunding a broad package of services for their respectivearea and tend to think in annual budgetary cycles. This canlead to protracted discussions on the viability of an innova-tion payment, which can delay or prevent agreement.

Finally, a number of respondents (36%) believed thatinnovation payments advantaged certain technologies orproviders over others. In particular, innovation paymentsmay be more frequently used by teaching or academichospitals, which tend to use new technologies earlier andmore often than district general hospitals. These entitiesmay also have better access to clinical evidence to supportrequests for innovation payments. In addition, it was notedthat there seems to be a greater willingness amongstcommissioners to agree funding for new drugs over othertechnologies.

Discussion

This study demonstrates that innovation payments are beingused by hospitals within the English NHS, with the aim ofencouraging the adoption of technological innovation.Although these short-term payment instruments providesome degree of flexibility, improvements are needed, inorder to realize their potential for meeting this objective.

First, respondents highlighted that given innovation pay-ments are negotiated locally, with varying criteria andprocesses for agreement, geographic variations in thefunding of and patient access to new technologies mayresult. Differences in access may not necessarily be inap-propriate if appropriately aligned with variations in localpatient or organizational needs, but efforts should be madeto ensure that differences are not attributable to thevariable effectiveness and efficiency of local proceduresfor determining payments. To this end, managers alsoexpressed concern regarding the knowledge or expertiseof commissioners to interpret and apply any supportingevidence to agree payments and to ensure appropriatepayment amounts. Moreover, the varying interest of com-missioners to support innovation and dedicate time andresources to agree payments was noted as problematic.Taken together, respondents maintained that these issueshindered the success of innovation payments.

Consequently, shifting the oversight of innovation pay-ments from the local to national level (i.e., Department ofHealth or via the recently formed NHS Commissioning Board)may result in a more consistent, transparent, efficient, andequitable system. Greater centralization at the national levelwould likely allow greater standardization of the eligibilityand evidence criteria required for approval, and for paymentsto be agreed on demonstration of value as opposed to thedivergent interests of commissioners (and providers) or thefinancial situation of the locality and the performance of thehospital trust against general NHS standards. Agreementsmade at the national level could potentially cover all Trusts,which would have the added benefit of removing some of the

C. Sorenson et al.172

administration burden on local authorities involved in agreeinginnovation payments. One respondent mentioned that such anapproach would better align with the “macro-orientation”that underpins and guides the PbR system, which entails theuse of a national tariff fixed prices that reflect nationalaverage prices for hospital procedures.

National determination of innovation payments may alsoallow for improved collection of evidence on medical technol-ogies and subsequent use of evidence to inform adjustments orupdates to the PbR system. For example, national-level analystsand decision makers may have access to greater resources andexpertise to gather and assess data on the benefits and costs ofmedical technologies. It may also allow for greater consistencyin the evidence required or requested to support agreementsfor innovation payments. Another benefit would likely be amore formal procedure for ensuring that any information onagreed innovation payments or data collected during thepayment duration are communicated to the Department ofHealth and fed into the existing PbR system. This is particularlyimportant, given that our findings highlighted the current lackof reporting of innovation payments to national authoritiesinvolved in PbR development.

Furthermore, a national process could be established to helpfacilitate communication between hospital trusts involved ininnovation payments, including information on best practices,terms of negotiated agreements, or available evidence onparticular devices. It is also worth noting the potential down-sides of a more centralized process for innovation payments.For example, doing so may hinder the ability of local authoritiesto fund technologies in particular need of the patient popula-tion served. Moreover, a national framework for innovationpayments may disincentivize local authorities from developinginnovative financing mechanisms to encourage the adoption ofnew technologies and particularly for those where limitedevidence on use is initially available. For example, in Ontario,Canada any hospital can refer a technology for reimbursementto the provincial HTA committee, where a central group thenundertakes a quick evaluation and makes a recommendation.

Irrespective of a national vs. local approach, greater colla-boration is required between Trusts to share available evidenceon medical technologies and information on negotiated pay-ments. This would be a good starting point to enhance theefficiency and effectiveness of determining payments and helpprotect against duplication of efforts. Local authorities couldcapitalize on available electronic resources (e.g., online for-ums, websites, email) to establish a formal and straight-forwardmechanism to share information. In addition, greater financialsupport and training need to be made available to commis-sioners, in order to ensure they are sufficiently versed in theaims and processes of innovation payments, what evidence isconsider and how, and tools to help monitor ongoing agreedpayment arrangements. Perhaps a more effective approachwould entail involvement of a broader team of experts,including physicians and hospital-based HTA experts, throughoutthe entire innovation payment process. Doing so would lendadditional expertise and human capital to the negotiationprocess to guide payments toward clinical need and (clinicaland economic) benefit and help support any associated datacollection, monitoring, and evaluation.

Although it appears that the negotiation process forinnovation payments generally involves consideration ofavailable evidence on the benefits and costs of new

technologies, it remains unclear what level of evidence, ifany, is required and what evidence is most influential inapproving payments. Moreover, future research is needed toelucidate whether evidence standards differ by technologytype (e.g., drugs vs. devices) and, importantly, if healthoutcome and/or cost data is collected during the period ofthe innovation payment.

A final area of improvement is to work toward widercommunication about the availability of innovation pay-ments, expectations regarding supporting evidence submis-sion and collection as well as on national reporting, andways for local authorities to exchange information on theirexperiences with innovation payments. Comments from therespondents supported our initial impression that the avail-ability and specifics of innovation payments are not wellknown throughout the NHS.

Finally, it is worth noting the limitations of our study. Inparticular, our respondents largely comprised a conveniencesample of NHS hospitals, which may limit the representative-ness and generalizability of the findings. Given the smallsample, we cannot be certain that we captured all hospitalswith experience in innovation payments. Therefore, ourresults may not reflect the spectrum of payments agreed todate or range of opinions on the benefits and drawbacks of thisshort-term funding mechanism. Moreover, while we definedinnovation payments in the survey introduction, there is apossibility that some respondents confused this approach with‘PbR exclusions' in their responses. PbR exclusions are some-times granted for high-cost interventions or services, wherecosts are disproportionate relative to the relevant HRG andhigh in relation to volume. For all excluded activity, commis-sioners and providers agree local prices. The on-line surveyformat also posed some challenges. Given the lack of empiri-cal evidence on the use of innovation payments in the NHS, itwould have been ideal to conduct semi-structured interviewswith all parties involved in innovation payments to obtain amore comprehensive and in-depth understanding of associatedprocesses and outcomes. As such, further studies are neededto ascertain the particulars of agreed payments, the evidenceconsidered during the negotiation process, and the impact ofinnovation payments on technology uptake and long-termfinancing. Such research may take the form of case studieson particular technologies to better understand the specificsof agreements and to outline geographic differences in theprocesses and outcomes of innovation payments across theNHS. Despite these limitations, this research represents thefirst study to explore innovation payments in the NHS; afinancing flexibility not well understood by policy makers,academics, and, we presume, local authorities and clinicians.Therefore, the initial findings resulting from our study servesas a foundation for future research and discussion amongstinvolved stakeholders on how to best support the uptake ofnew medical technologies within the NHS.

Conclusion

Innovation payments have the potential to support the earlyuptake of new technologies in the NHS while the PbR systemevolves to account for their use and/or added costs.However, there are several issues that need to be addressedto ensure an effective process for achieving this aim. In

173Use of innovation payments in the English NHS

parallel, additional empirical research is needed to evaluatethe impact of innovation payments (and similar mechanismsin other countries) on the actual uptake of select newtechnologies and to elucidate ways to better link short-termfinancing arrangements with long-term integration of inno-vative technologies into prospective payment systems.

Author statements

The authors have no conflict of interest and ethical approvalto declare.

Funding

This study was carried out by the London School of Economicsunder an unrestricted Grant from the European HealthTechnology Institute for Socio-Economic Research (EHTI).

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