Externalities from Medical Innovation: Evidence from Organ Transplantation

We evaluate the introduction of direct-acting antiviral (DAA) therapy for Hepatitis C (HCV) on liver transplant allocation in the United States. We develop a model of listing and organ acceptance behavior for patients with both HCV-positive and HCV-negative end-stage liver disease. In the model, DAAs obviate the need for transplant for some HCV-positive patients, which shortens the waiting list, potentially benefiting HCV-negative registrants and inducing marginal HCV-negative patients to list. Using data from the universe of transplants between 2005 and 2019, we find that DAA availability resulted in an additional 5,682 liver transplants to HCV-negative recipients between 2014 and 2019, driven in part by a 37% average annual increase in HCV-negative waiting list registrations. Our estimates imply that DAAs generated $7.52 billion in positive externalities for HCV-negative patients during this period.