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 hypothesize that DAAs obviate the need for transplant for some HCV-positive patients, potentially benefiting HCV-negative registrants and inducing marginal HCV-negative patients to register. We find that DAA availability resulted in an additional 5,682 liver transplants to HCV-negative liver disease patients between 2014 and 2019, generating a positive externality of $7.52 billion. Furthermore, we show a 37% average annual increase in HCV-negative waiting list registrations. Without this behavioral response, DAA therapies would have eliminated the liver transplant waiting list.