ABSTRACT
The twentieth century has recorded a major improvement in the health of Americans and citizens of other industrialized nations. The emphasis on product innovation in industrial research and development is a natural result of the market forces. Although research from a variety of sources contributes to pharmaceutical innovation, almost all new drugs are developed by private firms. For product innovations that are embodied in capital equipment, such as magnetic resonance imaging, utilization by physicians requires a prior decision to purchase the equipment. Concern about the increase in health care expenditures has resulted in reforms of the reimbursement system to contain costs. These reforms are likely to have an impact on the process of new product development. The design of alternative reimbursement systems is likely to be dominated by the immediate considerations of whether the system encourages overuse of medical services or whether the system provides insufficient or inferior care.
