INNOVATION AND HEALTH EXPENDITURES: SOME EMPIRICAL RESULTS FOR A DIAGNOSTIC TECHNOLOGY

Doessel, D.P.

doi:10.1080/08109028708629412

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INNOVATION AND HEALTH EXPENDITURES: SOME EMPIRICAL RESULTS FOR A DIAGNOSTIC TECHNOLOGY

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Author(s): D.P. Doessel

Publication date (Print): June 1987

Journal: Prometheus

Publisher: Pluto Journals

Keywords: health expenditure, medical technology, substitutes, complements, diagnostic tests

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Abstract

There is debate on whether the adoption of new medical technologies has been a contributing factor to rising health expenditures. This literature is critically reviewed and another approach is advocated. This alternative approach rests on the distinction between product and process innovations. It is argued that the relationship between innovations and health expenditures can be illuminated, for process innovations, by determining if they are used as substitutes. The empirical results provide no indication that alternative technologies for diagnosing diseases/conditions of the upper gastrointestinal tract have been utilised by Australian medical practitioners, operating on a fee-for-service basis, as substitutes. The study provides new empirical support for the view that medical innovations contribute to rising health expenditures.

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Journal ID (publisher-id): cpro20

Journal ID (archive): CPRO

Title: Prometheus

Subtitle: Critical Studies in Innovation

Publisher: Pluto Journals

ISSN (Print): 0810-9028

ISSN (Electronic): 1470-1030

Publication date (Print): June 1987

Volume: 5

Issue: 1

Pages: 46-62

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Publisher ID: 8629412 Coden ID: Prometheus, Vol. 5, No. 1, 1987: pp. 46–62

DOI: 10.1080/08109028708629412

SO-VID: 894693e7-484f-46a2-9c96-7c16e10a40d3

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Figures: 0, Tables: 0, References: 56, Pages: 17

NOTES AND REFERENCES

H.D. Banta and L.B. Russell, ‘Policies toward medical technology: an international review’, International Journal of Health Service, 11, 4, 1981, pp.631–52 and J. R. Richardson, ‘Technology assessment in medicine: an Australian proposal’, Prometheus, 4, 1, 1986, pp.3–24.
Guyatt G., Drummond M., Feeney D.. 1986. . Guidelines for the clinical and economic evaluation of health care technologies. . Social Science and Medicine . , Vol. 22((4)): 393––408. .
Banta H. D.. 1983. . Social science research on medical technology: utility and limitations. . Social Science and Medicine . , Vol. 17((18)): 1363––69. .
Office of Technology Assessment. . 1978. . Assessing the Efficacy and Safety of Medical Technologies . , Washington , D.C. : : Government Printing Office. .
H. V. Finberg, ‘Gastric freezing — a Study of diffusion of a medical innovation’, in Medical Technology and the Health Care System: a Study of the Diffusion of Equipment — Embodied Technology, National Academy of Sciences, Washington, D.C., 1979.
H. Abrams and B. McNeil, ‘Implications of computerised tomography (“CT scanning”)’; New England Journal of Medicine, 298, 5, 1978, pp.255–61 and H. Abrams and B. McNeil, ‘Medical implications of computed tomography (CT scanning)’, New England Journal of Medicine, 298, 6, pp.310–18 and H. D. Banta, ‘The diffusion of the computed tomography (CT) scanner in the United States’, International Journal of Health Services, 10, 2, 1980, pp.251–69.
S. A. Schroeder, ‘Magnetic resonance imaging: present costs and potential gains’, Annals of Internal Medicine, 102, 4, 1985, pp.551–53 and A.L. Hillman and J.S. Schwartz, ‘The adoption and diffusion of CT and MRI in the United States: a comparative analysis’, Medical Care, 23, 11, 1985, pp.1283–94.
Beecher H. K.. 1968. . Ethical problems created by the hopelessly unconscious patient. . New England Journal of Medicine . , Vol. 278((26)): 1425––30. .
D. Sanders and J. Dukeminier, ‘Organ transplantation: a proposal for routine salvaging of cadaver organs’, New England Journal of Medicine, 279, 8, 1986, pp.413–19 and D.F. De Stoop, ‘The law in Australia relating to the transplantation of organs from cadavars’, Australian Law Journal, 48, 1, 1974, pp.21–28.
Dworkin G.. 1970. . The law relating to organ transplantation in England. . The Modern Law Review . , Vol. 33:: 353––77. .
Monash Centre for Human Bioethics, Proceedings of the Conference In Vitro Fertilization: Problems and Possibilities, M.N. Brumby (ed), Melbourne, 1982 and I. Craft, ‘In Vitro fertilization — a fast changing technique: a discussion paper’, Journal of the Royal Society of Medicine, 75, 2, 1982, pp.253–57.
J. R. Richardson, ‘The costs and benefits of health care services: some international evidence’, in R. Mendelsohn (ed), Social Welfare Finance: Selected Papers, Centre for Research on Federal Financial Relations, Canberra, 1982, pp.139–55 and G. McLachlan and A. Maynard (eds), The Public/Private Mix for Health: the Relevance and Effects of Change, Nuffield Provincial Hospitals Trust, London, 1982.
Feldstein M. S.. 1977. . Quality change and the demand for hospital care. . Econometrica . , Vol. 45((7)): 1681––702. .
Ibid.
Fuchs V. R.. 1972. . “The growing demand for medical care. ”. In Essays in the Economics of Health and Medical Care . , Edited by: Fuchs V. R.. p. 61––8. . New York : : National Bureau of Economic Research. .
Mushkin S. J. and Landefeld J. S.. 1979. . Bio-medical Research: Costs and Benefits . , Cambridge , Mass. : : Ballinger. .
Fuchs, op. tit.
Mushkin and Landefeld, op. cit.
Davis K.. 1974. . “The role of technology, demand and labour markets in the determination of hospital costs. ”. In The Economics of Health and Medical Care . , Edited by: Perlman M.. p. 283––301. . London : : Macmillan. .
Ibid., p.289.
Ibid., p.291.
S.H. Altman and S.S. Wallack, ‘Is medical technology the culprit behind rising health costs? The case for and against’, in S.A. Altman and R. Blendon (eds), Medical Technology: The Culprit Behind Health Care Costs? National Centre for Health Services Research, Washington, D.C., 1979, pp.24–37.
M.S. Feldstein and A. TAylor, The Rapid Rise of Hospital Costs, Harvard Institute of Economic Research, Discussion Paper No. 541, 1977.
Butler J. R.G.. 1984. . The DRG hospital payment scheme: some economic aspects. . Economic Analysis and Policy . , Vol. 14((2)): 166––81. .
A. A. Scitovsky, ‘An index of the cost of medical care — a proposed new approach’, in S.J. Axelrod (ed), The Economics of Health and Medical Care, University of Michigan Press, Ann Arbor, 1964, pp. 128–47; A.A. Scitovsky, ‘Changes in the costs of treatment of selected illnesses, 1951–1965’, American Economic Review, 57, 5, 1967, pp. 1182–95; A.A. Scitovsky, ‘Changes in the use of ancillary services for “common illnesses” ‘, in S.H. Altman and R. Blendon (ed), Medical Technology: The Culprit Behind Health Care Costs?, National Centre for Health Services Research, Washington, D.C., 1979, pp.39–56; and A.A. Scitovsky, ‘Changes in the cost of treatment of selected illnesses, 1971–1981’, Medical Care, 23, 12, 1985, pp. 1345–57.
Ibid., p.1345.
Scitovsky, op. cit., 1979, p.39.
Scitovsky, op. cit., 1985, p.1355.
T.W. Maloney and D.E. Rogers, ‘Medical technology — a different view of the contentious debate over costs’, New England Journal of Medicine, 301, 26, 1979, pp. 1413–19; J.A. Showstack, S.A. Schroeder and M.F. Matsumato, ‘Changes in the use of medical technologies, 1972–1977: a study of 10 inpatient diagnoses’, New England Journal of Medicine, 306, 12, 1982, pp.706–12; and J.A. Showstack, M.H. Stone and S.A. Schroeder, ‘The role of changing clinical practices in the rising cost of hospital care’, New England Journal of Medicine, 313, 19, 1985, pp.1201–207.
H. S. Luft, ‘How do health maintenance organisations achieve their “savings”?’, New England Journal of Medicine, 298, 24, 1978, pp.1336–43; and W. P. Welch, ‘Health care utilization in HMOs: results from two national samples’, Journal of Health Economics, 4, 4, 1985, pp.293–308.
R.D. Blair, P.B. Ginsberg and R.J. Vogel, ‘Blue Cross-Blue Shield administrative costs: a study of non profit health insurers’, Economic Inquiry, 13, 2, 1975, pp.237–51; S. T. Mennemeyer, ‘Effects of competition on Medicare administrative costs’, Journal of Health Economics, 3, 2, 1984, pp.137–54; and D.E. Kass and P.A. Pautler, ‘Physician and medical society influence on Blue-shield plans: effects on physician reimbursement’, in M. Olsen (ed), A New Approach to the Economics of Health Care, American Enterprise Institute, Washington, D.C., 1981, pp.321–38.
Enthoven A. C.. 1981. . “The behavior of health care agents: provider behavior. ”. In Health, Economics and Health Economics . , Edited by: Van de Gaag J. and Perlman M.. p. 173––88. . North-Holland : : Amsterdam. .
V.R. Fuchs and M.J. Kramer, Determinants of Expenditure for Physicians’ Services in the United States 1948–68, New York, National Bureau of Economic Research, 1973.
Evans R. G.. 1974. . “Supplier-induced demand: some empirical evidence and implications. ”. In The Economics of Health and Medical Care . , Edited by: Perlman M.. p. 162––73. . London : : Macmillan. .
Fuchs V. R.. 1978. . The supply of surgeons and the demand for operations. . Journal of Human Resources . , Vol. XIII((Supplement)): 34––56. .
Richardson J.. 1981. . “The inducement hypothesis: that doctors generate demand for their own services. ”. In Health, Economics and Health Economics . , Edited by: Van de Gaag J. and Perlman M.. p. 189––214. . North-Holland : : Amsterdam. .
Carrin G. and Van Dael J.. 1984. . An empirical model of the demand for health care in Belgium. . Applied Economics . , Vol. 16((3)): 317––34. .
G.R. Wilensky and L.R. Rossiter, ‘The relative importance of physician-induced demand in the demand for medical care’, Milbank Memorial Fund Quarterly, 61, 2, 1983, pp.252–77; M. Stano, ‘An analysis of the evidence on competition in the physician services market’, Journal of Health Economics, 4, 3, 1985, pp. 197–211; and U.E. Reinhardt, ‘The theory of physician-induced demand: reflections after a decade’, Journal of Health Economics, 4, 2, 1985, pp.187–94.
Evans, op. cit., p. 162.
Ibid., pp.162–63.
Ibid., p. 163.
M. Blaug, ‘A survey of the theory of process innovations’, Economica, N.S., 30, 1, 1963, pp. 13–32.
Davies S.. 1979. . The Diffusion of Process Innovations . , Cambridge : : Cambridge University Press. .
Blaug, op. cit., p.13.
Katsoulacos Y.. 1986. . The Employment Effect of Technical Change: A Theoretical Study of New Technology and the Labour Market . , Brighton : : Wheatsheaf. .
Doessel D. P.. 1978. . An Economic Analysis of End-State Renal Disease . , Canberra : : Hospitals and Health Services Commission. .
Doessel D. P. and Sams J. J.. 1984. . Innovation in gastroenterological management: the case of cimetidine. . Prometheus . , Vol. 2((1)): 3––16. .
Doessel D. P.. 1985. . An aspect of technological assessment of diagnostic procedures of the upper gastrointestinal tract. . Prometheus . , Vol. 3((2)): 387––406. .
Doessel D. P.. 1986. . Medical diagnosis as a problem in the economics of information. . Information Economics and Policy . , Vol. 2((1)): 49––68. .
Butler J. R.G. and Doessel D. P.. 1981. . Measuring benefits in health: a clarification. . Scottish Journal of Political Economy . , Vol. 28((2)): 196––205. .
Samuelson P. A.. 1974. . Complementarity — an essay on the 40th anniversity of the Hicks-Allen revolution in demand theory. . Journal of Economic Literature . , Vol. 12((4)): 1255––89. .
H.A.J. Green, Consumer Theory, revised ed., Macmillan, London, 1976.
Hirschowitz B. J.. 1958. . Demonstrations of a new gastroscope, the fibrescope. . Gastroenterology . , Vol. 35((1)): 50––3. .
Salmon P. R.. 1972. . Endoscopic examination of the duodenal bulb: clinical evaluation of forward — and side — viewing fibreoptic systems in 200 cases. . Gut . , Vol. 13((3)): 170––5. .
Doessel, ‘Medical diagnosis as a problem in the economics of information’, op. cit.
Doessel, ‘An aspect of technological assessment…’ op. cit.

Comments

Comment on this article

[1] H.D. Banta and L.B. Russell, ‘Policies toward medical technology: an international review’, International Journal of Health Service, 11, 4, 1981, pp.631–52 and J. R. Richardson, ‘Technology assessment in medicine: an Australian proposal’, Prometheus, 4, 1, 1986, pp.3–24.

[2] Guyatt G., Drummond M., Feeney D.. 1986. . Guidelines for the clinical and economic evaluation of health care technologies. . Social Science and Medicine . , Vol. 22((4)): 393––408. .

[3] Banta H. D.. 1983. . Social science research on medical technology: utility and limitations. . Social Science and Medicine . , Vol. 17((18)): 1363––69. .

[4] Office of Technology Assessment. . 1978. . Assessing the Efficacy and Safety of Medical Technologies . , Washington , D.C. : : Government Printing Office. .

[5] H. V. Finberg, ‘Gastric freezing — a Study of diffusion of a medical innovation’, in Medical Technology and the Health Care System: a Study of the Diffusion of Equipment — Embodied Technology, National Academy of Sciences, Washington, D.C., 1979.

[6] H. Abrams and B. McNeil, ‘Implications of computerised tomography (“CT scanning”)’; New England Journal of Medicine, 298, 5, 1978, pp.255–61 and H. Abrams and B. McNeil, ‘Medical implications of computed tomography (CT scanning)’, New England Journal of Medicine, 298, 6, pp.310–18 and H. D. Banta, ‘The diffusion of the computed tomography (CT) scanner in the United States’, International Journal of Health Services, 10, 2, 1980, pp.251–69.

[7] S. A. Schroeder, ‘Magnetic resonance imaging: present costs and potential gains’, Annals of Internal Medicine, 102, 4, 1985, pp.551–53 and A.L. Hillman and J.S. Schwartz, ‘The adoption and diffusion of CT and MRI in the United States: a comparative analysis’, Medical Care, 23, 11, 1985, pp.1283–94.

[8] Beecher H. K.. 1968. . Ethical problems created by the hopelessly unconscious patient. . New England Journal of Medicine . , Vol. 278((26)): 1425––30. .

[9] D. Sanders and J. Dukeminier, ‘Organ transplantation: a proposal for routine salvaging of cadaver organs’, New England Journal of Medicine, 279, 8, 1986, pp.413–19 and D.F. De Stoop, ‘The law in Australia relating to the transplantation of organs from cadavars’, Australian Law Journal, 48, 1, 1974, pp.21–28.

[10] Dworkin G.. 1970. . The law relating to organ transplantation in England. . The Modern Law Review . , Vol. 33:: 353––77. .

[11] Monash Centre for Human Bioethics, Proceedings of the Conference In Vitro Fertilization: Problems and Possibilities, M.N. Brumby (ed), Melbourne, 1982 and I. Craft, ‘In Vitro fertilization — a fast changing technique: a discussion paper’, Journal of the Royal Society of Medicine, 75, 2, 1982, pp.253–57.

[12] J. R. Richardson, ‘The costs and benefits of health care services: some international evidence’, in R. Mendelsohn (ed), Social Welfare Finance: Selected Papers, Centre for Research on Federal Financial Relations, Canberra, 1982, pp.139–55 and G. McLachlan and A. Maynard (eds), The Public/Private Mix for Health: the Relevance and Effects of Change, Nuffield Provincial Hospitals Trust, London, 1982.

[13] Feldstein M. S.. 1977. . Quality change and the demand for hospital care. . Econometrica . , Vol. 45((7)): 1681––702. .

[14] Ibid.

[15] Fuchs V. R.. 1972. . “The growing demand for medical care. ”. In Essays in the Economics of Health and Medical Care . , Edited by: Fuchs V. R.. p. 61––8. . New York : : National Bureau of Economic Research. .

[16] Mushkin S. J. and Landefeld J. S.. 1979. . Bio-medical Research: Costs and Benefits . , Cambridge , Mass. : : Ballinger. .

[17] Fuchs, op. tit.

[18] Mushkin and Landefeld, op. cit.

[19] Davis K.. 1974. . “The role of technology, demand and labour markets in the determination of hospital costs. ”. In The Economics of Health and Medical Care . , Edited by: Perlman M.. p. 283––301. . London : : Macmillan. .

[20] Ibid., p.289.

[21] Ibid., p.291.

[22] S.H. Altman and S.S. Wallack, ‘Is medical technology the culprit behind rising health costs? The case for and against’, in S.A. Altman and R. Blendon (eds), Medical Technology: The Culprit Behind Health Care Costs? National Centre for Health Services Research, Washington, D.C., 1979, pp.24–37.

[23] M.S. Feldstein and A. TAylor, The Rapid Rise of Hospital Costs, Harvard Institute of Economic Research, Discussion Paper No. 541, 1977.

[24] Butler J. R.G.. 1984. . The DRG hospital payment scheme: some economic aspects. . Economic Analysis and Policy . , Vol. 14((2)): 166––81. .

[25] A. A. Scitovsky, ‘An index of the cost of medical care — a proposed new approach’, in S.J. Axelrod (ed), The Economics of Health and Medical Care, University of Michigan Press, Ann Arbor, 1964, pp. 128–47; A.A. Scitovsky, ‘Changes in the costs of treatment of selected illnesses, 1951–1965’, American Economic Review, 57, 5, 1967, pp. 1182–95; A.A. Scitovsky, ‘Changes in the use of ancillary services for “common illnesses” ‘, in S.H. Altman and R. Blendon (ed), Medical Technology: The Culprit Behind Health Care Costs?, National Centre for Health Services Research, Washington, D.C., 1979, pp.39–56; and A.A. Scitovsky, ‘Changes in the cost of treatment of selected illnesses, 1971–1981’, Medical Care, 23, 12, 1985, pp. 1345–57.

[26] Ibid., p.1345.

[27] Scitovsky, op. cit., 1979, p.39.

[28] Scitovsky, op. cit., 1985, p.1355.

[29] T.W. Maloney and D.E. Rogers, ‘Medical technology — a different view of the contentious debate over costs’, New England Journal of Medicine, 301, 26, 1979, pp. 1413–19; J.A. Showstack, S.A. Schroeder and M.F. Matsumato, ‘Changes in the use of medical technologies, 1972–1977: a study of 10 inpatient diagnoses’, New England Journal of Medicine, 306, 12, 1982, pp.706–12; and J.A. Showstack, M.H. Stone and S.A. Schroeder, ‘The role of changing clinical practices in the rising cost of hospital care’, New England Journal of Medicine, 313, 19, 1985, pp.1201–207.

[30] H. S. Luft, ‘How do health maintenance organisations achieve their “savings”?’, New England Journal of Medicine, 298, 24, 1978, pp.1336–43; and W. P. Welch, ‘Health care utilization in HMOs: results from two national samples’, Journal of Health Economics, 4, 4, 1985, pp.293–308.

[31] R.D. Blair, P.B. Ginsberg and R.J. Vogel, ‘Blue Cross-Blue Shield administrative costs: a study of non profit health insurers’, Economic Inquiry, 13, 2, 1975, pp.237–51; S. T. Mennemeyer, ‘Effects of competition on Medicare administrative costs’, Journal of Health Economics, 3, 2, 1984, pp.137–54; and D.E. Kass and P.A. Pautler, ‘Physician and medical society influence on Blue-shield plans: effects on physician reimbursement’, in M. Olsen (ed), A New Approach to the Economics of Health Care, American Enterprise Institute, Washington, D.C., 1981, pp.321–38.

[32] Enthoven A. C.. 1981. . “The behavior of health care agents: provider behavior. ”. In Health, Economics and Health Economics . , Edited by: Van de Gaag J. and Perlman M.. p. 173––88. . North-Holland : : Amsterdam. .

[33] V.R. Fuchs and M.J. Kramer, Determinants of Expenditure for Physicians’ Services in the United States 1948–68, New York, National Bureau of Economic Research, 1973.

[34] Evans R. G.. 1974. . “Supplier-induced demand: some empirical evidence and implications. ”. In The Economics of Health and Medical Care . , Edited by: Perlman M.. p. 162––73. . London : : Macmillan. .

[35] Fuchs V. R.. 1978. . The supply of surgeons and the demand for operations. . Journal of Human Resources . , Vol. XIII((Supplement)): 34––56. .

[36] Richardson J.. 1981. . “The inducement hypothesis: that doctors generate demand for their own services. ”. In Health, Economics and Health Economics . , Edited by: Van de Gaag J. and Perlman M.. p. 189––214. . North-Holland : : Amsterdam. .

[37] Carrin G. and Van Dael J.. 1984. . An empirical model of the demand for health care in Belgium. . Applied Economics . , Vol. 16((3)): 317––34. .

[38] G.R. Wilensky and L.R. Rossiter, ‘The relative importance of physician-induced demand in the demand for medical care’, Milbank Memorial Fund Quarterly, 61, 2, 1983, pp.252–77; M. Stano, ‘An analysis of the evidence on competition in the physician services market’, Journal of Health Economics, 4, 3, 1985, pp. 197–211; and U.E. Reinhardt, ‘The theory of physician-induced demand: reflections after a decade’, Journal of Health Economics, 4, 2, 1985, pp.187–94.

[39] Evans, op. cit., p. 162.

[40] Ibid., pp.162–63.

[41] Ibid., p. 163.

[42] M. Blaug, ‘A survey of the theory of process innovations’, Economica, N.S., 30, 1, 1963, pp. 13–32.

[43] Davies S.. 1979. . The Diffusion of Process Innovations . , Cambridge : : Cambridge University Press. .

[44] Blaug, op. cit., p.13.

[45] Katsoulacos Y.. 1986. . The Employment Effect of Technical Change: A Theoretical Study of New Technology and the Labour Market . , Brighton : : Wheatsheaf. .

[46] Doessel D. P.. 1978. . An Economic Analysis of End-State Renal Disease . , Canberra : : Hospitals and Health Services Commission. .

[47] Doessel D. P. and Sams J. J.. 1984. . Innovation in gastroenterological management: the case of cimetidine. . Prometheus . , Vol. 2((1)): 3––16. .

[48] Doessel D. P.. 1985. . An aspect of technological assessment of diagnostic procedures of the upper gastrointestinal tract. . Prometheus . , Vol. 3((2)): 387––406. .

[49] Doessel D. P.. 1986. . Medical diagnosis as a problem in the economics of information. . Information Economics and Policy . , Vol. 2((1)): 49––68. .

[50] Butler J. R.G. and Doessel D. P.. 1981. . Measuring benefits in health: a clarification. . Scottish Journal of Political Economy . , Vol. 28((2)): 196––205. .

[51] Samuelson P. A.. 1974. . Complementarity — an essay on the 40th anniversity of the Hicks-Allen revolution in demand theory. . Journal of Economic Literature . , Vol. 12((4)): 1255––89. .

[52] H.A.J. Green, Consumer Theory, revised ed., Macmillan, London, 1976.

[53] Hirschowitz B. J.. 1958. . Demonstrations of a new gastroscope, the fibrescope. . Gastroenterology . , Vol. 35((1)): 50––3. .

[54] Salmon P. R.. 1972. . Endoscopic examination of the duodenal bulb: clinical evaluation of forward — and side — viewing fibreoptic systems in 200 cases. . Gut . , Vol. 13((3)): 170––5. .

[55] Doessel, ‘Medical diagnosis as a problem in the economics of information’, op. cit.

[56] Doessel, ‘An aspect of technological assessment…’ op. cit.

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INNOVATION AND HEALTH EXPENDITURES: SOME EMPIRICAL RESULTS FOR A DIAGNOSTIC TECHNOLOGY

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