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Endogenous Cost-Effectiveness Analysis in Health Care Technology Adoption

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  • Anupam Jena
  • Tomas Philipson

Abstract

Increased health care spending has been argued to be largely due to technological change. Cost-effectiveness analysis is the main tool used by private and public third-party payers to prioritize adoption of the new technologies responsible for this growth. However, such analysis by payers invariably reflects prices set by producers rather than resources used to produce treatments. This implies that the "costs" in cost-effectiveness assessments depend on endogenous markups which are, in turn, influenced by demand factors of patients, doctors, and payers. Reimbursement policy based on endogenous cost-effectiveness levels may therefore bear little relationship to efficient use of scarce medical resources. Using data on technology appraisals in the United Kingdom, we test for conditions under which adoption based on endogenous cost-effectiveness may lead to adoption of more inefficient treatments in terms of resource use.

Suggested Citation

  • Anupam Jena & Tomas Philipson, 2009. "Endogenous Cost-Effectiveness Analysis in Health Care Technology Adoption," NBER Working Papers 15032, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15032
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    Cited by:

    1. Elamin Elbasha & Jagpreet Chhatwal, 2016. "Myths and Misconceptions of Within-Cycle Correction: A Guide for Modelers and Decision Makers," PharmacoEconomics, Springer, vol. 34(1), pages 13-22, January.
    2. Mikael Svensson & Fredrik Nilsson & Karl Arnberg, 2015. "Reimbursement Decisions for Pharmaceuticals in Sweden: The Impact of Disease Severity and Cost Effectiveness," PharmacoEconomics, Springer, vol. 33(11), pages 1229-1236, November.
    3. Rodrigo Camejo & Clare McGrath & Marisa Miraldo & Frans Rutten, 2014. "Distribution of health-related social surplus in pharmaceuticals: an estimation of consumer and producer surplus in the management of high blood lipids and COPD," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(4), pages 439-445, May.
    4. Basu, Anirban & Jena, Anupam B. & Philipson, Tomas J., 2011. "The impact of comparative effectiveness research on health and health care spending," Journal of Health Economics, Elsevier, vol. 30(4), pages 695-706, July.
    5. Boone, Jan, 2013. "Does the market choose optimal health insurance coverage?," CEPR Discussion Papers 9420, C.E.P.R. Discussion Papers.
    6. Ben van Hout & Jolian McHardy & Aki Tsuchiya, 2015. "Patent Purchase as a Policy for Pharmaceuticals," Working Papers 2015007, The University of Sheffield, Department of Economics.
    7. Yupeng Liu & Yutao Yang & Yue Liu & Gwo-Hshiung Tzeng, 2019. "Improving Sustainable Mobile Health Care Promotion: A Novel Hybrid MCDM Method," Sustainability, MDPI, vol. 11(3), pages 1-29, January.
    8. Basu, Anirban, 2011. "Economics of individualization in comparative effectiveness research and a basis for a patient-centered health care," Journal of Health Economics, Elsevier, vol. 30(3), pages 549-559, May.
    9. Fischer, Katharina E. & Rogowski, Wolf H. & Leidl, Reiner & Stollenwerk, Björn, 2013. "Transparency vs. closed-door policy: Do process characteristics have an impact on the outcomes of coverage decisions? A statistical analysis," Health Policy, Elsevier, vol. 112(3), pages 187-196.
    10. Elamin H. Elbasha & Jagpreet Chhatwal, 2016. "Myths and Misconceptions of Within-Cycle Correction: A Guide for Modelers and Decision Makers," PharmacoEconomics, Springer, vol. 34(1), pages 13-22, January.
    11. Brekke, Kurt R. & Dalen, Dag Morten & Straume, Odd Rune, 2023. "The price of cost-effectiveness thresholds under therapeutic competition in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 90(C).
    12. Kurt R. Brekke & Dag Morten Dalen & Odd Rune Straume, 2022. "The price of cost-effectiveness thresholds," NIPE Working Papers 5/2022, NIPE - Universidade do Minho.
    13. Katarzyna Miszczynska, 2020. "Improving managerial decisions in health care sector: application of Promethee II method in public hospitals," Operations Research and Decisions, Wroclaw University of Science Technology, Faculty of Management, vol. 30(4), pages 65-79.
    14. Amitabh Chandra & Anupam B. Jena & Jonathan S. Skinner, 2011. "The Pragmatist's Guide to Comparative Effectiveness Research," Journal of Economic Perspectives, American Economic Association, vol. 25(2), pages 27-46, Spring.
    15. Boone, J., 2013. "Does the Market Choose Optimal Health Insurance Coverage," Other publications TiSEM f7691fbf-f770-4714-b1b4-1, Tilburg University, School of Economics and Management.
    16. Carlos Campillo-Artero & Jaume Puig-Junoy & José Luis Segú-Tolsa & Marta Trapero-Bertran, 2020. "Price Models for Multi-indication Drugs: A Systematic Review," Applied Health Economics and Health Policy, Springer, vol. 18(1), pages 47-56, February.
    17. Levaggi, Laura & Levaggi, Rosella, 2024. "Competition, value-based prices and incentives to research personalised drugs," Socio-Economic Planning Sciences, Elsevier, vol. 93(C).
    18. William S. Comanor & Stuart O. Schweitzer & Jon M. Riddle & Frederic Schoenberg, 2018. "Value Based Pricing of Pharmaceuticals in the US and UK: Does Centralized Cost Effectiveness Analysis Matter?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(4), pages 589-602, June.
    19. Besanko, David & Dranove, David & Garthwaite, Craig, 2020. "Insurance access and demand response: Pricing and welfare implications," Journal of Health Economics, Elsevier, vol. 73(C).
    20. Maximilian Hatz & Katharina Schremser & Wolf Rogowski, 2014. "Is Individualized Medicine More Cost-Effective? A Systematic Review," PharmacoEconomics, Springer, vol. 32(5), pages 443-455, May.
    21. Rosella Levaggi & Paolo Pertile, 2016. "Pricing policies when patients are heterogeneous: a welfare analysis," Working Papers 17/2016, University of Verona, Department of Economics.
    22. Aris Angelis & Ansgar Lange & Panos Kanavos, 2018. "Using health technology assessment to assess the value of new medicines: results of a systematic review and expert consultation across eight European countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(1), pages 123-152, January.
    23. Werner Brouwer & Pieter Baal & Job Exel & Matthijs Versteegh, 2019. "When is it too expensive? Cost-effectiveness thresholds and health care decision-making," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 20(2), pages 175-180, March.
    24. Dana Goldman & Darius Lakdawalla & Tomas J. Philipson & Wesley Yin, 2010. "Valuing health technologies at nice: recommendations for improved incorporation of treatment value in HTA," Health Economics, John Wiley & Sons, Ltd., vol. 19(10), pages 1109-1116, October.

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    JEL classification:

    • I0 - Health, Education, and Welfare - - General
    • I1 - Health, Education, and Welfare - - Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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