Advanced Search
MyIDEAS: Login to save this article or follow this journal

Cost-effectiveness analysis and innovation

Contents:

Author Info

  • Jena, Anupam B.
  • Philipson, Tomas J.

Abstract

While cost-effectiveness (CE) analysis has provided a guide to allocating often scarce resources spent on medical technologies, less emphasis has been placed on the effect of such criteria on the behavior of innovators who make health care technologies available in the first place. A better understanding of the link between innovation and cost-effectiveness analysis is particularly important given the large role of technological change in the growth in health care spending and the growing interest of explicit use of CE thresholds in leading technology adoption in several Westernized countries. We analyze CE analysis in a standard market context, and stress that a technology's cost-effectiveness is closely related to the consumer surplus it generates. Improved CE therefore often clashes with interventions to stimulate producer surplus, such as patents. We derive the inconsistency between technology adoption based on CE analysis and economic efficiency. Indeed, static efficiency, dynamic efficiency, and improved patient health may all be induced by the cost-effectiveness of the technology being at its worst level. As producer appropriation of the social surplus of an innovation is central to the dynamic efficiency that should guide CE adoption criteria, we exemplify how appropriation can be inferred from existing CE estimates. For an illustrative sample of technologies considered, we find that the median technology has an appropriation of about 15%. To the extent that such incentives are deemed either too low or too high compared to dynamically efficient levels, CE thresholds may be appropriately raised or lowered to improve dynamic efficiency.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6V8K-4SNWVYG-1/2/2d108f21ecda668daa26a234f75179a4
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 27 (2008)
Issue (Month): 5 (September)
Pages: 1224-1236

as in new window
Handle: RePEc:eee:jhecon:v:27:y:2008:i:5:p:1224-1236

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505560

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Alan M. Garber & Charles I. Jones & Paul M. Romer, 2006. "Insurance and Incentives for Medical Innovation," NBER Working Papers 12080, National Bureau of Economic Research, Inc.
  2. Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 34(2), pages 217-23, December.
  3. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
  4. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 783-832.
  5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  6. David Meltzer, 1997. "Accounting for Future Costs in Medical Cost-Effectiveness Analysis," NBER Working Papers 5946, National Bureau of Economic Research, Inc.
  7. Mansfield, Edwin, et al, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 91(2), pages 221-40, May.
  8. Alan M. Garber, 1999. "Advances in Cost-Effectiveness Analysis of Health Interventions," NBER Working Papers 7198, National Bureau of Economic Research, Inc.
  9. Manning, Richard L, 1994. "Changing Rules in Tort Law and the Market for Childhood Vaccines," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 37(1), pages 247-75, April.
  10. Weinstein, Milton C. & Manning, Willard Jr., 1997. "Theoretical issues in cost-effectiveness analysis," Journal of Health Economics, Elsevier, Elsevier, vol. 16(1), pages 121-128, February.
  11. Johannesson, Magnus & Weinstein, Milton C., 1993. "On the decision rules of cost-effectiveness analysis," Journal of Health Economics, Elsevier, Elsevier, vol. 12(4), pages 459-467, December.
  12. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, Elsevier, vol. 16(1), pages 1-31, February.
  13. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, Elsevier, vol. 16(1), pages 33-64, February.
  14. William D. Nordhaus, 2004. "Schumpeterian Profits in the American Economy: Theory and Measurement," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1457, Cowles Foundation for Research in Economics, Yale University.
  15. Darius Lakdawalla & Neeraj Sood, 2005. "Insurance and Innovation in Health Care Markets," NBER Working Papers 11602, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Tomas Philipson & Gary S. Becker & Dana Goldman & Kevin Murphy, 2010. "Terminal Care and the Value of Life Near Its End," Working Papers, Becker Friedman Institute for Research In Economics 2010-005, Becker Friedman Institute for Research In Economics.
  2. Rodrigo Refoios Camejo & Clare McGrath & Marisa Miraldo & Frans Rutten, 2013. "The Determinants of Cost-Effectiveness Potential: An Historical Perspective on Lipid-Lowering Therapies," PharmacoEconomics, Springer, Springer, vol. 31(5), pages 445-454, May.
  3. Anupam Jena & Tomas Philipson, 2009. "Endogenous Cost-Effectiveness Analysis in Health Care Technology Adoption," NBER Working Papers 15032, National Bureau of Economic Research, Inc.
  4. Levaggi, Rosella, 2014. "Pricing schemes for new drugs: A welfare analysis," Social Science & Medicine, Elsevier, Elsevier, vol. 102(C), pages 69-73.
  5. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2013. "The dynamics of pharmaceutical regulation and R&D investments," Working Papers 13/2013, University of Verona, Department of Economics.
  6. Jena, Anupam B. & Philipson, Tomas J., 2013. "Endogenous cost-effectiveness analysis and health care technology adoption," Journal of Health Economics, Elsevier, Elsevier, vol. 32(1), pages 172-180.
  7. Marlon Mundt & Larissa Zakletskaia, 2014. "That’s What Friends Are For: Adolescent Peer Social Status, Health-Related Quality of Life and Healthcare Costs," Applied Health Economics and Health Policy, Springer, Springer, vol. 12(2), pages 191-201, April.
  8. 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, Springer, vol. 15(4), pages 439-445, May.
  9. Patricia M. Danzon & Adrian K. Towse & Jorge Mestre-Ferrandiz, 2012. "Value-Based Differential Pricing: Efficient Prices for Drugs in a Global Context," NBER Working Papers 18593, National Bureau of Economic Research, Inc.
  10. Gandjour, Afschin & Chernyak, Nadja, 2011. "A new prize system for drug innovation," Health Policy, Elsevier, vol. 102(2), pages 170-177.
  11. 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, Elsevier, vol. 30(4), pages 695-706, July.
  12. John Vernon & Robert Goldberg & Joseph Golec, 2009. "Economic Evaluation and Cost-Effectiveness Thresholds," PharmacoEconomics, Springer, Springer, vol. 27(10), pages 797-806, October.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jhecon:v:27:y:2008:i:5:p:1224-1236. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.