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Endogenous cost-effectiveness analysis and health care technology adoption

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

    Increased health care spending has placed pressure on public and private payers to prioritize spending. Cost-effectiveness (CE) analysis is the main tool used by payers to prioritize coverage of new therapies. We argue that reimbursement based on CE is subject to a form of the “Lucas critique”; the goals of CE policies may not materialize when firms affected by the policies respond optimally to them. For instance, because ‘costs’ in CE analysis reflect prices set optimally by firms rather than production costs, observed CE levels will depend on how firm pricing responds to CE policies. Observed CE is therefore endogenous. When CE is endogenously determined, policies aimed at lowering spending and improving overall CE may paradoxically raise spending and lead to the adoption of more resource-costly treatments. We empirically illustrate whether this may occur using data on public coverage decisions in the United Kingdom.

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    Bibliographic Info

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

    Volume (Year): 32 (2013)
    Issue (Month): 1 ()
    Pages: 172-180

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    Handle: RePEc:eee:jhecon:v:32:y:2013:i:1:p:172-180

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    Web page: http://www.elsevier.com/locate/inca/505560

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    Keywords: Cost-effectiveness analysis;

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    References

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    1. Garber, Alan M., 2000. "Advances in cost-effectiveness analysis of health interventions," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 4, pages 181-221 Elsevier.
    2. Lakdawalla, Darius & Sood, Neeraj, 2009. "Innovation and the welfare effects of public drug insurance," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 541-548, April.
    3. Johannesson, Magnus & Weinstein, Milton C., 1993. "On the decision rules of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 12(4), pages 459-467, December.
    4. Peter J. Neumann & Chi-Hui Fang & Joshua T. Cohen, 2009. "30 Years of Pharmaceutical Cost-Utility Analyses: Growth, Diversity and Methodological Improvement," PharmacoEconomics, Springer Healthcare | Adis, vol. 27(10), pages 861-872.
    5. 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.
    6. 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.
    7. David Meltzer, 1997. "Accounting for Future Costs in Medical Cost-Effectiveness Analysis," NBER Working Papers 5946, National Bureau of Economic Research, Inc.
    8. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 33-64, February.
    9. Jena, Anupam B. & Philipson, Tomas J., 2008. "Cost-effectiveness analysis and innovation," Journal of Health Economics, Elsevier, vol. 27(5), pages 1224-1236, September.
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