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Endogenous cost-effectiveness analysis and health care technology adoption

  • Jena, Anupam B.
  • Philipson, Tomas J.
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    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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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505560

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    1. 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.
    2. Anirban Basu & Tomas J. Philipson, 2010. "The Impact of Comparative Effectiveness Research on Health and Health Care Spending," NBER Working Papers 15633, National Bureau of Economic Research, Inc.
    3. 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.
    4. David Meltzer, 1997. "Accounting for Future Costs in Medical Cost-Effectiveness Analysis," NBER Working Papers 5946, National Bureau of Economic Research, Inc.
    5. Jena, Anupam B. & Philipson, Tomas J., 2008. "Cost-effectiveness analysis and innovation," Journal of Health Economics, Elsevier, vol. 27(5), pages 1224-1236, September.
    6. 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.
    7. 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.
    8. 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.
    9. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 33-64, February.
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