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Endogenous cost-effectiveness analysis and health care technology adoption

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

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.

Suggested Citation

  • Jena, Anupam B. & Philipson, Tomas J., 2013. "Endogenous cost-effectiveness analysis and health care technology adoption," Journal of Health Economics, Elsevier, vol. 32(1), pages 172-180.
  • Handle: RePEc:eee:jhecon:v:32:y:2013:i:1:p:172-180
    DOI: 10.1016/j.jhealeco.2012.10.002
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Rosella Levaggi & Paolo Pertile, 2016. "Pricing policies when patients are heterogeneous: a welfare analysis," Working Papers 17/2016, University of Verona, Department of Economics.
    3. Boone, Jan, 2013. "Does the market choose optimal health insurance coverage?," CEPR Discussion Papers 9420, C.E.P.R. Discussion Papers.
    4. Rejon-Parrilla, J.C & Hernandez-Villafuerte, K. & Shah, K. & Mestre-Ferrandiz, J. & Garrison, L. & Towse, A., 2014. "The Expanding Value Footprint of Oncology Treatments," Consulting Reports 000050, Office of Health Economics.
    5. 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.
    6. Besanko, David & Dranove, David & Garthwaite, Craig, 2020. "Insurance access and demand response: Pricing and welfare implications," Journal of Health Economics, Elsevier, vol. 73(C).
    7. 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.
    8. 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. 4, pages 65-79.
    9. Yupeng Liu & Yutao Yang & Yue Liu & Gwo-Hshiung Tzeng, 2019. "Improving Sustainable Mobile Health Care Promotion: A Novel Hybrid MCDM Method," Sustainability, MDPI, Open Access Journal, vol. 11(3), pages 1-29, January.

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    More about this item

    Keywords

    Cost-effectiveness analysis;

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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