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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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    References listed on IDEAS

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    1. Jena, Anupam B. & Philipson, Tomas J., 2008. "Cost-effectiveness analysis and innovation," Journal of Health Economics, Elsevier, vol. 27(5), pages 1224-1236, September.
    2. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
    3. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 33-64, February.
    4. 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.
    5. David Meltzer, 1997. "Accounting for Future Costs in Medical Cost-Effectiveness Analysis," NBER Working Papers 5946, National Bureau of Economic Research, Inc.
    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. 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.
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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    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. Boone, Jan, 2013. "Does the market choose optimal health insurance coverage?," CEPR Discussion Papers 9420, C.E.P.R. Discussion Papers.
    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. 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. 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.
    10. Rosella Levaggi & Paolo Pertile, 2016. "Pricing policies when patients are heterogeneous: a welfare analysis," Working Papers 17/2016, University of Verona, Department of Economics.
    11. 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.
    12. 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.
    13. 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.

    More about this item

    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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