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Endogenous cost-effectiveness analysis and health care technology adoption
Anupam B Jena1, Tomas J Philipson
1Harvard University, USA.
Journal of Health Economics
|December 4, 2012
Summary
Cost-effectiveness (CE) analysis may paradoxically increase healthcare spending. When firms optimize pricing in response to CE policies, treatments may become more costly, impacting payer decisions and overall health economics.
Area of Science:
- Health Economics
- Health Policy
- Pharmaceutical Pricing
Background:
- Rising healthcare expenditures necessitate efficient spending prioritization by payers.
- Cost-effectiveness (CE) analysis is a primary tool for coverage decisions.
- The 'Lucas critique' suggests policy goals may be undermined by adaptive firm behavior.
Purpose of the Study:
- To investigate the potential for cost-effectiveness (CE) analysis to paradoxically increase healthcare spending.
- To explore how firm pricing strategies interact with CE policies.
- To examine the endogeneity of observed CE in light of market responses.
Main Methods:
- Application of the 'Lucas critique' to CE analysis in healthcare.
- Analysis of firm pricing responses to CE-based reimbursement policies.
- Empirical examination using public coverage decision data from the United Kingdom.
Main Results:
- Observed CE is endogenous, influenced by firm pricing, not just production costs.
- CE policies may lead to the adoption of more resource-costly treatments.
- Paradoxical increases in spending may result from attempts to lower costs via CE.
Conclusions:
- CE analysis, when subject to firm strategic pricing, may not achieve intended cost-containment goals.
- Understanding the endogeneity of CE is crucial for effective health policy design.
- Reimbursement policies must account for market responses to avoid unintended consequences on spending and resource allocation.
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