The Option Value of Innovation

Area of Science:

• Health economics
• Medical innovation valuation

Background:

• Traditional cost-effectiveness analysis (CEA) uses current life expectancies.
• Existing CEA methods overlook future health gains from subsequent technological advancements.
• This limitation may undervalue innovations that extend life for future treatments.

Purpose of the Study:

• To introduce and define the concept of "option value" in health technology assessment.
• To demonstrate a method for calculating option value within standard CEA frameworks.
• To quantify the impact of option value on the assessed cost-effectiveness of health innovations.

Main Methods:

• Conceptual framework development for "option value" borrowing from finance.
• Application of the option value concept to cost-effectiveness analysis.
• Proof-of-concept calculation using tamoxifen for breast cancer treatment.

Main Results:

• Option value captures the benefit of surviving to benefit from future innovations.
• Calculations show incorporating option value increased tamoxifen's estimated value by nearly 25%.
• Specifically, value rose from $200,000 to $248,000 per patient initiating treatment in 1999.

Conclusions:

• Option value represents a significant, previously unquantified, component of health technology value.
• This concept is particularly relevant in rapidly advancing therapeutic areas.
• Future CEA should integrate option value to more accurately reflect innovation benefits.