Treatment costs, equilibrium, and the allocation of patients to therapy alternatives

This paper addresses the problem of increasing costs (or decreasing returns) in the treatment of patients within health care systems. We examine the implications of such a situation for (1) the allocation of patients to alternative drug therapies within a disease area; and (2) the proportions of patients being treated within the disease area to the total patient population as a function of the equilibrium conditions for maximized health care outcomes, given alternative assumptions about the existence of budget constraints on the resources allocated to the disease area. The reason for considering these issues (in this case, from a purely theoretical perspective) is that such a model and the assumptions that drive it stand in marked contrast to those underlying (implicitly if not explicitly) the traditional approach to cost-effectiveness modeling. In traditional cost-effectiveness analysis, the assumption is that costs and outcomes exhibit constant returns to scale and that the process of patient selection and the characteristics of the treating population need not be taken into account. However, our analysis demonstrates that once the assumption of constant returns in abandoned, any assessment of the net impact of therapeutic interventions can be made only within an equilibrium, or comparative static, framework that is subject to budget constraints and in which the cost functions that drive patterns of switching between therapies are specified. Under such conditions, the traditional, clinical-trial-based notion of cost-effectiveness loses all meaning.