Improving health care outcomes through reallocation of health care expenditures

The use of incremental cost-outcomes ratios as decision variables by those working in the area of pharmacoeconomics is commonplace. Unfortunately, few question the assumptions implicit in the use of such ratios. In this paper, the author argues that under certain reasonable assumptions regarding the production of health care and alternative therapy options, if partial substitution or switching between therapy options occurs, it may be possible not only to stay within an initial health care budget but also to yield higher total outcomes for the treating population. This argument is presented by developing a model of health care costs and outcomes in a dual-therapy environment.