Endogenous Cost-Effectiveness Analysis in Health Care Technology Adoption
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.
We thank James Raftery for his generous provision of the NICE data and Kris Hult for excellent research assistance. We are also thankful to seminar participants at the NBER Summer Institute Meetings, The Wharton School, The University of Chicago, and Duke University for their helpful comments. This project was partly supported by the National Institute of General Medical Sciences through Medical Scientist National Research Service Award 5 T32 GM07281 (Jena), and the Agency for Healthcare Research and Quality through UCLA/RAND Training Grant T32 HS 000046 (Jena) and The George Stigler Center at The University of Chicago (Philipson). The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Journal of Health Economics Volume 32, Issue 1, January 2013, Pages 172–180 Cover image Endogenous cost-effectiveness analysis and health care technology adoption ☆ Anupam B. Jenaa, Tomas J. Philipsonb,