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The benefit of more-innovative drugs for future patients comes at a (high) cost to today's patients.
ABSTRACT:
After a technology is developed, cost-effectiveness analysis can offer an economically sound approach to adoption decisions. Little attention has been paid, however, to the incentives these criteria induce for getting technologies to market in the first place. We argue that technology adoption procedures more fully take into account the key trade-off inherent in research and development: the decreased welfare of current patients as a result of higher prices versus the increased welfare of future patients as a result of the incentives for innovation that such prices provide. Empirical evidence from a case study of HIV/AIDS provides an illustration of our conclusions. [Health Affairs 26, no. 3 (2007): 696-703; 10.1377/hlthaff.26.3.696]
HEALTH CARE SPENDING AS A SHARE OF national income is rising in most Westernized countries. Given the large and growing share of resources devoted to health care, many governments are grappling with how to best assess and adopt the new technologies that are critical to the observed growth in spending.1 The major approach put forth to date in many countries has been the use of cost-effectiveness (CE) criteria to guide the adoption of new and existing technologies. As the name suggests, cost-effectiveness analysis (CEA) offers policymakers an important means of allocating often scarce health care resources based on the costs and benefits of available medical technologies.
The extensive role of such criteria is particularly stark in many non-U.S. Westernized countries-for example, the United Kingdom's National Institute for Health and Clinical Excellence (NICE) and Australia's Pharmaceutical Benefits Advisory Committee (PBAC), both of which have been reported to follow implicit CE thresholds in technology adoption decisions. Such thresholds dictate that technologies will be adopted if their benefits, as often measured by the qualityadjusted life-years (QALYs) they provide, outweigh a given level of costs. In Australia, for example, only two of twenty-six submissions with a cost per life-year saved greater than $57,000 were accepted for reimbursement. Similarly, only one of twenty-six submissions with a cost per life-year saved less than $32,000 was rejected.2 Although explicit considerations of cost-effectiveness are not used by the U.S. Centers for Medicare and Medicaid Services (CMS), it appears a reasonable prediction that technologies that cost more...