Innovation and Technology Adoption in Health Care Markets
Book Forum

Almost all pharmaceuticals are purchased by third parties (insurance or government) through the use of reimbursements. Yet, as University of Chicago health economists Anupam B. Jena and Tomas J. Philipson demonstrate in their new book, Innovation and Technology Adoption in Health Care Markets (AEI Press, August 2008), reimbursement levels based on the cost-effectiveness of drugs--usually measured as the cost per quality-adjusted life-year saved by a drug--tend to sacrifice future drug development because they limit profits to be made and therefore discourage manufacturers from investing in useful innovation.

Based on the careful empirical analysis of drugs used to treat HIV/AIDS, Philipson and Jena conclude that drug manufacturers glean only about 5 percent of the mammoth returns brought about by these life-saving therapies. As a result, patients may be worse off than they would be with policies based less on cost-savings and more on incentives to develop new technologies. The implications of these findings, when taking account of other valuable drug classes, suggest that we face the prospect of paying less money for drugs now while getting far fewer new drug treatments later.

Joining the authors to discuss this important book will be pharmaceutical economist Christopher Adams from the Federal Trade Commission. AEI's John E. Calfee will moderate.

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About the Author

 

John E.
Calfee
  • Economist John E. Calfee (1941-2011) studied the pharmaceutical industry and the Food and Drug Administration (FDA), along with the economics of tobacco, tort liability, and patents. He previously worked at the Federal Trade Commission's Bureau of Economics. He had also taught marketing and consumer behavior at the business schools of the University of Maryland at College Park and Boston University. While Mr. Calfee's writings are mostly on pharmaceutical markets and FDA regulation, his academic articles and opinion pieces covered a variety of topics, from patent law and tort liability to advertising and consumer information. His books include Prices, Markets, and the Pharmaceutical Revolution (AEI Press, 2000) and Biotechnology and the Patent System (AEI Press, 2007). Mr. Calfee wrote regularly for AEI's Health Policy Outlook series. He testified before Congress and federal agencies on various topics, including alcohol advertising; biodefense vaccine research; international drug prices; and FDA oversight of drug safety.

 

Tomas J.
Philipson
  • Tomas J. Philipson is a visiting scholar at AEI and the Daniel Levin Chair in the Irving B. Harris Graduate School of Public Policy as well as an associate member of the department of economics at the University of Chicago. He was a senior health care adviser to the 2008 presidential campaign of John McCain and served in the Bush administration as the senior economic adviser to the commissioner of the Food and Drug Administration from 2003 to 2004 and subsequently as the senior economic adviser to the administrator of the Centers for Medicare & Medicaid Services from 2004 to 2005. Mr. Philipson is an editor of Forum for Health Economics & Policy and is on the editorial board of Health Economics and The European Journal of Health Economics. He has twice been the recipient of the highest honor of his field, the Kenneth Arrow Award from the International Health Economics Association, in 2000 and 2006.  Mr. Philipson is the cofounder of Precision Health Economics, is an adviser to the Gerson Lehrman Group, and is a consultant for Compass-Lexecon and Analysis Group.
  • Email: t-philipson@uchicago.edu

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