Endogenous Cost-Effectiveness Analysis in Health Care Technology Adoption

New medical technologies are often argued to be a leading force behind the growth in health care spending. In order to manage the costs imposed by such technologies and to prioritize health care dollars, both public and private payers have increasingly relied on combined measures of the benefits and costs of new technologies. These measures include cost-effectiveness, cost-utility, or cost-benefit analysis, hereafter referred to collectively as CE analysis.

It is self-evident that payers should attempt to maximize the returns in health they obtain from the limited resources available for health spending. Thus, CE analysis offers an important means to allocate scarce health care budgets, whether privately or publicly funded.

CE thresholds, which dictate that a given technology will be reimbursed only if the incremental costs per quality-adjusted life year (QALY) they provide are below a given threshold, is one way in which CE-based adoption is implemented in practice. The most prominent examples are the UK's National Institute for Clinical Excellence (NICE) and Australia's Pharmaceutical Benefits Advisory Committee. As a consequence of the extensive use of CE analysis by payers, an enormous health economics literature has developed and shown the conditions under which CE analysis, when applied under a fixed budget constraint, can lead to gains in static efficiency. Indeed, the amount of work done on the CE of medical technologies may perhaps be the largest field within health economics, particularly in European countries where such analysis guides a large share of public spending.

Click here to view the full text of this paper as an Adobe Acrobat PDF.

Tomas J. Philipson is a visiting scholar at AEI.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Tomas J.
Philipson

 

Anupam B.
Jena

What's new on AEI

Obama should channel Reagan on Russia
image Tackling our nation’s budget problems, head on
image Missing the point on inversions and corporate taxes
image Venezuela betrayed — missed chance to expose regime
AEI on Facebook
Events Calendar
  • 28
    MON
  • 29
    TUE
  • 30
    WED
  • 31
    THU
  • 01
    FRI
Tuesday, July 29, 2014 | 10:00 a.m. – 12:00 p.m.
Is Medicare's future secure? The 2014 Trustees Report

Please join AEI as the chief actuary for Medicare summarizes the report’s results, followed by a panel discussion of what those spending trends are likely to mean for seniors, taxpayers, the health industry, and federal policy.

Friday, August 01, 2014 | 10:30 a.m. – 12:00 p.m.
Watergate revisited: The reforms and the reality, 40 years later

Please join us as four of Washington’s most distinguished political observers will revisit the Watergate hearings and discuss reforms that followed.

No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.