Economic Issues Associated with Incorporating Cost-Effectiveness Analysis into Public Coverage Decisions in the United States
Economic Issues Associated with Incorporating Cost-Effectiveness Analysis into Public Coverage Decisions in the United States
This chapter reviews the role of cost-effective analysis (CEA) in treatment coverage determinations in the United States and discusses two important shortcomings of CEA. First, CEA can fail to allocate scarce resources in a way that is economically efficient because treatments that are equally valuable to society may have similar prices and yet cost society very different amounts to produce. Treatments of equal effectiveness and price will appear equally cost effective to insurers and government payers, even if from the perspective of society they are not. Companies therefore respond to the CEA by charging prices that maximize their profits, and health care spending rises. Second, basing coverage decisions only on a treatment's CEA can stifle innovation. Coverage policies based on cost effectiveness closely resemble price controls, which reduce incentives for innovation. Case studies from HIV/AIDS and cancer illustrate this. The chapter concludes by emphasizing the important role that the United States plays in determining global innovation incentives.
Keywords: cost effectiveness analysis, CEA, economic efficiency, health care spending, medical technology, innovation
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