Abstract
Medical innovation has generated significant gains in health over the past decades, but these advances have been accompanied by rapid growth in healthcare spending. Faced with a growing number of high-cost but high-impact innovations, some have argued to constrain prices for new therapies – especially through global caps on pharmaceutical spending and limits on prices for individual drugs. We show that applying this threshold to past innovations would have limited access to many highly valuable drugs such as statins and anti-retrovirals. We also argue that budget caps violate several important principles of health policy. First, budget caps treat healthcare spending as a consumption good, like going to a movie or buying a meal. However, healthcare spending should be viewed as an investment, whose benefits accrue over many years – much like spending on education. Second, budgetary cost is a poor indicator of value, thereby distorting coverage decisions. Third, affordability arguments often use a short-term horizon, thereby missing that long-term health is society’s ultimate goal. Fourth, assessments of benefit should incorporate not just the immediate clinical benefit to patients, but also long-term health improvements, cost savings, and increased productivity. Fifth, global budget caps arbitrarily anchor spending on the status quo, thereby setting too stringent a threshold for socially-desirable innovation. In sum, a solitary focus on short-term costs can be detrimental to population health in the long-run. When medical treatment decisions are properly viewed as investments, budget caps are not the answer; rather, we need to find mechanisms to encourage spending decisions based on long-term value. Only then can we generate health returns to societal investments, while also encouraging the new research and development necessary to extend the gains of recent decades.
Funding: Amgen Corporation.
References
Acemoglu, D., and J. Linn. 2004. “Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry.” Quarterly Journal of Economics 119 (3): 1049–1090.10.3386/w10038Search in Google Scholar
Basu, A. 2015. “Financing Cures in the United States.” Expert Review of Pharmacoeconomics & Outcomes Research 2015; 15: 1–4.10.1586/14737167.2015.990887Search in Google Scholar
Bosely, S. 2015. “Hepatitis C Drug Delayed by NHS Due to High Cost.” The Guardian. January 15, 2015. http://www.theguardian.com/society/2015/jan/16/sofosbuvir-hepatitis-c-drug-nhs.Search in Google Scholar
Carlson, J. J., S. D. Sullivan, L. P. Garrison, P. J. Neumann, and D. L. Veenstra. 2010. “Linking Payment to Health Outcomes: A Taxonomy and Examination of Performance-based Reimbursement Schemes between Healthcare Payers and Manufacturers.” Health Policy 96 (3): 179–190.10.1016/j.healthpol.2010.02.005Search in Google Scholar
Garrison Jr, L. P., and D. L. Veenstra. 2009. “The Economic Value of Innovative Treatments Over the Product Life Cycle: The Case of Targeted Trastuzumab Therapy for Breast Cancer.” Value in Health 12 (8): 1118–1123.10.1111/j.1524-4733.2009.00572.xSearch in Google Scholar
Giaccotto, C., R. E. Santerre, and J. A. Vernon. 2005. “Drug Prices and Research and Development Investment Behavior in the Pharmaceutical Industry.” Journal of Law and Economics 48 (1): 195–214.10.1086/426882Search in Google Scholar
Goldman, D. P., D. N. Lakdawalla, T. J. Philipson, and W. Yin. 2010a. “Valuing Health Technologies at NICE: Recommendations for Improved Incorporation of Treatment Value in HTA.” Health Economics 19 (10): 1109–1116.10.1002/hec.1654Search in Google Scholar
Goldman, D. P., P. Michaud, D. N. Lakdawalla, Y. Zheng, A. Gailey, and I. Vaynman. 2010b. “The Fiscal Consequences of Trends in Population Health.” National Tax Journal 63 (2): 307–330.10.17310/ntj.2010.2.07Search in Google Scholar
Goldman, D. P., D. Cutler, J. W. Rowe, P. Michaud, J. Sullivan, D. Peneva, and S. J. Olshansky. 2013. “Substantial Health and Economic Returns from Delayed Aging may Warrant a New Focus for Medical Research.” Health Affairs 32 (10): 1698–1705.10.1377/hlthaff.2013.0052Search in Google Scholar
Goldman, D. P., T. Juday, M. T. Linthicum, L. Rosenblatt, and D. Seekins. 2014. “The Prospect of a Generation Free of HIV may be within Reach if the Right Policy Decisions are Made.” Health Affairs 33 (3): 428–433.10.1377/hlthaff.2013.1280Search in Google Scholar
Gonzalez, J. 2013. “National Health Care Expenses in the U.S. Civilian Noninstitutionalized Population, 2011.” In Medical Expenditure Panel Survey: Statistical Brief #425. Rockville, MD: Agency for Healthcare Research and Quality.Search in Google Scholar
Grabowski, D. C., D. N. Lakdawalla, D. P. Goldman, M. Eber, L. Z. Liu, T. Abdelgawad, A. Kuznik, M. E. Chernew, and T. Philipson. 2012. “The Large Social Value Resulting from Use of Statins Warrants Steps to Improve Adherence and Broaden Treatment.” Health Affairs 31 (10): 2276–2285.10.1377/hlthaff.2011.1120Search in Google Scholar
Gross, T., and M. J. Notowidigdo. 2011. “Health Insurance and the Consumer Bankruptcy Decision: Evidence from Expansions of Medicaid.” Journal of Public Economics 95 (7–8): 767–778.10.1016/j.jpubeco.2011.01.012Search in Google Scholar
Hay, M., D. W. Thomas, J. L. Craighead, C. Economides, and J. Rosenthal. 2014. “Clinical Development Success Rates for Investigational Drugs.” Nature Biotechnology 32 (1): 40–51.10.1038/nbt.2786Search in Google Scholar
Health Policy Brief: Reducing Waste in Health Care. Health Affairs December 13 2012.Search in Google Scholar
Institute for Clinical and Economic Review. The ICER Value Assessment Framework. 2014; Accessed July 20, 2015. http://www.icer-review.org/wp-content/uploads/2014/01/ICER-value-assessment-framework-v1-26-15.pdf.Search in Google Scholar
Institute for Clinical and Economic Review. Evaluating the Value of New Drugs. 2015a; Accessed July 20, 2015. http://www.icer-review.org/wp-content/uploads/2014/01/ICER-value-assessment-framework-for-drug-assessment-and-pricing-reports-July-2015.pdf.Search in Google Scholar
Institute for Clinical and Economic Review. 2015b Evaluating the Value of New Drugs and Devices. Slide presentation.Search in Google Scholar
Lakdawalla, D., J. Shafrin, C. Lucarelli, S. Nicholson, Z. M. Khan, and T. J. Philipson. 2015. “Quality-adjusted Cost of Care: A Meaningful Way to Measure Growth in Innovation Cost versus the Value of Health Gains.” Health Affairs 34 (4): 555–561.10.1377/hlthaff.2014.0639Search in Google Scholar
Lu, Y., J. R. Penrod, N. Sood, S. Woodby, and T. Philipson. 2012. “Dynamic Cost-effectiveness of Oncology Drugs.” Amercian Journal of Managed Care 18 (11): S249–S256.Search in Google Scholar
Michaud, P.-C., D. Goldman, D. Lakdawalla, A. Gailey, and Y. Zheng. 2011. “Differences in Health between Americans and Western Europeans: Effects on Longevity and Public Finance.” Social Science & Medicine 73 (2): 254–263.10.1016/j.socscimed.2011.05.027Search in Google Scholar
National Institute for Health and Care Excellence (NICE). Sofosbuvir for Treating Chronic Hepatitis C: NICE Technology Appraisal Guidance [TA330]. February 2015; Accessed July 13, 2015. https://www.nice.org.uk/guidance/ta330.Search in Google Scholar
Nord, E., J. Richardson, A. Street, H. Kuhse, and P. Singer. 1995. “Maximizing Health Benefits vs. Egalitarianism: An Australian Survey of Health Issues.” Social Science & Medicine 41 (10):1429–1437.10.1016/0277-9536(95)00121-MSearch in Google Scholar
Philipson, T. 2015. “Should Economists Perform Surgery and Doctors Conduct Economic Policy?” Accessed April 17, 2015. http://www.forbes.com/sites/tomasphilipson/2015/02/03/should-economists-perform-surgery-and-doctors-conduct-economic-policy/.Search in Google Scholar
Ramsey, S., D. Blough, A. Kirchhoff, K. Kreizenbeck, C. Fedorenko, K. Snell, P. Newcomb, W. Hollingworth, and K. Overstreet. 2013. “Washington State Cancer Patients Found to be at Greater Risk for Bankruptcy than People without a Cancer Diagnosis.” Health Affairs 32 (6): 1143–1152.10.1377/hlthaff.2012.1263Search in Google Scholar
Romley, J. A., Y. Sanchez, J. R. Penrod, and D. P. Goldman. 2012. “Survey Results Show that Adults are Willing to Pay Higher Insurance Premiums for Generous Coverage of Specialty Drugs.” Health Affairs 31 (4): 683–690.10.1377/hlthaff.2011.1301Search in Google Scholar
Seabury, S. A., D. P. Goldman, J. R. Maclean, J. R. Penrod, and D. N. Lakdawalla. 2012. “Patients Value Metastatic Cancer Therapy more Highly than is Typically shown through Traditional Estimates.” Health Affairs 31 (4): 691–699.10.1377/hlthaff.2012.0174Search in Google Scholar
Tice, J. A., D. A. Ollendorf, H. S. Chahal, J. G. Kahn, E. Marseille, J. Weissberg, K. K. Shore, and S. D. Pearson. 2015. “The Comparative Clinical Effectiveness and Value of Novel Combination Therapies for the Treatment of Patients with Genotype 1 Chronic Hepatitis C Infection.” A Technology Assessment Final Report. Boston, MA, USA: Institute for Clinical and Economic Review.10.1001/jamainternmed.2015.3348Search in Google Scholar
Weiss, A., A. Elixhauser, and R. Andrews. 2014. “Characteristics of Operating Room Procedures in U.S. Hospitals, 2011.” In Healthcare Cost and Utilization Project: Statistical Brief #170. Rockville, MD: Agency for Healthcare Research and Quality.Search in Google Scholar
©2016 Walter de Gruyter GmbH, Berlin/Boston