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Forum for Health Economics & Policy

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The Value of Diagnostic Testing in Personalized Medicine

Dana P. Goldman
  • Leonard D. Schaeffer Center for Health Policy and Economics, University of Southern California, Los Angeles, CA, USA
/ Charu Gupta
  • Precision Health Economics, Los Angeles, CA, USA
/ Eshan Vasudeva
  • Precision Health Economics, Los Angeles, CA, USA
/ Kostas Trakas
  • Janssen Diagnostics, Toronto, ON, Canada and Philadelphia, PA, USA
/ Ralph Riley
  • Janssen Diagnostics, Toronto, ON, Canada and Philadelphia, PA, USA
/ Darius Lakdawalla
  • Leonard D. Schaeffer Center for Health Policy and Economics, University of Southern California, Los Angeles, CA, USA
/ David Agus
  • Center for Applied Molecular Medicine, University of Southern California, Los Angeles, CA, USA
/ Neeraj Sood
  • Leonard D. Schaeffer Center for Health Policy and Economics, University of Southern California, Los Angeles, CA, USA
/ Anupam B. Jena
  • Harvard Medical School and Massachusetts General Hospital, Boston, MA, USA
/ Tomas J. Philipson
  • Corresponding author
  • Harris School of Public Policy, The University of Chicago, 1155 East 60th Street, Chicago, IL 60637, USA
  • Email:
Published Online: 2013-09-14 | DOI: https://doi.org/10.1515/fhep-2013-0023


Personalized medicine – the targeting of therapies to individuals on the basis of their biological, clinical, or genetic characteristics – is thought to have the potential to transform health care. While much emphasis has been placed on the value of personalized therapies, less attention has been paid to the value generated by the diagnostic tests that direct patients to those targeted treatments. This paper presents a framework derived from information economics for assessing the value of diagnostics. We demonstrate, via a case study, that the social value of such diagnostics can be very large, both by avoiding unnecessary treatment and by identifying patients who otherwise would not get treated. Despite the potential social benefits, diagnostic development has been discouraged by cost-based, rather than value-based, reimbursement.

Keywords: diagnostics; personalized medicine; social value; value-based reimbursement


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About the article

Corresponding author: Tomas J. Philipson, Harris School of Public Policy, The University of Chicago, 1155 East 60th Street, Chicago, IL 60637, USA, e-mail:

Published Online: 2013-09-14

Published in Print: 2013-09-01

For example, HercepTest is an assay to determine HER2 protein overexpression in breast cancer tissue. Only breast cancer patients who overexpress HER2 respond to therapy with Herceptin (trastuzumab), a monoclonal antibody (Hudis 2007).

Citation Information: Forum for Health Economics and Policy, ISSN (Online) 1558-9544, ISSN (Print) 2194-6191, DOI: https://doi.org/10.1515/fhep-2013-0023. Export Citation

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