The Economics of Reimbursing New Medical Innovations.
The rapid arrival of new and expensive medical innovation poses a dilemma for policymakers. How do we ensure access to effective new therapies in a cost-efficient manner? Economists can help policymakers measure and understand the net value of new technologies to identify technologies worth their high prices and those that are not. The papers in this session present different approaches to improving our measurement and understanding of value. Lakdawalla, Malani, and Reif demonstrate that new medical innovation provides insurance value, previously overlooked in value assessments, to consumers. Specifically, the arrival of new technology makes a particular illness less costly, thus insuring consumers against the costs of that illness. Lakdawalla, Malani, and Reif demonstrate how to identify this effect theoretically, and show that it is quantitatively meaningful. Bognar, Chou, et al tackle a related question — how decisionmakers should assess value when evidence of clinical benefit is noisy and uncertain. They present a decision framework that reveals when payers and approval bodies should grant new technologies market access, as a function of measured benefit and imprecision in those measurements. They show that less precise measurements lead to misalignment between payers’ decisions and social efficiency, the solution for which may be increasing the standard of evidence and public subsidization of clinical benefit measure improvement. Finally, Hult and Philipson investigate the impact of new medical innovations on cost. They find that the arrival of new technologies has played a major role in driving healthcare cost upward faster than corresponding health outcomes expansions.