Health Economics & Health Economics & PolicyPolicy22ndnd Edition Edition

James W. HendersonJames W. Henderson

Chapter 12Chapter 12

Technology in MedicineTechnology in Medicine

Copyright 2002, South-Western, a division of Thomson Learning, James W. Henderson, Health Economics and Policy, 2e

The Diffusion of New The Diffusion of New TechnologyTechnology

The economics of technological changeThe economics of technological change– Cost-increasing technological changeCost-increasing technological change– Cost-decreasing technological changeCost-decreasing technological change

Levels of technologyLevels of technology– Non-technologyNon-technology– Halfway technologyHalfway technology– High technologyHigh technology

Role of insurance in the diffusion of Role of insurance in the diffusion of technologytechnology

High-cost MedicineHigh-cost Medicine

Heart diseaseHeart disease– AngioplastyAngioplasty– CABGSCABGS– Heart transplantationHeart transplantation

Infertility treatmentInfertility treatment– IUIIUI– IVFIVF– GIFTGIFT

Organ TransplantationOrgan Transplantation

HistoryHistory Current policyCurrent policy Market for organsMarket for organs

– Supply and demand for organsSupply and demand for organs– Property rightsProperty rights

U.S. policy—required requestU.S. policy—required request Britain—contract in provision of organsBritain—contract in provision of organs Rest of Europe—presumed consentRest of Europe—presumed consent

Number of U.S. Number of U.S. TransplantsTransplants

Year Kidney Pancreas Kidney/Pancreas

Liver Heart Lung Heart/Lung

1981 4,883 - - 26 62 0 51985 7,695 - - 602 719 2 301990 9,358 60 459 2,631 2,095 203 521995 10,954 103 915 3,819 2,344 870 691996 11,228 157 857 3,918 2,319 812 381997 11,536 193 845 4,005 2,266 925 631998 12,229 230 968 4,456 2,309 860 471999 12,400 358 933 4,586 2,160 873 48

Waiting List1 46,489 725 2,225 14,710 4,121 3,491 2321995 AverageBilled Price2 $92,700 $66,6005 - $280,200 $222,700 $265,100 $264,4003

Patientsurvival rate4

1-year (%) 3-year 5-year

95.3-97.75

88.9-94.681.8-91.0

95.588.784.2

93.888.082.7

87.879.274.2

85.876.969.8

76.058.144.2

59.751.441.7

Cost of Transplant Cost of Transplant Surgery, 1990Surgery, 1990

Organ NumberTransplanted

Estimated

Cost1

(millions)

EstimatedAverage Cost

pertransplant

Number onWaiting List

EstimatedCost if DonorOrgans were

Available2

TotalEstimated

Cost(millions)

Kidney 9,433 $ 283.0 $ 30,000 17,689 $ 530.7 $ 813.7Heart 1,998 219.8 110,000 1,761 193.7 413.5Liver 2,534 582.8 230,000 1,082 248.9 831.7Heart/Lung 52 10.4 200,000 254 50.8 61.2Pancreas 529 21.2 40,000 432 17.3 38.5Lung 187 41.8 218,000 264 59.0 100.8

Total 14,733 $1,159.0 - 21,464 $1,100.4 $2,259.4Source: Organ Transplants, House Hearings, 1991.1. Number transplanted times average cost of the transplant procedure.2. Number on waiting list times average cost of the transplant procedure.

The Pharmaceutical The Pharmaceutical IndustryIndustry

Structure of the industryStructure of the industry– Basic researchBasic research– Applied researchApplied research

R&D process in pharmaceuticalsR&D process in pharmaceuticals– PreclinicalPreclinical– 3 phases of human testing3 phases of human testing– FDA reviewFDA review– Animal testingAnimal testing

Steps in Steps in Pharmaceutical R&DPharmaceutical R&D

Testing PhaseMeanPhase

Length(Years)

Pre-clinical 6.5Phase I 1.5Phase II 2.0Phase III 3.5FDA Review 1.5Animal Testing 3.0*Total Testing 15.0

Regulating Drug PricesRegulating Drug Prices

The economics of drug pricingThe economics of drug pricing Price controls in the U.S. and Price controls in the U.S. and

abroadabroad– Danzon (1996)Danzon (1996)– Role of genericsRole of generics

Impact of price controls on new Impact of price controls on new drug developmentdrug development

Summary and Summary and ConclusionsConclusions

Technological imperativeTechnological imperative Future of biotechnologyFuture of biotechnology