Health Economics & Policy 3 rd Edition James W. Henderson Chapter 13 Technology in Medicine

The Diffusion of New Technology l The economics of technological change –Cost-increasing technological change –Cost-decreasing technological change l Levels of technology –Non-technology –Halfway technology –High technology l Role of insurance in the diffusion of technology

Effect of Technological Change on Cost

High-cost Medicine l Heart disease –Angioplasty –CABGS –Heart transplantation l Infertility treatment –IUI –IVF –GIFT

Organ Transplantation l History l Current policy l Market for organs –Supply and demand for organs –Property rights l U.S. policy—required request l Britain—contract in provision of organs l Rest of Europe—presumed consent

Number of U.S. Transplants

Cost of Transplant Surgery, 1990

Market for Kidneys, 1998

The Pharmaceutical Industry l Structure of the industry –Basic research – supported by NIH labs and grants –Applied research – looking to development of marketable drug –284 new drug approvals from , 265 originated from industry, 9 from government, and 10 from academia

Risk in Development l DiMasi et al. (2003) examined 538 investigational drugs first tested in humans between –Approved for marketing (84) –Submitted to FDA, but not approved (9) –Submitted to FDA, but abandoned (5) –Human testing terminated < 4 years (227) –Human testing terminated > 4 years (172) –Human testing active 3/31/01 (43)

R&D Process in Pharmaceuticals –Preclinical –Clinical l Phase I – health volunteers to study safety profile, including toxicity, absorption, etc. l Phase II – controlled placebo studies looking at efficacy and safety l Phase III – large scale testing looking at effectiveness and safety –Animal testing – long-term toxicity experiments during clinical phase –FDA review

Steps in Pharmaceutical R&D

Regulating Drug Prices l The economics of drug pricing l Price controls in the U.S. and abroad –Danzon (1996) –Role of generics l Impact of price controls on new drug development

Research v. Promotion

Summary and Conclusions l Technological imperative l Future of biotechnology