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How restrictive value assessments affect R&D and innovation

Health technology assessment (HTA) is growing in popularity. Already widely entrenched in Europe, in the U.S. value frameworks are being used to measure the cost effectiveness of different therapies.  Some of these frameworks, however, take a narrow view of societal benefits and value to include components of value to patients or society such as caregiver burden, the value of hope, insurance valueoption value or other components of value that take into account uncertainty or non-payer value components.

The question is, does this matter? Well, if prices are being set based on a treatments benefits, prices will not reflect true value if not all benefits are included. More importantly, research and development (R&D) may move towards relatively safer investments. That is the argument made by Cook and Golec (2017).  They summarize their study as follows:

This paper presents a real options model to value biopharmaceutical R&D investment and shows how excluding option benefits from HTA can affect R&D.We show that it discourages certain investments in high risk (volatile) R&D projects and encourages investments in safer (positively skewed) ones. The model helps to explain recent changes observed in biopharmaceutical R&D investments that are coincident with growing application of HTA.

Robust policymaking requires understanding not only how drug pries affect current patients and payers, but also how these prices and treatment valuations affect R&D for future treatments.  This paper provides a nice contribution to better understand the mechanism for the latter.

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