NCPA - National Center for Policy Analysis

Comparative Effectiveness Reviews

August 1, 2011

A new study from the Pacific Research Institute examines the prospective implications of the forthcoming expansion of quasi-federal comparative effectiveness review (CER) processes for private-sector investment in the research and development of new and improved medical technologies.

Because federal policymakers have powerful incentives to restrain the growth of federal health care outlays, an expanded federal role, whether direct or indirect, will engender behavioral responses from the private sector driven by expectations of how CER findings will be used.  In the context of pharmaceuticals and medical devices and equipment, these expectations can be summarized as:

  • A need for expansion of private clinical testing to include preliminary CER analysis.
  • Increased pricing pressures.
  • An increased risk of non-approval or limited approval for federally financed programs.
  • A shortening of the effective patent period and a delay in expected sales revenues.

Using data from the National Science Foundation and other sources, the analysis concludes that under conservative assumptions:

  • Research and development (R&D) investment in new and improved pharmaceuticals and devices and equipment would be reduced by about $10 billion per year over the period 2014 through 2025, or about 10-12 percent.
  • This reduction in the advance of medical technology would impose an expected loss of about 5 million life-years annually, with a conservative economic value of $500 billion.
  • This adverse effect would not be spread across the U.S. population uniformly; instead, it would be concentrated upon specific population subgroups the identity of which would depend on how the investment cutbacks were to be implemented.
  • In particular, the adverse investment effects are likely to be concentrated on R&D efforts that otherwise would yield technologies serving smaller populations, riskier treatments and drugs expected to prove relatively less profitable.

These findings suggests that an expanded CER process at the federal level -- a top-down process -- may be very unwise in a policy context, and that a renewed emphasis upon a "bottom up" approach of experimentation by many millions of practitioners and patients would be a more fruitful vehicle.

Source: Benjamin Zycher, "Comparative Effectiveness Reviews: Quantitative Analysis of Research and Development Investment Effects," Pacific Research Institute, July 2011.


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