Economics of individualization in comparative effectiveness research and a basis for a patient-centered health care

Abstract

The United States aspires to use information from comparative effectiveness research (CER) to reduce waste and contain costs without instituting a formal rationing mechanism or compromising patient or physician autonomy with regard to treatment choices. With such ambitious goals, traditional combinations of research designs and analytical methods used in CER may lead to disappointing results. In this paper, I study how alternate regimes of comparative effectiveness information help shape the marginal benefits (demand) curve in the population and how such perceived demand curves impact decision-making at the individual patient level and welfare at the societal level. I highlight the need to individualize comparative effectiveness research in order to generate the true (normative) demand curve for treatments. I discuss methodological principles that guide research designs for such studies. Using an example of the comparative effect of substance abuse treatments on crime, I use novel econometric methods to salvage individualized information from an existing dataset.

Figure 1

Moral hazard with asymmetric information.

Figure 2

Moral hazard with incomplete (average) CER information.

Figure 3

Moral hazard with incomplete (average) CER information and upward sloping marginal cost curve.

Figure 4

(a) Marginal benefits curve for short-stay versus outpatient under alternative information regimes. (b) Distribution of individual level treatment effects among patients who chose to receive long-stay residential treatment.