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date: 15 December 2019

New Technologies and Costs in Healthcare

Summary and Keywords

New sanitation and health technology applied to treatments, procedures, and devices is constantly revolutionizing epidemiological patterns. Since the early 1900s it has been responsible for significant improvements in population health by turning once-deadly diseases into curable or preventable conditions, by expanding the existing cures to more patients and diseases, and by simplifying procedures for both medical and organizational practices. Notwithstanding the benefits of technological progress for the population health, the innovation process is also an important driver of health expenditure growth across all countries. The technological progress generates additional financial burden and expands the volume of services provided, which constitutes a concern from an economic point of view. Moreover, the evolution of technology costs and their impact on healthcare spending is difficult to predict due to the revolutionary nature of many innovations and their adoption. In this respect, the challenge for policymakers is to discourage overadoption of ineffective, unnecessary, and inappropriate technologies. This task has been long carried out through regulation, which according to standard economic theory is the only response to market failures and socially undesirable outcomes of healthcare markets left on their own. The potential welfare loss of a market failure must be confronted with the costs of regulatory activities. While health technology evolution delivers important value for patients and societies, it will continue to pose important challenges for already overextended public finances.

Keywords: health technology, health expenditure, costs, regulation, innovative medicines, health economics

New Technologies and Population Health: Benefits and Costs

Health is a fundamental component of the physical and mental well-being of any individual and society. However, it was not until the mid-1950s that healthcare came to the attention of economists, a period when the average health status of high-income countries was well below early 21st-century standards, though much better than at the beginning of the 20th century. According to Topel (2017), in 1900 about 18% of newborn males in the United States died before their first birthday, while 100 years later that same mortality was reached by 63-year-old adults. Similarly, newborn mortality rates in 1900 ranged from 20% in Germany; to 15% in France, Italy, Spain, and the United Kingdom; to 8% in Sweden. In 2000 child mortality in industrialized countries decreased to 0.5% (Atella, Francisci, & Vecchi, 2017). These health gains translated into increases in life expectancy at birth, especially in the early 20th century when the reduction in mortality was concentrated among younger cohorts affected by infectious diseases.

These improvements in population health have been possible thanks to advances in sanitation and health technology (mainly vaccines and antibiotics). In particular, technological progress has constantly revolutionized the healthcare sector, solving clinical and health problems through products, procedures, and practices, interacting not only with treatments but also with prevention, diagnosis, and management of diseases. Discovery of new treatments turned once-deadly diseases into curable or preventable conditions, expanded the existing cures to more patients and diseases, and simplified procedures applied to both medical and organizational practices. Today medicine is almost fully dependent on new technology, and this interconnection is more and more common. For example, while very little could have been done to save pre-term babies before 1950, at the end of the 20th century, ventilators, artificial pulmonary surfactants to help infant lungs develop, neonatal intensive care, and steroids for mother and/or baby helped decrease mortality to one-third its 1950 level, with an overall increase in life expectancy of about 12 years per low-birthweight baby. Another key example is that of cardiac care, which evolved from the application of lidocaine for irregular heartbeat, beta blockers for lowering blood pressure, and aspirin for blood thinning to coronary artery bypass surgery, angioplasty, stents, cardiac rehabilitation, cardiac defibrillators, and more, eventually halving the US mortality from heart attack from 345.2 per 100,000 persons in 1980 to 186.0 in 2000 (Skinner, 2013). In general, new generations of battery-powered tools offered a whole new range of minimally invasive surgical procedures, while customized cancer drugs hold the promise of making fatal diseases treatable.

Such technology proliferation is continuing to cause astonishing improvements in population life expectancy.1 According to the Global Health Observatory (GHO) of the World Health Organization (WHO), global average life expectancy increased by 5 years between 2000 and 2015, the fastest increase since the 1960s. Most of this increase came from gains in the WHO African Region, where life expectancy increased by 9.4 years to 60 years, driven mainly by improvements in child survival and expanded access to anti-retrovirals for treatment of HIV. In high-income countries several studies have shown that life expectancy at birth has steadily increased by 3 months per year since the 1970s, and there are no signs that the trend is slowing down (Oeppen & Vaupel, 2002; Robine & Paccaud, 2005; Robine, Saito, & Jagger, 2003; White, 2002). Lichtenberg (2014, 2016, 2017) shows that pharmaceutical innovation relative to specific cancer sites undertaken in many countries is reducing premature mortality for those specific cancers. Looking ahead, EUROSTAT predicts that life expectancy will continue to rise in the European Union in the upcoming decades, reaching 89.1 years for females and 84.6 for males in 2060.

On the negative side, all this technology and the associated improvements in health outcomes have come at a price, as healthcare spending has increased enormously across all countries. According to the Organisation for Economic Co-operation and Development (OECD, 2017, p. 47), “technology has contributed significantly to human health and welfare, but its diffusion has been a significant driver of expenditure growth. This is due to the rising (real) cost of technology but also because new technology has expanded the volume of services provided, instead of substituting for existing processes and procedures.” Since the 1970s, spending has grown by 2% in excess of GDP growth across all OECD countries. As a result, healthcare has become a much bigger part of most of these economies with an average share of 9% of GDP in 2015, and if the trends persist to 2050, it is forecast to reach more than 20% of GDP for healthcare.

The social benefits of these technological advancements have largely outweighed the rise in cost, and they are therefore justified from an economic point of view (Becker, 2007; Becker, Philipson, & Soares, 2005; Murphy & Topel, 2003; Nordhaus, 2002; Topel, 2017). However, as argued by Chandra and Skinner (2012), the use (and sometimes overuse) of a large number of technologies is ineffective, unnecessary, and inappropriate, being also a potential source of secondary health problems for patients. Along the same line, OECD (2017) highlights that “the cost-effectiveness and value of new medical technology has progressively diminished over the past century (a fact acknowledged even by researchers finding good aggregate value from this expenditure), through a combination of rising prices and lower incremental benefits—that is, systems are paying progressively more for new technology and getting less health in return at the margin.” According to Chen and Goldman (2016) the increasing trends in healthcare costs are not driven only by technology itself but rather by how technology is adopted and diffused within the system (via hospital wards and medical practices).

More importantly, based on the existing literature, it is unclear if allocating some technology-related funds to other sectors (e.g., education) could be more efficient by potentially furthering prevention of the diseases treated by new technologies. The research question should hence shift from “Has the expenditure growth been worth it?” to “Could we produce more value by allocating resources in alternative ways?” This issue has important policy implications and gains importance in the current context of fiscal limitations, demographic changes, and rising community expectations. The answer should be based on a proper valuation of changes in mortality and morbidity due to research and development in the medical sector.

This article examines the historical impact of health technology and applies these findings to the future management and integration of emerging technologies such as precision medicine, combination products, mobile health, and 3D bio-printing. It discusses the need for and utility of efforts such as horizon scanning and foresight studies to help healthcare systems prepare for the types of health technology that are still some way off but have the potential to both disrupt and revolutionise healthcare delivery.

The roadmap of this article is as follows: the next section describes the nature of technological progress and its impact on healthcare costs in recent decades. In the third section we discuss the possible domains in which health technology leverages the innovation process. The fourth section discusses the regulatory aspects relevant for the healthcare innovation process, while the fifth depicts the future prospects in health technology—its expected costs and directions of evolution.

Technological Progress in the Healthcare Sector: The Impact on Health Outcomes and Costs

According to OECD (2017, p. 18), technological progress in the healthcare sector is defined as “the application of knowledge to solve practical clinical, and health problems, including products, procedures, and practice styles that alter the way health care is delivered. Such a definition includes biomedical technology—such as medicines, medical devices, and diagnostics—as well as enabling technology such as mobile health (mHealth) and ‘Big Data.’ The definition also includes innovations in processes and care delivery.” The birth of modern medicine is considered to have occurred in the 19th century with an important number of discoveries and new theories ranging from modern physiology (Claude Bernard), to anesthesia (William Green Morton), antisepsis (Joseph Lister and Ignaz Semmelweis), x-rays (Wilhelm Roentgen), germ theory (Louis Pasteur and Robert Koch), and psychiatric theory (Sigmund Freud). The 20th century started with the development of modern medicines (Paul Erlich) and the discovery of sulfa drugs (Gerhard Domagk) and antibiotics (Alexander Fleming). By capitalizing on these discoveries, the second part of the 20th century saw an explosion of medical technology. The post–World War II era experienced a prosperous innovation process giving rise to modern chemotherapeutic agents to treat life-threatening diseases like diabetes (insulin by Frederick Banting, Charles Best, and John Macleod), cancer, and hypertension. As described by Chen and Goldman (2016), the period 1960–1980 witnessed new technologies like diuretics (1958), beta blockers (1962), and vaccinations for measles (1963), mumps (1967), and meningitis (1978). Later, the growing field of biotechnology started to produce innovations like mammography imaging (1974), computerized tomography scans (1975), and ultrasound (1978). In the field of medical surgery, among the most important achievements are the first transplants of liver (1962), lung (1963), and heart (1967) and experiments with techniques such as gene splicing (1973) and in vitro fertilization (1978). The late 20th and early 21st centuries have seen an even more rapid evolution of technology, with the first permanent artificial heart implants, implantable cardioverter defibrillator (ICD), deep-brain electrical stimulation system, first laser surgery on a human cornea, angioplasty used for treatment and revascularization along with stents to keep blood vessels open, and the Human Genome Project.

Unlike other economic sectors, where technological progress frequently boosts performance at a lower price, the healthcare sector has been characterized by new technologies that increased performance at higher prices. As a result, over the last decades of the 20th century and the beginning of the 21st century, healthcare spending has consistently risen more rapidly than spending in any other sector. This has occurred due to mechanisms such as the development of treatments for previously untreatable conditions, the extension of treatments to wider patient populations, or, more simply, improvement in terms of quality of existing treatments (Cutler, McClellan, & Newhouse, 1998; Eggleston et al., 2011). The way health technology impacts costs and expenditure is strictly related to the nature of its innovativeness. First of all, in the case of a novel treatment, it is important to understand if it adds to the stock of an existing treatment or if it represents a substitutive treatment, whether it is used as a single compound or if it entails other complementary treatments and if its introduction lowers or increases the pre-existing costs. Second, the cost depends on the degree of diffusion and the scale of its outreach to the population. Advances in medical technologies generally expand their application as much as possible, resulting in higher total expenditure even when new technologies are associated with lower unit costs (Cutler & Huckman, 2003; Weisbrod, 1991). Finally, cost is a function of the temporal realization of the related health and economic outcomes, with some innovations leading to savings only in the long run. It is rather common that a new technology incorporates all the above features, making it difficult to evaluate its overall impact.

The role of proper measurement of better quality embedded in new technologies is a major problem for researchers working in this field. This problem has been highlighted by several researchers who have used different methods to evaluate quality change in healthcare. Rosen and Cutler (2007) noted that “while some studies have suggested that [healthcare] productivity growth is reasonable in aggregate . . . , others argue that there is substantial waste at the margin.”

Within the mainstream economic literature, the costs of new technologies are said to be the most important driver of healthcare expenditure, and since the seminal work of Newhouse (1992), researchers have frequently analyzed the nature and magnitude of this relationship. The adoption and the rapid diffusion of medical technology is regarded as the main determinant of increasing health expenditures across healthcare systems (Cutler & McClellan, 1998; Newhouse, 1992; Okunade & Murthy, 2002; Weisbrod, 1991), accounting for 30 to 70% of health expenditure growth (Australian Productivity Commission, 2005; Barros, 1998; Congressional Budget Office, 2008; Pestieau, 2006; Newhouse, 1992). Several authors have also shown that health expenditure growth is attributable to costly new technologies rather than increasing costs of the existing ones (Cutler & McClellan, 1996; Cutler et al., 1998). According to Cutler et al. (1998), Berndt, Bir, Busch, Frank, and Normand (2002), Cutler (2004), and Lichtenberg (2014, 2016, 2017), a number of costly technological advances have allowed survival rates and health status in general to improve significantly. In a more nuanced analysis, Cutler, Rosen, and Vijan (2006) argue that the increases in medical spending since 1960 have provided reasonable value, while since 1980 healthcare spending on the elderly was associated with a very high cost per year of life gained. Skinner and Staiger (2015) show that small differences in technology adoption lead to wide productivity differences in terms of survival gains and patient outcomes, especially if the innovations are cost-effective.

In fact, according to Chandra and Skinner (2012) and Skinner and Staiger (2015), the impact of new technologies on health outcomes is strictly related to the effectiveness of the technologies, where the most important gains are found for highly cost-effective new technologies. Put differently, while healthcare systems adopt and channel new health technologies, the effects of the adoption are not always positive in terms of productivity, outcomes, and cost-effectiveness (Cutler, 2004).

Chandra and Skinner (2012) propose a synthetic categorization of the technological innovations, including (1) universally efficient innovations, providing very high medical value for money spent, generating the most important gains in longevity, frequently represented by a pronounced excess of effectiveness with respect to costs (treatments like antibiotics, aspirin, beta blockers, HIV antiretrovirals, antiseptic formulas, or casts); (2) efficient innovations from the point of view of a narrower group of patients, delivering high medical value at high cost (innovations like angioplasty, which is very effective if applied in the right protocol for heart-attack patients but is frequently overly administered due to the distortive incentives of the compensation schemes, the cost-effectiveness of which is less clear); and (3) innovations that are only marginally efficient, delivering uncertain medical value at a very high cost, whose justification finds little support in the scientific literature, generating the most of the healthcare cost increments (often related to complex and expensive surgical procedures, whose less expensive alternatives are found to provide no less medical value, such as proton-beam accelerators in prostate cancer treatment or aggressive cardiac treatments in very elderly patients).

The complexity of cost-effectiveness evaluation and the generosity of many private and public health systems results in an excessive rate of diffusion and utilization of technological innovations, often only on the basis of their novelty and not in terms of the real benefit they bring. Since technology drives contemporaneously supply—offering new solutions to healthcare problems—and demand—especially in systems where consumption is subsidized—it will also drive the costs, often in a way not strictly related to the improvement in outcomes it is supposed to deliver. The efficient use vis-à-vis performance and sustainability requires information on the clinical value of treatments. Scrutinizing the impact on total cost of care and on patient long-term health outcomes is fundamental, especially in a context of rising healthcare costs due to population aging. Clinical trial data, health technology assessments, cost-effective analysis, and real-world evidence enable the analysis of the impact of technological innovations on population health and a comparison of substitute therapies to optimize treatments.

Health Technology Domains

In order to understand the variety of technologies available in the healthcare sector, how they are evolving, and how they can affect costs and outcomes, this section provides an overview of the main domains in which technological progress leverages the healthcare sector. For convenience of exposition, they are broadly categorized into drug treatments, medical and surgical procedures, medical devices, support systems, and precision medicine.

Drug Treatments

An important share of health technology progress has materialized as new drug treatments. As early as the 17th century, lemon juice was found to be effective in preventing scurvy (Berwick, 2003). Since then, one of the turning points in the pharmaceutical profession was the development of penicillin and subsequent antimicrobial agents. As a result, mortality from, for example, certain types of bacterial meningitis decreased from 100% to 20% during the 20th century (Swartz, 2004). Alsan et al. (2018) find that, after its introduction in Italy, penicillin reduced mean infectious disease mortality rates by about 67% and, most importantly, produced substantial convergence in mortality rates across Italian regions, decreasing the standard deviation of penicillin-sensitive disease mortality by 68%.

Over the years vaccines emerged as another prominent example of technological innovation, which has brought important reductions in the incidence of communicable diseases in many parts of the world. They are crucial for the functioning of public health, being targeted at overall populations, with unprecedented gains in life expectancy. Another example of progress is represented by antiretroviral therapy for HIV. Its effectiveness is very high due to the low risk of inappropriate utilization: individuals receiving the drug are well identified and the margins of erroneous administration are very narrow, while the gains for the population at need are sizable (Chandra & Skinner, 2012).

Interestingly, several drug treatments proved to be more effective for diseases to which they were not originally targeted. For example, in the late 1980s aspirin was officially introduced within guidelines for the cure of acute myocardial infarction, easing blood flow and limiting clotting. Beta blockers, notoriously one of the cheapest pharmaceutical technologies, were found to reduce mortality for cardiovascular diseases by as much as 25% if prescribed after a heart attack (Yusuf, Peto, Lewis, Collins, & Sleight, 1985).

Over the years, the pharmaceutical sector has gone through important modifications. Historically, it has been based on drugs obtained from “chemical” synthesis, combining specific chemical ingredients in an ordered process. More recently, new technologies have allowed companies to produce completely different types of drugs know as “biologic.”2 This class of medications is not synthesized chemically—instead they are harvested directly from existing biological sources. Most modern biologics (including vaccines) are manufactured in a living system (i.e., a microorganism, a plant, or animal cells) inside bioreactors that house genetically engineered microbes or mammalian cell cultures. Most biologics are very large, complex molecules or mixtures of molecules and are often more difficult to characterize than small-molecule “chemical” drugs. Biologic drugs take different forms; they can be made of whole cells, alive or dead; they can be produced by cells, like antibodies secreted by our immune system’s B cells; or they can represent internal parts of cells, like enzymes. Many biologics are produced using recombinant DNA technology. Today they represent the forefront of the innovation in the pharmaceutical sector.

A further group of products is represented by advanced therapy medicinal products (ATMPs), which leverage cell and gene-based approaches to treat disease. ATMPs are distinct from traditional biopharmaceuticals as they contain active cells or genetic constructs that exert a metabolic, immunologic, genetic, or other non-pharmaceutical mechanism of action. ATMPs are technically demanding to design and manufacture and to date have met with very limited commercial success, but the industry is rapidly evolving.

Until the first decade of this century successful companies relied on blockbuster-type therapies, where highly effective breakthrough drugs for common conditions were introduced to target extremely wide markets with large-volume sales.3 Today this paradigm is disappearing, with an increasingly large role played by the development and delivery of drugs that fit the individual patient’s biology and pathophysiology. This process is changing the industry manufacturing process from “blockbuster medicine” to “personalized medicine,” thus influencing the way that drugs are going to be developed, marketed, and prescribed in the future. As a result, the future prescription process is likely to become more heavily based on the results of pharmaco-diagnostic testing.4

A positive effect of increasingly introduced generic and biosimilar drugs is that the price competition in terms of drugs for common diseases should prevent companies from developing new drugs, which would actually represent only marginal refinements with respect to already existing therapies. Developing new drugs has become increasingly difficult, with the patent cliff becoming particularly steep and research and development productivity declining. New pharmacological treatment development concentrates on genetic and molecular processes in disease evolution, which by definition feature heterogeneity between patients and are much more complex. According to Garnier (2008), despite very important increases in pharmaceutical research and development spending, over the years the number of drugs marketed has remained nearly constant. Recent requirements for the development of new therapies will require larger clinical trials. According to Rasmussen (2007), the average cost per approved drug grew from $318 million in 1987 to $1.2 billion in 2007 to $2.87 billion in 2016 (DiMasi, Grabowski, & Hansen, 2016).5

A different trend has been noted for biotech drugs, often originally discovered by smaller companies and then developed and launched by big pharma companies. According to Ling et al. (2007), the performance in terms of profits and number of drugs developed by the biotech industry is much higher than that experienced by big pharma companies. The biotech technologies developed have concentrated to a large extent on cancer, hepatitis C, and immunological disorders such as rheumatoid arthritis, psoriasis, and Crohn’s disease as well as vaccines. Biotech products occupy pole positions in terms of sales, overtaking most common blockbuster therapies such as lipid regulators. Improved outcomes, longer survival, greater tolerability, and wider applicability are the features that today’s manufacturers aim at. The battle against cancer boosted the development of therapies for autoimmune disorders, identifying the origins of incorrect functioning and subsequently enabling the targeting of these areas by preventing or treating the related inflammation.

Biotech products are extremely precise and tailor-made for specific characteristics of patients, hence their price is usually relatively high. Frequently they are initially manufactured by small companies, which, due to the downturn in the capital markets, are often purchased by big pharma companies. The complexity of the conditions biotech drugs address also sparks a serious ethical debate. Since they are frequently developed for lethal diseases, as in the case of cancers or hepatitis C, their complexity justifies the high cost per treatment, but the high cost also casts a shadow on the reputation of their manufacturers, who reap their benefits from dying patients. Recent hepatitis C drugs and treatments for patients with advanced melanoma (T-VEC) are among the most striking examples of drugs that show how the potential effectiveness of a drug may drive the willingness to pay for it and at the same time compromise already limited budgets.

Finally, pharmaceutical companies consider the broad concept of innovating “beyond the pill,” hence assuring the overall treatment process related to the actual pharmacological product. In the developed world, the problem of adherence to drug therapies for common chronic conditions represents an important opportunity for big pharma. Adherence is crucial in therapies for chronic conditions, which are frequently asymptomatic. Such therapies are purely preventive in nature, generating side effects but at the same time requiring very strict medical compliance (Jackevicius, Mamdani, & Tu, 2002). While disease management aimed at adherence improvement is difficult to design and provide from the manufacturers’ point of view, the potential gains from encouraging patients to comply and persist with the treatments prescribed is estimated to have the potential of generating important savings in terms of comorbidities (Sabate, 2003). A number of practical solutions, with the simplest ones such as blister packs to more advanced microchips contained within drug packages or within the pills themselves, should be the future direction of research.

Medical and Surgical Procedures

Modern medicine has come a long way in the diffusion of certain medical and surgical procedures by rendering them less risky, less invasive, less time consuming, and more accessible. Milestones in terms of health technology have been accomplished for infectious diseases. The introduction of hand disinfection before performing obstetric procedures caused a dramatic decrease in maternal mortality (Lane, Blum, & Fee, 2010), while adoption of Lister’s aseptic conditions and wound disinfection resulted in an unprecedented reduction in post-surgical mortality (Chandra & Skinner, 2012).

At the end of the 20th century, the epidemiologic transition of focus from infectious to non-communicable diseases gave rise to important developments of interventions like angiography, angioplasty, and coronary bypass. These inpatient cardiac procedures have been declining in recent years due to the introduction of numerous cost-saving outpatient procedures (Levine & Buntin, 2013). Modern cardiovascular groundbreaking technologies, including left ventricular assistance devices, transaortic valve replacement, left atrial appendage closurs, and bio-absorbable stents, have reformulated the potential market for cardiac procedures (Chandra, Finkelstein, Sacarny, & Syverson, 2013).

In general, switching from inpatient to outpatient procedures (“de-hospitalization”) has allowed hospitals to concentrate on more complex cases and to shorten waiting lists. Routine procedures such as cataract removal, inguinal hernia, tonsillectomy, and cholecystectomy have shifted from multiple-day hospital stays to several-minute, single-day clinic visits, also reducing the post-operative treatments required. According to OECD statistics (OECD, 2017), in 2014 more than 90% of cataract surgery cases in 20 of 28 countries were same-day procedures . Advances in the provision of surgical procedures are also related to improved anesthetics. Additionally, oncological treatments or dialysis are frequently shifted to an ambulatory setting, with superior clinical outcomes and better patient satisfaction. Finally, the deployment of inpatient care due to technological progress also affects follow-up care.

Overall, the lion’s share of the technological progress in this domain is based on the development of medical equipment that enables access to bodily organs in a non-invasive mode. Laser, radiofrequency, light energy, electronic miniaturization, and ultrasonic developments have given rise to significant improvements in surgical procedures, and the 21st century is likely to benefit even more from high-tech innovations.

Medical Devices

As stated by the OECD (2017) and following the council of the European Union (2016), the broad category of medical devices pertains to any type of instrument relevant for the diagnosis, prevention, monitoring, treatment, or examination in diseases or states. As such, medical devices relate to a wide definition of potential risks and benefits they operate within. According to Kirisits and Redekop (2013), the total number of such products registered in the United States and Europe is above 200,000.

Medical devices are closely related to the technological progress accomplished in surgical and medical procedures. Less invasive diagnostic tools have provided access to a wide number of treatments, replacing once complex and prolonged hospital procedures with less invasive treatments. Not only has technology changed the way procedures are performed, it has also widened access to them for patients with milder conditions. An example is biopsy, which in the 1990s was still an invasive and time-consuming procedure, while with new devices (such as flexible scopes and enhanced visualizations) it is frequently preceded by a diagnostic test verifying the actual need for biopsy, and it is sometimes performed in a non-invasive environment.

Due to the rise in unit cost and the number of patients served, ambulatory costs are exploding and hospital stays are more costly. While the initial costs of technical devices are very high, the net present value of the investment is likely to be positive, especially in terms of health outcomes and productivity. However, for many devices this type of evaluation is not straightforward. A simple example of how medical devices evolved over the years is the x-ray developed by Roentgen, which originally introduced unquestionable benefits to the targeted population. In the 21st century, radiation imaging went several steps further with magnetic resonance imaging (MRI), computed tomography (CT) scanning, and positron emission tomography (PET) scanning. In spite of the effectiveness of these devices in the early detection of certain pathologies, in particular cancer, their application is not free of risks and inappropriateness. Radiation exposure accompanying scans points to the need for accurately selecting patients for diagnosis. Thus, the overprescribing of scans is likely to represent sources of inefficiency, which may be magnified by the negative impact of inaccurate diagnosis, false-positive diagnosis in particular, leading to further useless and costly testing (Eklund, Nichols, & Knutsson, 2016).

The evaluation of the cost-effectiveness of medical devices entails specific complications. According to Drummond, Griffin, and Tarricone (2009), the diagnostic nature of many devices introduces important difficulties in evaluating the quantitative impact of the device with respect to the subsequent treatment or patient outcome related to the diagnosis. The devices also frequently have numerous applications, rendering it difficult to assess the value of each action separately. Moreover, the evolution of devices, diagnostic instruments in particular, frequently accompanies the evolution of skills of technicians and medical personnel. As reported by Drummond et al. (2009), the so-called “learning curve” in the use of devices for laparascopic-assisted surgeries in colorectal cancer patients described in Guillou et al. (2005) shows how the effectiveness of a new device with respect to older techniques may change during its evolution. It is also linked to the experience and skills of the operating personnel, which heavily influence devices’ cost-effectiveness. Different uses of devices are also likely to determine the differences in the costs of procedures faced by patients, which vary substantially.

Support Systems and Health Information Technology

Limited and costly access to healthcare has been challenged by the 21st-century advent of electronic technologies capable of making healthcare more cost-effective. According to Kvedar, Coye, and Everett (2014), new care models that employ connected care have the potential to revolutionize healthcare delivery by widening access to high-quality and cost-efficient health services. As an alternative to face-to-face care, hospital professionals and physicians have employed remote healthcare. Such extending of healthcare provision under the constraints of value-based services is found to improve health outcomes (Antonicelli et al., 2008; Bartolini & McNeill, 2012; Fifer, Everett, Mitchell, & Vincequere, 2010; Jaén et al., 2010; Kvedar et al., 2014; Lilly et al., 2011; Polisena et al., 2010). Provision of connected healthcare requires substantial organizational changes, but the potential medical and financial benefits are extensive; however, because this type of technology development is frequently applicable to prevention and diagnosis, the benefits tend to materialize only in the long run.

The developments of information technology (IT) in the health sector are strictly related to the evolution of informatics technology, wireless broadband connectivity, and data storage solutions. This technological domain is also challenged by concerns related to data privacy and security. The application of information technology underlines the role of electronic health records, which in the presence of increasingly cheaper computer power and sophisticated analytics may constitute the interconnection between face-to-face visits and telehealth, coordinating various workforce models in healthcare provision. In fact, according to the meta-analysis of Buntin, Haviland, McDevitt, and Sood (2011), a large majority of recent studies highlight the importance and positive effects of the IT introduction in the healthcare provision system. According to the same review, studies that do not find health IT beneficial often show that the negative evaluation stems from the lack of satisfaction of healthcare professionals, who are not appropriately introduced to the new functioning and management of care. As a result, authors conclude that while telehealth and related health information technologies are developed to render healthcare provision more efficient, cutting down on face-to-face visits and physical contact, they still require the “human element” in provision aspects. Electronic health records and other information technology aspects that physicians find difficult to use shed light on the need to implement adequate training and support among providing professionals in order to maximize the potential of the technologies introduced.

Information technology is rotating around remote monitoring and sensing, mobile health and telehealth, social media and remote diagnosis (IMS, 2014). With the evolution of remote monitoring and sensing, peripheral devices, wearables, and a wide range of other monitoring innovations are able to measure, store, and transmit patients’ health information to healthcare professionals. An important issue addressed by wearable devices relates to treatment adherence, where specific systems of capturing, monitoring, and transmitting data enables physicians to react promptly to improper medical adherence to treatments. Biosensors placed in watches, patches, or within the human body as implants or a swallowed “chip-on-a-pill” are capable of monitoring motion, pressure, temperature, chemicals, and biomarkers. For example, sensor technology may be embedded in T-shirts monitoring temperature and ECG signals with ultra-low-power microcontrollers and wireless electronics. A frontier development in sensing health technology is closed-loop monitoring systems, where drug devices serve as decision support. For instance, constant glucose-monitoring systems will also serve as insulin pumps, administering optimal dosages of insulin at the right time.

Mobile health and telehealth are responsible for the transmission of information and communication between patients and healthcare professionals. Self-managed questionnaires, visual indications, telephone consultations, and real-time counseling are increasing in popularity popularity all over the world. The institution of virtual health centers allows remote rural areas access to medical consultation and advice, including emergency professionals, critical care nurses, pharmacists, and other specialists. Technological progress enables the exchange of diagnostic images, results, as well as real-time video consultations.

With the help of social media expressed in websites, platforms, and applications, patients are able to obtain information, get involved in actions promoting health, participate in discussions, and obtain support and coaching. Patients’ apps and social media diffuse knowledge and education regarding preventive actions, health information, and diet and exercise. Patients may consult apps and web pages to find their proximity to specialized centers or healthy activities, monitor their daily physical activity and diet, incentivize virtuous behaviors such as quitting smoking, or more generally deliver support and information. A number of apps enable patients to capture and monitor their vital signs and disease progression, including heartbeat monitoring, skin neoplasm imaging, or electrocardiogram capturing. Some are designed to foster medical adherence and promote involvement in preventive actions, with reminders for compliance or prevention diagnostics. Pills with “smart cups” or “smart bottles” connected to the Internet alert patients with voice signals to take medication, create adherence reports, send them to physicians, and order subsequent refills. Close adherence monitoring may result in substantial cost reductions related to the condition in question and concomitant comorbidities as well as offer the opportunity to revisit or secure existing reimbursement schemes.

Remote diagnostics manages electronic information under the form of imaging, laboratory tests, and other examinations, transmitting them to healthcare professionals and enabling patients to remotely receive feedback on the state of their conditions. The exchange of diagnostic results among peer physicians promotes accurate and timely diagnosis, where collaboration on complex cases is facilitated. Remote consultations obtained by primary care physicians, instead of referring patients to undertake face-to-face additional specialist visits, is a safe, inexpensive, and time-saving practice. Moreover, a large number of innovations include add-ons, which turn mobile devices into point-of-care diagnostics. As a result, radiologic, retinal, or skin lesions images might be stored and forwarded to relevant professionals with the underlying patient history. The exchange is done through the physician or directly between the patient and the specialist, generating immediate therapeutic recommendations (Kvedar et al., 2014). Fifer et al. (2010) and Lilly et al. (2011) show how intensive professional consultations provided remotely to intensive care unit patients result in 20% reductions in mortality rates and 30% shorter hospital stays, with as much as 13% of US intensive care beds provided with connected health technologies.

Precision Medicine

When talking about new directions in health technology development, one crucial aspect is personalized care. Closing the era of blockbuster drugs and wide-application solutions, healthcare sector business models revolve around targeting tailor-made solutions to particular patients. Personalized or precision care is based on genetics and exploiting individual clinical history together with familiarities in order to improve treatment outcomes. As genetic differences determine the response to type and dosage of a treatment and the relative side effects, biomarker testing may allow targeting specific subpopulations in order to avoid trial-and-errors procedures in therapy assignment. The ultimate technology, DNA sequencing, delivers the possibility to identify specific therapies that best fit the patient’s genotype, increasing its effectiveness and reducing drug waste and healthcare costs in general.

Genome sequencing has undergone important revolutions in terms of both technology and costs. The cost of sequencing the entire genome dropped from $100–300 million in 2001 to about $10 million in 2007 (Wade, 2009; Wolinsky, 2007; Worthey, 2011). In the early 21st century, the cost has limited sequencing to highly skilled and well-funded laboratories or to public initiatives. In 2008 the development of second-generation DNA sequencing tools accelerated sequencing possibilities, driving down the cost to $50,000 (Metzker, 2010; Stein, 2010). Subsequent technological developments resulted in a price of $1,000 in 2014 (Bio-IT World Staff, 2011; Christensen et al., 2015; Goh et al., 2011). This figure represents a threshold comparable with other advanced diagnostic investigations (Hayden, 2014; Mardis, 2006, 2011). The future is surely going to bring further cost reductions and efficiency gains, accompanied by better-quality data in sequencing the human genome (Wetterstrand, 2016).

The success of precision medicine will to a major extent depend not on sequencing but on the way the results of sequencing will be implemented in clinical practice. This is strictly related to interpretation of genomic sequences, which will involve important demand for highly skilled professionals who will be able to interpret and evaluate the new variants of genome discovered not present in the available databases (Beckmann, 2015). In the early 21st century, the ability to collect sequencing data far outweighs the ability of medical professionals to interpret, understand, and integrate it in clinical practice. Training programs will have to be addressed to healthcare professionals working at every step of patient pathway care (Demmer, 2014). However, training, recruitment, and maintenance of clinical and analytical staff is seen as a challenge due to shortages of professionals with a proper understanding of genetics and genetic interrelations with the diseases. Current trends in big-data analysis techniques and the advancement of artificial intelligence algorithms may lead to the development of decision support tools to help healthcare professionals identify and manage patients with specific genetic features. In that case, IT in the medical field will transform the practice of medicine.

Also, the costs of infrastructures that enable the clinicians to use sequencing will stay high. In fact, according to Christensen et al. (2015), while the literature discusses the costs of genomic sequencing, it neglects the importance of infrastructure requirements for genomic sequencing, which are very high. Interpretation of the variants requires considerable effort in terms of structures, professionals, and software to be made ad hoc for immediate analysis needs, for re-analysis, and for integrating genomic information with other types of information typically from clinical records. In addition, data storage, maintenance, transfer, and analysis are all activities requiring significant resources and are expected to represent a growing percentage of the overall future sequencing costs. If one considers that the human body consists of at least 20 trillion living cells, each containing about 20,000 to 22,000 genes that only encode proteins, the amount of data that has been and will be produced by sequencing, mapping and genomic analysis will easily push this branch of medicine into the realm of big data. It is also likely that the cost of resequencing genomes of patients will be minor with respect to storing the files containing genetic information for re-analysis (Hegde et al., 2015).

Genome-based medicine offers incredible promise and power to revolutionize clinical care and analysis of health information. Genomics is recognized to have clinical, ethical, social, and economic effects that go far beyond the healthcare sector, involving large parts of the economy in industrial and research sectors.

From a clinical perspective, the genomic revolution will give rise to customized medicine where clinically relevant anomalies will be identified in the early stages of the disease, enabling operators to target a timely action. Personalized medicine is thus going to move the focus of medicine from care to prevention and allow clinicians to choose optimal therapies for each patient, avoid adverse reactions to drugs, and increase patient adherence to treatment.

This development will change not only the way in which drugs are developed but also the practice of medicine. With the spread of ultra-fast genome sequencing, an increasing number of patients could benefit from genomic routine exams, including patients with most common chronic diseases and conditions. As such, personalized care will pose important novelties for the provision of healthcare in general. On the one hand, its supporters hypothesize substantial savings for healthcare systems by cutting down on provision of costly and useless diagnostic procedures and reducing ineffective and potentially dangerous pharmacological treatments in favor of more sensitive and faster tests with greater social and economic benefits resulting from a significant improvement in healthy life expectancy. On the other hand, skeptics question the real ability to identify clinically relevant genomic variants, pointing to the existence of potential errors in both technical and computational analysis, the enormous amounts of information derived from genomics, and the subsequent availability of effective clinical interventions that can benefit from such analysis (Crawford & Aspinall, 2012). Either way, it is plausible that the reduction of errors in diagnosis and the elimination of ineffective treatments are may improve the quality of life of patients with effects in terms of healthcare costs that are difficult to project. The vast array of tests and their applications will definitely call for cost-effectiveness evaluations in order to assess the clinical and economic benefits of precision medicine. However, what is likely to be universally true is that precision medicine is about to cause a cost reduction for a year of life saved and spent in good health (quality-adjusted life year [QALY]). This conclusion is mainly supported by the history of medical discoveries and their reflection in terms of costs on health systems.

Regulation and Technological Innovation in the Healthcare Sector

According to Carlin and Soskice (2006), regulation can have two main effects: an increase in the compliance cost of regulations and an incentive impact. Like with a new tax, the compliance cost of regulations absorbs resources commonly available for investment in research and development, which should lower capital intensity and thus reduce the level of technical progress and innovation (Crafts, 2006).6 In terms of incentive effect, by changing the rules of the game, regulation changes the incentives for investments in new technology. For example, patent protection is likely to create incentives to invest in research and development, while price controls and product market regulation tend to reduce incentives for innovators (Crafts, 2006). As such, the true impact of regulation on innovation depends on the relative weight that compliance and incentives have.

Regulation is an essential part of the healthcare sector, and its pervasive nature stems from the fundamental concerns that are at stake when important factors such as life and health are involved. According to standard economic theory, there are several reasons why healthcare markets left to their own would not necessarily deliver socially desirable outcomes. The most powerful economic argument refers to market failures, which provide the rationale for a certain degree of government involvement. Therefore, regulation represents a rational way to cope with the welfare loss associated with market failure, with the aim of protecting consumers from sellers who may abuse their market position or allowing them to pursue objectives such as equity or the desire to counteract strong professional interests. As such, regulation interferes with market rules and with the efficient resource allocation generating a second-best equilibrium. This aspect is particularly important if one considers that the array of regulations that govern healthcare is overwhelming as almost every aspect of the field is overseen by some regulatory body, sometimes by several of them.7

Adoption of new technologies in the healthcare sector is no exception; standards and regulations are needed to ensure the safety, protection, and suitability of the products. However, the evolution of innovation in the healthcare sector is determined by a comprehensive interaction between supply and demand forces, with regulation playing an important role through the introduction of a set of implicit or explicit incentives. The healthcare system, whatever the source of funding, frames a setting in which the demand for healthcare products and services is expressed by an array of stakeholders, including citizens, employers, insurers, and health authorities. As such, the overall demand accounts for both the healthcare needs derived from the mortality and morbidity rates of the underlying population as well as from government public priorities, which may entail long-term goals of health policy. In this respect, policymakers are responsible for determining the array of technologies that may potentially improve future health outcomes, e.g., those that may address rare (orphan) diseases or narrow markets for specific precision medicine technologies, which under a purely market demand would not find interest among health R&D. Hence a successful health policy is one that bridges the gap between the final consumer, the patient, and the technology producer—the industry (public and private). In doing so, it is supposed to provide an innovation framework, which incentivizes the costly development of health technology by channeling individual demand and public priorities to producers of health goods and services. The suppliers of health technology include private pharmaceutical industries, medical device developers, and biotech companies, which, together with health professionals, hospitals, and other managed care centers, deliver the technological innovations.

From this perspective, policymakers are increasingly acknowledging that health technology and its regulation are integral parts of a well-functioning healthcare system. Starting in the early 1990s, when market authorization was the sole hurdle to market access for health technologies, this vision has received even more credit in a context where, although innovations offer significant potential benefits to patients and the healthcare system, their diffusion is problematic due to resource constrains. Therefore, the role of regulation has expanded above the usual needs of ensuring safety and guaranteeing that products are fit for purpose, opening grounds to new policies that protect the incentives to develop new technologies and reward cost-effective medical practice and the highest value use of new technology, with the aim of realizing the full benefits of these innovations. Consequently, since the 1990s national governments have organized health technology assessment (HTA) units to evaluate the health and cost consequences associated with the adoption of new technologies.

The main goal of these entities is to optimize health outcomes for a population of patients by considering all available treatment options while accounting for budgetary constraints. In fact, one key aspect of this type of regulation is the elaboration of payment and reimbursement systems, which, on the one hand, should be based on outcomes and effectiveness of the technologies but, on the other, are subject to public and private efforts to control costs. In various countries price controls are operated through the adoption of reference pricing, formularies, co-payments, value quantification, or quality-adjusted life years. As a result, such cost minimization leads frequently to inadequate consideration of technologies for specific health needs (i.e., rare diseases). This is why there is now great concern and interest in developing novel pricing schemes (i.e., risk-sharing approaches or outcomes-based reimbursement) aimed at avoiding situations that could prevent effective (although expensive) technologies from being developed and marketed.

The health innovation process requires the right mix of incentives, safeguards, and effective regulation to make sure people can derive the maximum benefit from safe and effective new medical technologies (Sorenson, Drumond, & Kanavos, 2008). The entire regulatory continuum for health technologies (i.e., the regulatory life cycle) should bring together market authorization, coverage, and reimbursement processes, which used to be considered separate.

Several EU countries have invested significantly along these lines, funding regulatory agencies and advisory committees to develop HTA activities and to inform policymakers on key issues related to the regulation of health technologies. The European Parliament coordinates these efforts within directives on patient rights and cross-border healthcare, recommending increased cooperation between national HTA bodies through the European Network of Health Technology Assessment (EUnetHTA).

From an empirical perspective, there is substantial literature evidencing the negative role of compliance costs in determining technological innovation. Bassanini and Ernst (2002) and Barbosa and Faria (2011) find a negative correlation between the intensity of product market regulations and the intensity of research and development expenditure in OECD countries. Swann (2005) and Aschhoff and Sofka (2009) find similar results for a number of British and German companies, respectively, showing that regulation can be an important source for innovation as well as a severe obstacle for the success of innovation activities. Beside these studies, there is an important strand of research on the influence of competition and antitrust regulation on innovation, especially for the pharmaceutical industry. Blind (2012) reports a comprehensive review of this literature. Starting from the early work of Grabowski and Vernon (1977) and Grabowski, Vernon, and Thomas (1978), the findings are in favor of a negative relation between stringency of regulations and compliance uncertainty due to regulatory delay and the market introduction of new drugs. This occurs because innovation activities are concentrated in larger firms, which are less burdened by the compliance costs of regulation, and this concentration process reduces competition and consequently innovation. Vernon, Golec, Luter, and Nardinelli (2009) support this thesis providing additional results showing that a 10% decrease of approval times of new drugs by the FDA increased the research and development spending of pharmaceutical companies by 1% to 2%. Apart from market access regulation, the pharmaceutical sector is also subject to drug price regulation, which usually reduces research and development intensity and market introduction of new drugs by pharmaceutical companies (Golec & Vernon, 2010; Vernon, Golec, & Hughen, 2006). Furthermore, Golec, Hegde, and Vernon (2005) show that a more detrimental impact on research and development may derive from the policy uncertainty around price control, which may change the nature of innovation from developing expensive breakthrough drugs to cheaper patentable innovations that do not require heavy investment. Overall, the uncertainty behind the evaluation process and the long approval period significantly affect the incentives for private firms to innovate. Stern, Alexander, and Chandra (2017) claim that reductions in both the cost and length of trials allow more drugs to pass the authorization hurdle. As a consequence, this may lead to more innovation, which can, in turn, create more competition. As a side effect, patient safety can be at risk, and, therefore, authorities that grant approval for commercialization need to be prepared, working at the cutting edge of regulatory science. In this regard, researchers started to collect evidence on the effects of the introduction of the FDA’s breakthrough therapy designation (BTD) in the United States. The BTD creates a pathway to new drug commercialization that is intended to make the process faster and more transparent for innovator firms. Chandra et al. (2018) analyze the benefits (faster time-to-market) and the costs (safety risks to patients) of the BTD program using a synthetic control group. They find that time spent in regulatory approval decreased by nearly four months on average, offering large opportunity costs of capital on investment projects and faster access to the therapies for patients. The authors also observe a slightly higher rate of adverse events among BTD drugs. Overall, the conclusion is that whenever regulation guarantees minimum compliance costs and revenues and reduces risk, innovation activity increases.

Another important aspect to consider when talking about regulation, especially in terms of health expenditure, is how it affects technology adoption. Despite the importance of such issues, little work has been devoted to exploring how and why the adoption of medical technologies varies over time and across healthcare systems (Bech et al., 2006; Moïse, 2003a, 2003b; Nystedt & Lyttkens, 2003; Oh, Imanaka, & Evans, 2005) and how regulation can affect differences in technology adoption. An exception is represented by the pioneering studies from the Technological Change in Healthcare (TECH) research network, which analyzes the variability in diffusion of high-tech procedures in association with the remuneration of providers (TECH Research Network, 2001). Based on patient-level data on three procedures for treatment of heart attack patients (catheterization, coronary artery bypass grafts [GABG] and percutaneous transluminal coronary angioplasty [PTCA]) for 17 countries over a 15-year period, the researchers examine the impact of economic and institutional factors on technology adoption. In particular, they find that specific institutional factors and healthcare system characteristics, such as public contracts systems and reimbursement systems, affect the uptake of these technologies. On the contrary, they show that central control of investment funding is negatively associated with adoption rates.

The regulatory aspects of health technologies are thus of fundamental importance for the overall array of health innovation stakeholders and the relative impact on healthcare costs. While controlling the market access of technologies, regulation should be transparent, cost-efficient, and warrant the safety of new technologies, and by avoiding delays it should operate proactively among the stakeholders. Nevertheless, in many countries and several technology sectors, the regulatory front remains complex and costly, with important barriers imposed on producers, especially smaller enterprises. This is especially the case in the devices market or biotechnology, where small and medium-sized companies have much more limited financial capacities to conduct costly trials.

The Future of Healthcare Technology and Costs

Among the several fields in which health technology can spur innovation, the pharmaceutical sector is by far the most prolific, with an upward-sloping trend (Pharmaprojects, 2017). Since 2000 the FDA has approved more than 500 new medicines, helping patients live longer and healthier lives. New therapies have transformed many cancers into treatable chronic conditions, reduced the impact of cardiovascular disease, offered new options to patients with hard-to-treat diseases like Alzheimer’s and Parkinson’s, and defeated several rare conditions. The future outlook is very optimistic given the huge number of existing products under development around the world in the biopharma pipelines. Although picturing the future horizon for new promising technologies is crucial for planning the correct allocation of scarce resources, it is rather hard to predict the future of a new technology at an early stage of its development. In order to have a clear picture of future hopes and concerns in pharmaceutical markets, several countries have decided to cooperate in developing horizon-scanning activities (OECD, 2017). On the one hand, hopes come from the development of new therapies, based on new mechanism of actions, potentially leading to important breakthroughs. On the other hand, concerns are related to skyrocketing prices, often detached from the associated health benefits.

According to the association of Pharmaceutical Research and Manufacturers of America (PhRMA), biopharmaceutical research companies are currently developing a huge number of new compounds. At the end of 2016 there were more than 70 new therapies for Alzheimer’s disease, nearly 200 for heart disease, stroke, and other cardiovascular diseases, about 130 medicines for mental illnesses, more than 400 medicines for a wide range of neurological disorders, and more than 800 medicines and vaccines for cancer (PhRMA & AACR, 2015). As for biologic drugs, according to Pharmaprojects (2017), in 2017 there were 14,872 pipeline projects in various phases of their development, showing an increase of 8.4% from 2016. The various phases of development go from those at the preclinical stage, through the various stages of clinical testing and regulatory approval, up to and including launch on the market. Oncology is by far the most targeted therapeutic area, with almost one-third of medicines in development in 2017, followed by prophylactic vaccines, anti-infectives, and anti-diabetics.

This amount of innovation represents a huge potential for patients and an equally huge stress for the regulatory process, which usually takes several months to evaluate each new compound. As a result, from a social welfare point of view, the evaluation of several not valuable therapies can delay the approval and access to truly promising medicines.

The future cost burden of conventional drug and biologic therapies, is going to some extent to be alleviated by the increasing share of generic drugs and biosimilars in the pharmaceutical market.8 Important branded drugs are being replaced by cheap generics due to patent expiration (Hunt, Nigel, & Morgan, 2011). This phenomenon is not distributed uniformly around the world. According to Mattke, Klautzer, and Mengistu (2012), since drug counterfeiting is widespread in the developing world—which is also dangerously catching up with the developed world in terms of the diffusion of chronic diseases such as diabetes, hypertension, and dyslipidemia—the market for the widely known ex-branded drugs has much potential, whereas the “no-name” generic substitutes are less trusted. In this view, a number of big-pharma companies will continue to market branded generics whose quality is more straightforward, and hence the price premium more likely to be paid. Still, generics will undoubtedly account for increasing market shares, which in view of limited budgets and threats to the sustainability of healthcare systems call for productivity gains and cost reduction. This will also be relevant for biologic treatments, which will increasingly see the introduction of biosimilars following the patent expiration of important autoimmune disorder drugs in the 21st century. According to estimates by Goldman and Sachs, in 2011 the US market, the largest pharmaceutical market, featured 78% of pharmaceutical volume sales represented by generics. Other estimates show that the global generic drugs market will grow at an impressive compound annual growth rate of more than 10% over the 2016–2020 period (Technavio, 2016). With many pharmaceutical drugs set to lose their patents during this period, the competition in the generic market is expected to increase in the first half of the 21st century. Branded drugs accounting for sales up to $135 billion expired at the end of 2015, offering pharmaceutical companies opportunities to capitalize on this market. Other forthcoming expirations of patent drugs until 2020 will be worth close to $150 billion, thus fueling market growth prospects. The biosimilars segment is one of the fastest growing segments and is likely to reach more than $25 billion by 2020. Despite high development costs, biosimilars are likely to witness rapid growth due to the rising number of off-patent biologic drugs. The growth of this sector is attributed to the positive outcomes of ongoing clinical trials and the growing demand for biosimilars in different therapeutic applications. The application of advanced technologies such as recombinant DNA technology, genetic engineering, and combinatorial chemistry has increased the entry of novel biopharmaceuticals in the market, which will contribute to this segment’s growth over the next several years.

In terms of cell and gene therapy, OECD (2017) reports that nearly 700 gene therapy trials are being developed by over 60 companies within over 1,000 clinical trials (with about 70 in phase III). According to the same source, the therapies are going to treat rare diseases for a very narrow potential target population and, inversely, produce high development and production costs.9 Phacilitate (2017) forecasts that gene therapy market value will increase, reaching in 2025 a turnover that may range from $4.3 billion to $10 billion, mainly due to advances in genetic understandings of disease, and by innovation in genetic engineering tools such as TALEN, RNAi, and CRISPR/Cas9. According to Lu and Cohen (2015), genomic medicine will not be a cost-saving tool per se but rather a revolution with the potential to lower the cost of healthcare. “Cost-effectiveness” does not necessarily imply cost reduction (Neumann, Cohen, & Weinstein, 2014; Veenstra & Brooks, 2015). In a recent review by Phillips et al. (2015), many personalized medicine tests have proven to be “cost-effective,” although few have been cost-saving. In terms of pediatric medicine, Valencia et al. (2015) show how the “singleton WES” test for children with a suspected monogenic disorder proves highly cost-effective compared to endless diagnostic tests undertaken by patients in the search for the clinical diagnosis. Stark et al. (2016) show how the WES test implies a reduction of about one-third of the cost of standard investigations (from $25,000 to $9,000). In the EU and the United States, Glybera by UniQure and Strimvelis by GSK are the only two approved gene therapies to date (2012 and 2016, respectively). Today there are over 60 companies developing therapeutic genetic technologies worldwide and over 1,000 clinical trials, the vast majority within academia.

Immuno-oncology is another dominating area of industry engagement, with several competing products, predominantly in liquid blood cancer indications. Initial public offerings for six chimeric antigen receptor T-cell (CAR-T) companies alone total almost $1 billion. Advanced therapies will be applicable to a huge diversity of indications, and various stakeholders will continue generating clinical data across a range of indications, most notably in immunological and autoimmune indications, tissue repair, and gene therapies for blood clotting and hemophilia disorders (Phacilitate, 2017). The promise of unusually high efficacy levels has attracted a great deal of investment, and this new generation of drug products is expected to reach the market over the coming years.

Future Directions

Health technology has long been blamed for its important impact on rising healthcare costs. With its increasing complexity in recent decades, accompanied by unprecedented scarce public finances, it will continue to receive much attention from economists. While healthcare sustainability is at risk, health technology may represent both the source and the solution to the problem of mounting costs. An overwhelming number of health innovations have proven to be cost-effective and game-changing for vast portions of world populations. However, it is less clear to what extent their introduction has indeed delivered enough value to patients and societies. The challenges for policymakers will evolve around the proper identification of technologies with adequate benefits vs. affordability, conditional on safety. On the one hand, identification is likely to be more productive if scanning of the possible technologies under development is undertaken. On the other hand, the policy efforts will have to provide incentives to invest in technologies relevant form the social welfare point of view. This may also entail less stringent regulatory processes for most severe diseases without other therapeutic alternatives. Among the most innovative health technology domains, such as health information technology and precision medicine, it is utterly unclear how their evolution will shape future healthcare. Nevertheless, already acknowledged promises of digital health are likely to provide important cost reductions in the provision mechanisms of many services.

Further Reading

Chandra, A., Finkelstein, A., Sacarny, A., & Syverson, C. (2013). Healthcare exceptionalism? Productivity and allocation in the U.S. healthcare sector. NBER working paper 19200.Find this resource:

Chandra, A., & Skinner, J. (2012). Technology growth and expenditure growth in healthcare. Journal of Economic Literature, 50, 645–680.Find this resource:

Crafts, N. (2006). Regulation and productivity performance. Oxford Review of Economic Policy, 22(2), 186–202.Find this resource:

Cutler, D. M., McClellan, M., & Newhouse, J. P. (1998). What has increased medical-care spending bought? American Economic Review, 88(2), 132–136.Find this resource:

Cutler, D. M., & McClellan, M. (2001). Is technological change in medicine worth it? Health Affairs, 20(5), 11–29.Find this resource:

DiMasi, J. A., Grabowski, H. G., & Hansen, R. W. (2016). Innovation in the pharmaceutical industry: New estimates of R&D costs. Journal of Health Economics, 47, 20–33.Find this resource:

Hayden, E. C. (2014). Technology: The $1000 genome. Nature, 507, 294–295.Find this resource:

Kirisits, A., & Redekop K. (2013). The economic evaluation of medical devices. Applied Health Economics and Health Policy, 11, 15–26.Find this resource:

Kvedar, J., Coye, M. J., & Everett, W. (2014). Connected health: A review of technologies and strategies to improve patient care with telemedicine and telehealth. Health Affairs, 33(2), 194–199.Find this resource:

Murphy, K. M., & Topel, R. H. (2003). The economic value of medical research. In K. M. Murphy & R. H. Topel (Eds.), Measuring the gains from medical research: An economic approach (pp. 41–73). Chicago, IL: University of Chicago Press.Find this resource:

Newhouse, J. (1992). Medical care costs: How much welfare loss? Journal of Economic Perspectives, 6, 3–21.Find this resource:

Skinner, J. S., & Staiger, D. (2015). Technology diffusion and productivity growth in healthcare. Review of Economics and Statistics, 97(5), 951–964.Find this resource:

Weisbrod, B. A. (1991). The healthcare quadrilemma: An essay on technological change, insurance, quality of care, and cost containment. Journal of Economic Literature, 29(2), 523–552.Find this resource:

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Notes:

(1.) On top of the advances in healthcare and medicine, the increase in life expectancy during the last century is due to a number of factors, including rising living standards, improved lifestyles, better education, and better public health programs.

(2.) Biologics aren’t new. Old vaccines have been traditionally produced from animals, causing issues of contamination with external agents. Recent technology has dramatically improved the manufacture of biologic drugs using recombinant DNA, developed during the 1970s. Thanks to this technology the gene representing human insulin can be initially pasted into a microbe and subsequently extracted from it, which after a purification process provides human-type insulin.

(3.) A commonly accepted definition of a blockbuster drug is a drug that generates annual sales of at least $1 billion for the company that creates it. Blockbuster drugs are commonly used to treat common medical problems like high cholesterol, diabetes, high blood pressure, asthma, and cancer.

(4.) For cancer treatments this is already a common practice, and it is expected that in 10 to15 years very few drugs will be prescribed without such a test (Jørgensen, 2008).

(5.) According to DiMasi et al. (2016) the $2.558 billion figure per approved compound is based on estimated average out-of-pocket costs of $1.395 billion and time costs (expected returns that investors forego while a drug is in development) of $1.163 billion. When post-approval R&D costs of $312 million are included, the full product life-cycle cost per approved drug, on average, rises to $2.870 billion. All figures are expressed in 2013 dollars.

(6.) At this point the literature distinguishes between “short”- and “long”-run effects, with negative short-run effects that could be counterbalanced by positive long-run effects through “smart” regulation.

(7.) As argued by Field (2008, pp. 607–608): “the path to practicing medicine is paved with an array of regulatory hurdles implemented by an assortment of bureaucracies.[. . .] The path to marketing a new drug is similarly cumbersome. A pharmaceutical company must start by protecting its invention with a patent that is issued by the federal Patent and Trademark Office (PTO). It must then receive permission to conduct clinical testing from the federal Food and Drug Administration (FDA), which for many products culminates in review of the results by an advisory committee composed of private scientists. After approval for marketing is received in the form of a New Drug Approval (NDA), the manufacturer must adhere to marketing restrictions contained in the NDA. Next, in order to sell the drug widely, the manufacturer must obtain a place for it on the formularies of private pharmacy benefit management companies (PBMs), which administer reimbursement plans. Ideally, the drug will also be included in the standards of care promulgated by private medical specialty societies. After all of these steps, the drug still cannot be sold unless it is prescribed by physicians and is dispensed by pharmacists who are subject to licensure and a range of other regulatory requirements.”

(8.) According to the FDA, biosimilars and generic drugs are versions of brand name drugs and may offer more affordable treatment options to patients. Generic drugs have the same chemical formula, dosage, potency, administration, quality, and use as that of patented branded “chemical” drugs. They can cost up to 80 to 85% less than their branded counterparts and are available immediately after the original patent expiries. A biosimilar is a biological product that is highly similar to and has no clinically meaningful differences from an existing approved reference product. However, unlike generics, for biosimilars manufacturers must only show that they are highly similar to the reference product in terms of nature, safety, and effectiveness, with minor differences in clinically inactive components admitted.

(9.) The first gene therapy to obtain European Medicines Agency (EMA) approval (Glybera®, used to treat an ultra-rare disease) struggles to reach patients due to the rarity of the condition and difficulties in obtaining healthcare system funding for its price tag (1 million euros per cure). A new gene therapy treatment for the “bubble-boy” disease (severe combined immunodeficiency) targets only about 14 cases a year in Europe and 12 in the United States.