Introduction

To decide on the allocation of public and private resources, some form of cost-effectiveness analysis is used in many countries, large and small (Drummond, Chapter 11). The single most common type of medical care to which this method is applied is the use of pharmaceutical products. Sometimes the decision involves new uses for existing products developed and produced in the country making the decision, and sometimes it involves products imported from abroad. Sometimes as well the decision involves the potential allocation of resources to a new product if brought to market, and often public funds play a role in such innovation.

In this chapter I criticize existing cost-effectiveness studies of pharmaceuticals, many of which, given their stated perspective, use an incorrect measure of cost and consequently, if the results were followed, would lead to inefficient resource allocation decisions, distort the mix of funds for research, and reduce population health. Although I acknowledge there is no single answer to the question of the right cost figure to use, I indicate that deciding which conceptual setting matches the decision in question is often not easy and often made incorrectly. Some consequences of using the conceptually correct methods may raise some difficult political questions, but those questions will yield better answers if there is agreement in advance on what framework and measures to use and how decisions are to be based on this information.

I develop a general argument about correct measurement.