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Study: Expanded CER Process Will Reduce Investment in Medical Technologies by $10 B

July 14, 2011
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A new research study released by the Pacific Research Institute (PRI), a San Francisco-based free-market think tank, examines an expanded quasi-federal comparative effectiveness review (CER) process and the negative effects on private-sector investment in research and development of new and improved medical technologies. Under conservative assumptions, R&D investment in pharmaceuticals, medical devices and equipment would be reduced by about $10 billion per year over the period from 2014 through 2025. "Medicare Auctions for Durable Medical Equipment" was authored by PRI senior policy fellow Benjamin Zycher, Ph.D.

Comparative Effectiveness Review (CER) is defined by the Congressional Budget Office as "a rigorous evaluation of the impact of different options that are available for treating a given medical condition for a particular set of patients." Because policymakers have powerful incentives to restrain the growth of health care expenditures, an expanded federal role in CER, whether direct or indirect, will induce responses from the private sector as a result of expectations of how CER findings will be used by policymakers. For firms investing in and developing medical technologies, these expectations include an increased need for private clinical testing, increased pricing pressures, increased risk of non-approval or limited approval for federally-financed programs, a shortening of the patent period and delays in expected sales revenues.

Using data from the National Science Foundation and other sources, the report concludes that under conservative assumptions, R&D investment in new and improved pharmaceuticals and medical devices and equipment would be reduced by about 10-12 percent. This reduction in the flow of new and improved technology would impose an expected loss of about 5 million life-years annually, with a conservative economic value of $500 billion - an amount substantially greater than the entire U.S. market for pharmaceuticals, devices and equipment.


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