Less expensive, lower-quality innovations abound in every economic sector—except medicine
Men generally fix their affections more on what they are possessed of, than on what they never enjoyed: For this reason, it would be greater cruelty to dispossess a man of any thing than not to give it [to] him.—David Hume, A Treatise on Human Nature
Theoretically, perfectly rational economic agents seeking to maximize their welfare would be similarly willing to relinquish QALYs obtained from some routinely available standard-of-care for a new “much cheaper, almost as good” therapy, if the savings could be reallocated to an item of equal or higher value than what was sacrificed. Put another way, the selling price (often referred to as willingness to accept, or WTA) and the buying price (willing to pay, WTP) of a QALY should be similar, and the societal threshold for accepting or rejecting a technology should be symmetric and pass through the origin of the cost-effectiveness plane as a straight line. However, as David Hume anticipated, a reproducible observation is that consumers’ willingness to accept monetary compensation to forgo something they have is typically greater, and often much greater, than their stated willingness to pay for the same benefit. Several explanations exist, including the so-called “endowment effect,” the psychological principle that people value items that they already have simply because they already have them.
A 2002 review of 20 studies by the late Bernie O’Brien and his colleagues at McMaster University found that the ratio of individuals’ WTA to WTP was always greater than 1 and ranged from 1.9 to 6.4 for two scenarios specifically related to health care. They suggested that rather than a symmetric accept-reject threshold on the cost-effectiveness plane, societal thresholds should reflect the WTA-WTP gap seen in individual preferences, which would be captured by a downward “kink” (subsequently known as “Bernie’s kink”) in the threshold as it passed through the origin, indicating that a QALY’s selling price in the southwest would always be higher than a QALY’s buying price in the northeast.
Thus, there may be an inherent cognitive bias against relinquishing the gains of health-care interventions that have already been accepted, and the cost savings from decrementally cost-effective innovation may need to be substantially greater than conventionally used thresholds suggest.