Personalized medicine – the targeting of therapies to individuals on the basis of their biological, clinical, or genetic characteristics – is thought to have the potential to transform health care. While much emphasis has been placed on the value of personalized therapies, less attention has been paid to the value generated by the diagnostic tests that direct patients to those targeted treatments. This paper presents a framework derived from information economics for assessing the value of diagnostics. We demonstrate, via a case study, that the social value of such diagnostics can be very large, both by avoiding unnecessary treatment and by identifying patients who otherwise would not get treated. Despite the potential social benefits, diagnostic development has been discouraged by cost-based, rather than value-based, reimbursement.
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