The Value of Diagnostic Testing in Personalized Medicine

Published in: Forum for Health Economics and Policy, v. 16, no. 2, June 2013, p. 121-133

Posted on RAND.org on June 01, 2013

by Dana P. Goldman, Charu Gupta, Eshan Vasudeva, Kostas Trakas, Ralph Riley, Darius N. Lakdawalla, David Agus, Neeraj Sood, Anupam B. Jena, Tomas Philipson

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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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