Health Care Adherence and Personalized Medicine

53 Pages Posted: 2 Mar 2016 Last revised: 19 May 2016

See all articles by Mark Egan

Mark Egan

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

Tomas Philipson

University of Chicago; National Bureau of Economic Research (NBER)

Date Written: May 11, 2016

Abstract

Non-adherence in health care results when a patient does not initiate or continue care that a provider has recommended. Previous research identifies non-adherence as a major source of waste in US health care, totaling approximately 2.3% of GDP, and has proposed a plethora of interventions to raise adherence. However, health economics provides little explicit analyses of the important dynamic demand behavior that drives non-adherence, and it is often casually attributed to uninformed patients. We argue that whereas providers may be more informed about the population-wide effects of treatments, patients are more informed about the individual-specific value of treatment. We interpret a patient’s decision to adhere to a treatment regime as an optimal stopping problem in which patients learn the value of a treatment through treatment experience. We derive strong positive and normative implications resulting from interpreting non-adherence as an optimal stopping problem. Our positive analysis derives an “adherence survival function,” depicting the share of patients still on treatment as a function of time, and predicts how various observable factors alter adherence. Our normative analysis derives the efficiency effects of non-adherence and the conditions under which adherence is too high or low. We consider the efficiency implications of this analysis for common adherence interventions. We argue that personalized medicine is intimately linked to adherence issues. It replaces the learning through treatment experience with a diagnostic test, and thereby speeds up the learning process and cuts over-adherence and raises under-adherence. We assess the quantitative implications of our analysis by calibrating the degree of over- and under-adherence for one of the largest US drug categories: cholesterol-reducing drugs. Contrary to frequent normative claims of under-adherence, our estimates suggest the efficiency loss from over-adherence is over 80% larger than from under-adherence, even though only 43% of patients fully adhere.

Keywords: health care, health markets, medicine

JEL Classification: I11, I12

Suggested Citation

Egan, Mark and Philipson, Tomas J., Health Care Adherence and Personalized Medicine (May 11, 2016). Becker Friedman Institute for Research in Economics Working Paper No. 2740031. Available at SSRN: https://ssrn.com/abstract=2740031 or http://dx.doi.org/10.2139/ssrn.2740031

Mark Egan

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Baker Library 365
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tomas J. Philipson (Contact Author)

University of Chicago ( email )

Graduate School of Business
1101 East 58th Street
Chicago, 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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