Because medical technology is the most important controllable component of health spending growth, the success of strategies for limiting spending growth depends upon their impact on technology dissemination. Technology assessment is fundamental to any strategy for controlling the adoption of medical technologies. Cost-effectiveness analysis holds particular promise as a method for evaluating alternative health care technologies because it explicitly incorporates costs. This paper describes how the widespread adoption of health insurance promoted the dissemination of medical technologies and how technology dissemination fueled spending growth. It then describes approaches to technology assessment and the ways in which technology assessment, in the form of cost-effectiveness analysis, can be applied to help control spending growth.

The effort to discover and develop new pharmaceuticals is a risky and costly enterprise. For diseases that affect few patients, the barriers to development maybe especially great, since the drugs' small markets may make it difficult for firms to recoup their initial research and development investments. The Federal Government has sought to reduce these barriers through incentives first adopted in the Orphan Drug Act of 1983 (Public Law 97-414). The transfer of technology from Federal laboratories such as the National Institutes of Health to the pharmaceutical industry can also reduce the cost and risk of drug development for firms. Although such incentives may result in important new therapies, their price to patients and insurers may still be high.

As part of our assessment, Government Policies and Pharmaceutical Research and

Development, requested by the House Committee on Energy and Commerce and its

Subcommittee on Health and the Environment and the Subcommittee on Antitrust,

Monopolies, and Business Rights of the Senate Committee on the Judiciary, OTA

commissioned researchers at Stanford University to examine the development and provision of alglucerase, an important new treatment for Gaucher disease. Gaucher disease is a rare inherited disorder in which the body lacks an enzyme necessary to break down fats. This background paper describes the development of alglucerase, illustrates the role that both the Federal Government and private sector can have in making new therapies available for orphan diseases, and lays out some of the tradeoffs that can exist between developing new medical technologies and controlling health care costs.