Considerations of net present value in policy making regarding diagnostic and therapeutic technologies.

BACKGROUND: The pharmaceutical and medical device industries function in a business environment in which shareholders expect companies to optimize profit within legal and ethical standards. A fundamental tool used to optimize decision making is the net present value calculation, which estimates the current value of cash flows relating to an investment. METHODS: We examined 3 prototypical research investment decisions that have been the source of public scrutiny to illustrate how policy decisions can be better understood when their impact on societally desirable investments by industry are viewed from the standpoint of their impact on net present value. RESULTS: In the case of direct, comparative clinical trials, a simple net present value calculation provides insight into why companies eschew such investments. In the case of pediatric clinical trials, the Pediatric Extension Rule changed the net present value calculation from unattractive to potentially very attractive by allowing patent extensions; thus, the dramatic increase in pediatric clinical trials can be explained by the financial return on investment. In the case of products for small markets, the fixed costs of development make this option financially unattractive. CONCLUSIONS: Policy decisions can be better understood when their impact on societally desirable investments by the pharmaceutical and medical device industries are viewed from the standpoint of their impact on net present value.

Can prospect theory explain risk-seeking behavior by terminally ill patients?

Patients with life-threatening conditions sometimes appear to make risky treatment decisions as their condition declines, contradicting the risk-averse behavior predicted by expected utility theory. Prospect theory accommodates such decisions by describing how individuals evaluate outcomes relative to a reference point and how they exhibit risk-seeking behavior over losses relative to that point. The authors show that a patient's reference point for his or her health is a key factor in determining which treatment option the patient selects, and they examine under what circumstances the more risky option is selected. The authors argue that patients' reference points may take time to adjust following a change in diagnosis, with implications for predicting under what circumstances a patient may select experimental or conventional therapies or select no treatment.