Health Economic Modeling: Fact or Fiction? Useful to Policymakers in Spite of Untruths

In this chapter, we address the question of what health economic models represent. Are they realistic? And, does model realism matter? Or, is model usefulness in terms of informing pricing, reimbursement, and prescribing decisions all policymakers care about? The usefulness of models is circumscribed given that: (1) market failure is inherent in healthcare and (2) models oversimplify the preference structure underlying choices. We suggest, however, that models which employ the ceteris paribus clause can be useful in order to isolate factors that play a role in healthcare decision-making and ultimately characterize agents’ multiattribute utility functions through discrete choice experiments. As a result, policymakers gain important knowledge about decision criteria in the healthcare system.