The headroom approach to device development: current and future directions

Objectives: Since the cost of developing and producing a new device must be covered at a price consistent with reimbursement norms, it is desirable to estimate a value-based price ceiling at an early stage of the development cycle and to keep the estimate under continuous review as more evidence accumulates. We apply a simple model to obtain critical business information as the product proceeds along a development pathway.
Methods: Health economic modelling in the supply-side development cycle for new products.
Results: We outline a framework in which an estimated price ceiling or “Headroom” is used (a) as a ‘reality check’ on the viability of the device in the healthcare market, (b) to support product development decisions and (c) to contribute to a pricing policy which respects uncertainties in the reimbursement outlook.
Conclusions: Early-stage decision-making is hampered by limitations in the available evidence-base, but useful headroom estimates can often be obtained. A central aspect of this proposal concerns the evolution of attitudes to uncertainty over the course of the development cycle, based on the timing and manner in which new information accrues. Within this framework the developmental value of new information can justify the costs of clinical trials and other evidence-gathering activities. The development of similar approaches in other contexts holds promise for more rational planning of service provision.