The Effect of Newer Drugs on Health Spending: Do They Really Increase the Costs?
AbstractWe analyze the influence of technological progress on pharmaceuticals on rising health expenditures using US State level panel data. Improvements in medical technology are believed to be partly responsible for rapidly rising health expenditures. Even if the technological progress in medicine improves health outcomes and life quality, it can also increase the expenditure on health care. Our findings suggest that newer drugs increase the spending on prescription drugs since they are usually more expensive than their predecessors. However, they lower the demand for other types of medical services, which causes the total spending to decline. A one-year decrease in the average age of prescribed drugs causes per capita health expenditures to decrease by $31.92. The biggest decline occurs in spending on hospital and home health care due to newer drugs.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 6846.
Date of creation: Oct 2007
Date of revision:
Health care expenditure; pharmaceuticals; technology diffusion;
Other versions of this item:
- Abdülkad&idot;r C&idot;van & Bülent Köksal, 2010. "The effect of newer drugs on health spending: do they really increase the costs?," Health Economics, John Wiley & Sons, Ltd., vol. 19(5), pages 581-595.
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- I10 - Health, Education, and Welfare - - Health - - - General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frank Lichtenberg, 2002.
"Benefits and Costs of Newer Drugs: An Update,"
NBER Working Papers
8996, National Bureau of Economic Research, Inc.
- Mark G. Duggan & William N. Evans, 2005.
"Estimating the Impact of Medical Innovation: A Case Study of HIV Antiretroviral Treatments,"
NBER Working Papers
11109, National Bureau of Economic Research, Inc.
- Duggan Mark G & Evans William N, 2008. "Estimating the Impact of Medical Innovation: A Case Study of HIV Antiretroviral Treatments," Forum for Health Economics & Policy, De Gruyter, vol. 11(2), pages 1-39, January.
- Lichtenberg, Frank R, 1996. "Do (More and Better) Drugs Keep People Out of Hospitals?," American Economic Review, American Economic Association, vol. 86(2), pages 384-88, May.
- Duggan, Mark, 2005. "Do new prescription drugs pay for themselves?: The case of second-generation antipsychotics," Journal of Health Economics, Elsevier, vol. 24(1), pages 1-31, January.
- Gerdtham, Ulf-G. & Löthgren, Mickael, 1998.
"On stationarity and cointegration of international health expenditure and GDP,"
Working Paper Series in Economics and Finance
232, Stockholm School of Economics, revised 29 Jan 1999.
- Gerdtham, Ulf-G. & Lothgren, Mickael, 2000. "On stationarity and cointegration of international health expenditure and GDP," Journal of Health Economics, Elsevier, vol. 19(4), pages 461-475, July.
- Serena Ng & Pierre Perron, 2001.
"LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Econometric Society, vol. 69(6), pages 1519-1554, November.
- Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
- Karlsson, Sune & Löthgren, Mickael, 1999.
"On the power and interpretation of panel unit root tests,"
Working Paper Series in Economics and Finance
299, Stockholm School of Economics.
- Karlsson, Sune & Lothgren, Mickael, 2000. "On the power and interpretation of panel unit root tests," Economics Letters, Elsevier, vol. 66(3), pages 249-255, March.
- Civan Abdulkadir & Maloney Michael T., 2006. "The Determinants of Pharmaceutical Research and Development Investments," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-38, September.
- Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
- Baoping Shang & Dana P. Goldman, 2007. "Prescription Drug Coverage and Elderly Medicare Spending," NBER Working Papers 13358, National Bureau of Economic Research, Inc.
- Daron Acemoglu & Joshua Linn, 2004.
"Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry,"
The Quarterly Journal of Economics,
MIT Press, vol. 119(3), pages 1049-1090, August.
- Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," Levine's Working Paper Archive 228400000000000002, David K. Levine.
- Daron Acemoglu & Joshua Linn, 2003. "Market Size in Innovation: Theory and Evidence From the Pharmaceutical Industry," NBER Working Papers 10038, National Bureau of Economic Research, Inc.
- Gerdtham, Ulf-G. & Jonsson, Bengt, 2000. "International comparisons of health expenditure: Theory, data and econometric analysis," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 1, pages 11-53 Elsevier.
- Cutler, David M & McClellan, Mark & Newhouse, Joseph P, 1998. "What Has Increased Medical-Care Spending Bought?," American Economic Review, American Economic Association, vol. 88(2), pages 132-36, May.
- David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 168-177, June.
- Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002.
"Unit root tests in panel data: asymptotic and finite-sample properties,"
Journal of Econometrics,
Elsevier, vol. 108(1), pages 1-24, May.
- Tom Doan, . "LEVINLIN: RATS procedure to perform Levin-Lin-Chu test for unit roots in panel data," Statistical Software Components RTS00242, Boston College Department of Economics.
- Slade, Eric P. & Anderson, Gerard F., 2001. "The relationship between per capita income and diffusion of medical technologies," Health Policy, Elsevier, vol. 58(1), pages 1-14, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.