IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Benefits and costs of newer drugs: an update

  • Frank R. Lichtenberg

    (Columbia University and National Bureau of Economic Research)

In previous work, we found strong evidence to support the hypothesis that the replacement of older drugs by new drugs resulted in reductions in total medical expenditures. In this study, we update and extend our previous study of the effect of drug age-years since FDA approval-on total medical expenditure, in several respects: (1) the unit of analysis is a medical condition, rather than a prescription; (2) the sample is much larger, including data for 3 years, rather than 1 year; (3) we obtain estimates for the Medicare population as well as for the entire population; and (4) within the Medicare population, we examine the effect of drug age on Medicare expenditure as well as on expenditure by all payers. The estimates indicate that, in the entire population, a reduction in the age of drugs utilized reduces non-drug expenditure 7.2 times as much as it increases drug expenditure. For example, reducing the mean age of drugs used to treat a condition from 15 years to 5.5 years is estimated to increase prescription drug spending by $18 but reduce other medical spending by $129, yielding a $111 net reduction in total health spending. Most of the savings are due to reductions in hospital expenditure ($80) and in physician office-visit expenditures ($24). In the Medicare population, a reduction in the age of drugs utilized reduces non-drug expenditure by all payers (i.e. Medicare and various forms of Medicare supplemental insurance, Medicare for dually eligible individuals and Medicare beneficiaries' out of pocket payments) 8.3 times as much as it increases drug expenditure; it reduces Medicare non-drug expenditure 6.0 times as much as it increases drug expenditure. About two-thirds of the non-drug Medicare cost reduction is due to reduced hospital costs. The remaining third is approximately evenly divided between reduced Medicare home health care cost and reduced Medicare office-visit cost. We also show that Medicare enrollees with private prescription drug coverage tend to use newer drugs than those without such coverage: the mean age of drugs used by Medicare enrollees with private Rx insurance is about 9% lower than the mean age of drugs used by Medicare enrollees without either private or public Rx insurance. Copyright © 2007 John Wiley & Sons, Ltd.

If 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.

File URL: http://hdl.handle.net/10.1002/mde.1355
File Function: Link to full text; subscription required
Download Restriction: no

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 28 (2007)
Issue (Month): 4-5 ()
Pages: 485-490

as
in new window

Handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:485-490
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:485-490. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.