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Estimating the Impact of Medical Innovation: A Case Study of HIV Antiretroviral Treatments

  • Mark G. Duggan
  • William N. Evans

As health care consumes a growing share of national income in the U.S., the demand for better estimates regarding both the benefits and the costs of new health care treatments is likely to increase. Estimating these effects with observational data is difficult given the endogeneity of treatment decisions. But because the random assignment clinical trials (RACTs) used in the FDA's approval process do not consider costs, there is often no good alternative. In this study we use administrative data from the Medicaid program to estimate the impact of a particular category of new treatments - HIV antiretroviral drugs - on health care spending and health outcomes. We use the detailed information on health care utilization to proxy for health status and exploit the differential take-up of ARVs following their FDA approval. Our estimate of a 70 percent reduction in mortality is in line with the results from RACTs and with studies that had more detailed clinical data. We also find that the ARVs lowered short-term health care spending by reducing expenditures on other categories of medical care. Combining these two effects we estimate the cost per life year saved at $22,000. Our results suggest that the administrative data that is readily available from programs like Medicaid, used with a properly specified econometric model that allows for heterogeneity in take-up rates and in effectiveness based on initial health conditions, can produce reliable estimates of the impact of new health care treatments on both spending and health.

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File URL: http://www.nber.org/papers/w11109.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11109.

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Date of creation: Feb 2005
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Publication status: published as Mark Duggan & William Evans, 2008. "Estimating the Impact of Medical Innovation: A Case Study of HIV Antiretroviral Treatments," Forum for Health Economics & Policy, Berkeley Electronic Press, vol. 11(2), pages 1102-1102.
Handle: RePEc:nbr:nberwo:11109
Note: HE HC
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. 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.
  2. Alberto Abadie & Joshua Angrist & Guido Imbens, 1999. "Instrumental Variables Estimates of the Effect of Subsidized Training on the Quantiles of Trainee Earnings," Working papers 99-16, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Heckman, James J & Smith, Jeffrey, 1997. "Making the Most Out of Programme Evaluations and Social Experiments: Accounting for Heterogeneity in Programme Impacts," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 487-535, October.
  4. Mark Duggan, 2002. "Does Contracting Out Increase the Efficiency of Government Programs? Evidence from Medicaid HMOs," NBER Working Papers 9091, National Bureau of Economic Research, Inc.
  5. Bhattacharya, Jayanta & Goldman, Dana & Sood, Neeraj, 2003. "The link between public and private insurance and HIV-related mortality," Journal of Health Economics, Elsevier, vol. 22(6), pages 1105-1122, November.
  6. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 33-64, February.
  7. David Meltzer, 1997. "Accounting for Future Costs in Medical Cost-Effectiveness Analysis," NBER Working Papers 5946, National Bureau of Economic Research, Inc.
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