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

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  • Mark G. Duggan
  • William N. Evans

Abstract

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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  • 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.
  • Handle: RePEc:nbr:nberwo:11109
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    References listed on IDEAS

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    Cited by:

    1. Onwujekwe, Obinna & Dike, Nkem & Chukwuka, Chinwe & Uzochukwu, Benjamin & Onyedum, Cajetan & Onoka, Chima & Ichoku, Hyacinth, 2009. "Examining catastrophic costs and benefit incidence of subsidized antiretroviral treatment (ART) programme in south-east Nigeria," Health Policy, Elsevier, vol. 90(2-3), pages 223-229, May.
    2. James Habyarimana & Bekezela Mbakile & Cristian Pop-Eleches, 2010. "The Impact of HIV/AIDS and ARV Treatment on Worker Absenteeism: Implications for African Firms," Journal of Human Resources, University of Wisconsin Press, vol. 45(4), pages 809-839.
    3. Pedro Pita Barros & Xavier Martinez-Giralt, 2009. "Technological adoption in health care," UFAE and IAE Working Papers 790.09, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    4. Rebecca M. Henderson & Richard G. Newell, 2011. "Accelerating Energy Innovation: Insights from Multiple Sectors," NBER Books, National Bureau of Economic Research, Inc, number hend09-1, June.
    5. Amitabh Chandra & Jonathan Skinner, 2012. "Technology Growth and Expenditure Growth in Health Care," Journal of Economic Literature, American Economic Association, vol. 50(3), pages 645-680, September.
    6. Frank Lichtenberg, 2011. "The quality of medical care, behavioral risk factors, and longevity growth," International Journal of Health Economics and Management, Springer, vol. 11(1), pages 1-34, March.
    7. Lichtenberg Frank R., 2013. "The Effect of Pharmaceutical Innovation on Longevity: Patient Level Evidence from the 1996–2002 Medical Expenditure Panel Survey and Linked Mortality Public-use Files," Forum for Health Economics & Policy, De Gruyter, vol. 16(1), pages 1-33, January.
    8. Rebecca M. Henderson & Richard G. Newell, 2011. "Introduction and Summary to "Accelerating Energy Innovation: Insights from Multiple Sectors"," NBER Chapters, in: Accelerating Energy Innovation: Insights from Multiple Sectors, pages 1-23, National Bureau of Economic Research, Inc.
    9. Cockburn Iain M. & Stern Scott, 2010. "Finding the Endless Frontier: Lessons from the Life Sciences Innovation System for Technology Policy," Capitalism and Society, De Gruyter, vol. 5(1), pages 1-50, July.
    10. Benjamin D. Sommers, 2017. "State Medicaid Expansions and Mortality, Revisited: A Cost-Benefit Analysis," American Journal of Health Economics, MIT Press, vol. 3(3), pages 392-421, Summer.
    11. William N. Evans & Craig Garthwaite, 2012. "Estimating Heterogeneity in the Benefits of Medical Treatment Intensity," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 635-649, August.
    12. Margaret K. Kyle, 2019. "The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals," NBER Chapters, in: Innovation Policy and the Economy, Volume 20, pages 95-123, National Bureau of Economic Research, Inc.
    13. Abdülkadi̇r Ci̇van & 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, May.
    14. Daysal, N. Meltem & Trandafir, Mircea & van Ewijk, Reyn, 2019. "Low-risk isn’t no-risk: Perinatal treatments and the health of low-income newborns," Journal of Health Economics, Elsevier, vol. 64(C), pages 55-67.
    15. Frank R. Lichtenberg, 2006. "The Impact of Increased Utilization of HIV Drugs on Longevity and Medical Expenditures: An Assessment Based on Aggregate U.S. Time-Series Data," NBER Working Papers 12406, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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