IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/6846.html
   My bibliography  Save this paper

The Effect of Newer Drugs on Health Spending: Do They Really Increase the Costs?

Author

Listed:
  • Civan, Abdülkadir
  • Koksal, Bulent

Abstract

We 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.

Suggested Citation

  • Civan, Abdülkadir & Koksal, Bulent, 2007. "The Effect of Newer Drugs on Health Spending: Do They Really Increase the Costs?," MPRA Paper 6846, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:6846
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/6846/1/MPRA_paper_6846.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    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. 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.
    3. 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.
    4. 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 132-136, May.
    5. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 1049-1090.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. Baoping Shang & Dana P. Goldman, 2007. "Prescription Drug Coverage and Elderly Medicare Spending," NBER Working Papers 13358, National Bureau of Economic Research, Inc.
    11. 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.
    12. Lichtenberg, Frank R, 1996. "Do (More and Better) Drugs Keep People Out of Hospitals?," American Economic Review, American Economic Association, vol. 86(2), pages 384-388, May.
    13. David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 168-177, June.
    14. Frank R. Lichtenberg, 2007. "Benefits and costs of newer drugs: an update," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 485-490.
    15. 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.
    16. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Karine Lamiraud & Stéphane Lhuillery, 2015. "Endogenous Technology Adoption and Medical Costs," Working Papers hal-01218064, HAL.
    2. Abdulkadir Civan & Michael Maloney, 2017. "Launch Decisions of Pharmaceutical Companies," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 1(1), pages 35-58.
    3. Karine Lamiraud & Stephane Lhuillery, 2016. "Endogenous Technology Adoption and Medical Costs," Health Economics, John Wiley & Sons, Ltd., vol. 25(9), pages 1123-1147, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Kuan-Min, 2011. "Health care expenditure and economic growth: Quantile panel-type analysis," Economic Modelling, Elsevier, vol. 28(4), pages 1536-1549, July.
    2. Vasudeva N. R. Murthy & Natalya Ketenci, 2017. "Is technology still a major driver of health expenditure in the United States? Evidence from cointegration analysis with multiple structural breaks," International Journal of Health Economics and Management, Springer, vol. 17(1), pages 29-50, March.
    3. Rexford E. Santerre, 2011. "National and International Tests of the New Drug Cost Offset Theory," Southern Economic Journal, John Wiley & Sons, vol. 77(4), pages 1033-1043, April.
    4. Bech, Mickael & Christiansen, Terkel & Dunham, Kelly & Lauridsen, Jørgen & Lyttkens, Carl Hampus & McDonald, Kathryn & McGuire, Alistair & TECH investigators, the, 2006. "How do economic incentives and regulatory factors influence adoption of cardiac technologies? Result from the TECH project," Working Papers 2006:15, Lund University, Department of Economics.
    5. Son Hong Nghiem & Luke Brian Connelly, 2017. "Convergence and determinants of health expenditures in OECD countries," Health Economics Review, Springer, vol. 7(1), pages 1-11, December.
    6. Felipa de Mello-Sampayo & Sofia de Sousa-Vale, 2014. "Financing Health Care Expenditure in the OECD Countries: Evidence from a Heterogeneous, Cross-Sectional Dependent Panel," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(2), pages 207-225, March.
    7. Hyejin Lee & Dong-Yop Oh & Ming Meng, 2019. "Stationarity and cointegration of health care expenditure and GDP: evidence from tests with smooth structural shifts," Empirical Economics, Springer, vol. 57(2), pages 631-652, August.
    8. Karine Lamiraud & Stephane Lhuillery, 2016. "Endogenous Technology Adoption and Medical Costs," Health Economics, John Wiley & Sons, Ltd., vol. 25(9), pages 1123-1147, September.
    9. Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
    10. Daron Acemoglu & Amy Finkelstein & Matthew J. Notowidigdo, 2013. "Income and Health Spending: Evidence from Oil Price Shocks," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1079-1095, October.
    11. Joan Costa‐Font & Marin Gemmill & Gloria Rubert, 2011. "Biases in the healthcare luxury good hypothesis?: a meta‐regression analysis," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 174(1), pages 95-107, January.
    12. Felipa de Mello-Sampayo & Sofia de Sousa-Vale, 2014. "Financing Health Care Expenditure in the OECD Countries: Evidence from a Heterogeneous, Cross-Sectional Dependent Panel," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(2), pages 207-225.
    13. Hanck, Christoph, 2006. "For Which Countries did PPP hold? A Multiple Testing Approach," Technical Reports 2006,47, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
    14. Potrafke, Niklas, 2010. "The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter?," Journal of Health Economics, Elsevier, vol. 29(6), pages 797-810, December.
    15. Jorge José Luis Reynoso-González. & Adrián De León Arias., 2021. "Crecimiento económico y gasto público en salud según población objetivo en México. (Economic Growth and Public Spending on Health According to Target Population in Mexico)," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 89-114, May.
    16. Murthy, Vasudeva N.R. & Okunade, Albert A., 2016. "Determinants of U.S. health expenditure: Evidence from autoregressive distributed lag (ARDL) approach to cointegration," Economic Modelling, Elsevier, vol. 59(C), pages 67-73.
    17. Baltagi, Badi H. & Moscone, Francesco, 2010. "Health care expenditure and income in the OECD reconsidered: Evidence from panel data," Economic Modelling, Elsevier, vol. 27(4), pages 804-811, July.
    18. Joseph Byrne & Giorgio Fazio & Davide Piacentino, 2009. "Total Factor Productivity Convergence among Italian Regions: Some Evidence from Panel Unit Root Tests," Regional Studies, Taylor & Francis Journals, vol. 43(1), pages 63-76.
    19. Joan Costa‐Font & Jordi Pons‐Novell, 2007. "Public health expenditure and spatial interactions in a decentralized national health system," Health Economics, John Wiley & Sons, Ltd., vol. 16(3), pages 291-306, March.
    20. Chee-Ruey Hsieh & Ya-Ming Liu & Chia-Lin Chang, 2013. "Endogenous technological change in medicine and its impact on healthcare costs: evidence from the pharmaceutical market in Taiwan," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(2), pages 287-295, April.

    More about this item

    Keywords

    Health care expenditure; pharmaceuticals; technology diffusion;
    All these keywords.

    JEL classification:

    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:6846. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.