NCPA - National Center for Policy Analysis


March 2, 2005

Increased pharmaceutical spending results more from increased usage and new products than higher prices. That is, more people are using better medicines. For this reason prices cannot be debated in isolation. Costs must be compared to benefits, says Doug Bandow, a senior fellow at the Cato Institute.

People demand pharmaceuticals because they offer enormous value:

  • Some 520 new drugs entered the market between 1980 and 2000 because people desired them.
  • By one estimate, prescription drugs accounted for nearly half of the variation of the reduction in mortality among different diseases between 1970 and 1991.
  • New medicines are an important reason why longevity is up seven years since 1960 alone.
  • On average, each new drug approved during the period 1970-91 is estimated to have saved 11,200 life-years in 1991, according to Columbia University's Frank Lichtenberg.
  • Lichtenberg estimates that every $1 increase in pharmaceutical expenditures lowers hospital spending by $3.65.

Pharmaceuticals are an especially important reason why deaths from AIDS have dropped dramatically. But medicines do more than extend and improve the quality of lives. Drugs also cut other medical expenditures, reducing hospitalizations, surgeries and other, more invasive, treatments, notes Bandow.

Obviously, the fact that drugs offer extensive benefit doesn't mean that expense is unimportant. But based on cost considerations alone, hospital and physician charges are a bigger issue. Pharmaceuticals should be treated as part of the solution, not part of the problem, of rising medical expenditures, says Bandow.

Source: Doug Bandow, "The costs of health care," Washington Times, March 2, 2005.


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