BENEFITS OF NEW PHARMACEUTICALS SIGNIFICANTLY EXCEED THEIR COSTS

February 9, 2009

In "Pharmaceutical Innovation and the Longevity of Australians: A First Look," co-authors Frank Lichtenberg and Gautier Duflos find that the benefits of new pharmaceuticals significantly exceed their costs.  Using 1995-2003 data on actual prescriptions from the set of about 700 drugs available under the Australian Pharmaceutical Benefits Scheme (PBS), they estimate that newer drugs increase life expectancy by 1.23 years and drug expenditures by about $12, 976.

Other findings:

  • When the population began using "newer" drugs, longevity increased.
  • When the average number of years since introduction for prescription drugs falls by five years, the authors estimate, the mean age at death rises by eleven months.
  • Using newer drugs also reduces the number of years of potential life lost before the ages of 65 and 70.
  • Overall, using newer drugs to treat diseases apparently accounted for about 65 percent of the two years of increased life expectancy enjoyed by Australians during the period studied.

The authors caution that their estimates may overestimate the cost per year of life gained: they do not take into account the fact that studies using U.S. data suggest that the use of newer drugs decreases hospital and nursing home admissions and increases work effort.  Innovation in medical procedures and devices may either substitute or compliment drug innovation, an effect that could lead to overestimation or underestimation of the effects of newer drugs. 

However, the authors also note that the use of newer drugs appears to improve health more for those in initially poorer health.  In their view, this "suggests that pharmaceutical-embodied technical progress has a tendency to reduce inequity as well as promote economic growth, broadly defined."

Source: Linda Gorman, "Benefits of New Pharmaceuticals," NBER Digest, February, 2009; based upon: Frank R. Lichtenberg and Gautier Duflos, "Pharmaceutical Innovation and the longevity of Australians: a first look," National Bureau of Economic Research, Working Paper #14009, May 2008.

For text:

http://www.nber.org/digest/jan09/w14009.html 

For study:

http://papers.nber.org/papers/w14009 

 

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