NCPA - National Center for Policy Analysis

To New Drugs and Long Life

January 23, 2004

There is strong evidence that the benefits from new pharmaceuticals in terms of longer life and better health in old age far exceed the costs, and drug innovation also saves money by reducing the demand for other forms of medical care, says Frank Lichtenberg.

Using national data, the author finds:

  • The cost to the pharmaceutical industry to bring a new drug to market is about $540 million; the cost per year of life gained is slightly over $400.
  • One additional HIV drug approval prevents about 6,000 HIV deaths in the following year, and ultimately prevents about 34,000 HIV deaths.
  • Newer drugs generally cost more than older drugs by an average of 24 percent, but the switch can create a decline of 21.3 percent, or 1.02 days lost on the job.
  • The number of hospital-bed-days declines rapidly for those diagnoses with the greatest increase in the total number of drugs prescribed; an increase of 100 prescriptions is associated with 16.3 fewer hospital days.
  • In addition, replacing an old drug with a newer one reduces the expected number of hospital stays by 0.0059 -- about six fewer stays per thousand prescriptions.

It has long been suggested that, because generic drugs tend to be less expensive than branded drugs, allowing people to use only generic drugs might reduce health expenditures. But, because drugs out of patent and thus available generically tend to be much older than branded drugs, Lichtenberg concludes that using generics would actually increase total treatment costs as well as lead to less favorable medical outcomes.

Lichtenberg suggests that policy makers consider the full range of effects -- not just the costs -- of newer drugs.

Source: Frank Lichtenberg, "The Value of New Drug," Milken Institute Review, Fourth Quarter 2003.


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