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Benefits and Costs of Newer Drugs: An Update

13 Pages Posted: 13 Jun 2002 Last revised: 1 Jun 2013

Frank R. Lichtenberg

Columbia Business School - Finance and Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); National Bureau of Economic Research (NBER)

Date Written: June 2002

Abstract

We update and extend our previous study of the effect of drug age -- years since FDA approval -- on total medical expenditure, in several respects. The estimates indicate that, in the entire population, a reduction in the age of drugs utilized reduces non-drug expenditure 7.2 times as much as it increases drug expenditure. In the Medicare population, a reduction in the age of drugs utilized reduces non-drug expenditure by all payers 8.3 times as much as it increases drug expenditure; it reduces Medicare non-drug expenditure 6.0 times as much as it increases drug expenditure. About two-thirds of the non-drug Medicare cost reduction is due to reduced hospital costs. The remaining third is approximately evenly divided between reduced Medicare home health care cost and reduced Medicare office-visit cost. We also found that the mean age of drugs used by Medicare enrollees with private Rx insurance is about 9% lower than the mean age of drugs used by Medicare enrollees without either private or public Rx insurance.

Suggested Citation

Lichtenberg, Frank R., Benefits and Costs of Newer Drugs: An Update (June 2002). NBER Working Paper No. w8996. Available at SSRN: https://ssrn.com/abstract=315993

Frank R. Lichtenberg (Contact Author)

Columbia Business School - Finance and Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Germany

National Bureau of Economic Research (NBER)

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United States

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