Benefits and Costs of Newer Drugs: An Update
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)
NBER Working Paper No. w8996
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.
Number of Pages in PDF File: 13
Date posted: June 13, 2002