4 Life expectancy at birth, by region Unlike GDP, longevity is converging
5 Nursing home residents 65 years and over per 1,000 population, age adjusted, 1973-1999
6 New drugs cost more, but are they worth more? New drugs tend to cost more—sometimes a great deal more—than older drugsMuch of the increase in per capita drug expenditure is due to the replacement of older (often generic) drugs by newer, more expensive branded drugsNew drugs cost more, but are they worth more?There are two main ways in which they could be worth moreThey could result in better outcomes (longer life, higher quality of life, higher productivity)They could reduce utilization of other medical care (e.g. hospitals and nursing homes)
7 Cost of breast cancer treatment DrugFDA Approval yearCost of treatment per monthAnastrozole1995$227.23(Breast Cancer; Arimidex; 1 mg; 1 tablet/day; 30 day supply)Letrozole1997$232.96(Breast Cancer; Femara; 2.5 mg; 1 tablet/day; 30 day supply)Methyltestosterone1971$205.99(Metastatic Breast Cancer (female); Android; 25 mg; 2 tablets/day; 30 day supply)$6.18(Metastatic Breast Cancer (female); Generic Tablets; 25 mg; 2 tablets/day; 30 day supply)
8 Potential benefits of newer drugs Longer lifeImproved quality of life/functional statusReduced utilization of other medical servicesHospitalsNursing homesIncreased productivity/ability to workLower probability of being out of labor force (completely unable to work)Fewer days of work missed by people with jobs
9 Role of new goods in economic growth Solow, Technical Progress, Capital Formation, and Economic Growth: “technological progress needs to be ‘embodied’ in newly produced…goods before there can be any effect on output.”Grossman and Helpman, Innovation and Growth in the Global Economy: “innovative goods are better than older products simply because they provide more ‘product services’ in relation to their cost of production.”Bresnahan and Gordon, The Economics of New Goods: “New goods are at the heart of economic progress”Bils: Measuring the Growth from Better and Better Goods, “Much of economic growth occurs through growth in quality as new models of consumer goods replace older, sometimes inferior, models.”
10 General research approach Compare the health outcomes or expenditure of individuals, or groups of individuals (where group is defined by region, disease, or both) using newer vs. older drugs, controlling for other factorsKey explanatory variable is the mean vintage of drugs used by an individual or groupThe vintage of a drug is the year in which the drug’s active ingredient was first marketedExample: Anastrozole is a 1995-vintage drug
20 Estimates of a mortality model imply that actual life expectancy in 2001 was 13.4 years higher than it would have been if the drug utilization rate had not increased from its 1993 level. About 60% of the total 22.6-year increase in life expectancy during is attributable to the increase in drug utilization.Estimates of a model of hospital discharges imply that increased utilization of HIV drugs caused hospital utilization to decline by .25 to .29 discharges per person per year. About one-third of the total decline in hospital utilization during is attributable to the increase in drug utilization; 56% of the increase in HIV drug expenditure appears to have been offset by a reduction in hospital expenditure.
21 The impact of new drug launches on longevity: evidence from longitudinal, disease-level data from 52 countries,
22 Econometric approach Link two major databases: World Health Organization data on the age distribution of deaths, by country, disease, and yearIMS Health data on drug launches, by country, disease (therapeutic class), and yearEstimate relationship between cumulative number of drugs launched 3 years earlier and prob. of dying after age 65Include extensive controls for potentially confounding variables
23 IMS Health Drug Launches database Has tracked new product introductions worldwide since 1982In August 2001 the database contained over 165,000 records of individual product introductions between 1982 and 2001Allows measurement, for each country and therapeutic area, of the total number of ingredients launched, and the number of new chemical entities launched
25 Example: tenecteplase Launch date Country6/00 USA3/01 Finland5/01 UK9/01 Norway10/01 Canada10/01 South Africa11/01 IrelandTenecteplase is used to dissolve blood clots that have formed in the blood vessels of the heart and seriously lessen the flow of blood in the heart. This medicine is used to improve survival after a heart attack.
26 Drug launch probability profiles: U.S. vs. Canada
27 FindingsLaunches of New Chemical Entities (NCEs) have a strong positive impact on the probability of survivalLaunches of (older) drugs that are not NCEs—many of which may already have been on the market—do not increase longevity
28 Contribution of NCE launches to longevity increase Between 1986 and 2000, average life expectancy of the entire population of sample countries increased by almost two (1.96) years.The estimates imply that NCE launches accounted for 0.79 years (40%) of the increase in longevity.The average annual increase in life expectancy of the entire population resulting from NCE launches is .056 years, or 2.93 weeks.
29 Contribution of NCE launches to increase in average life expectancy of the population since 1986
30 Cost per life-year gained from the launch of NCEs In 1997, average per capita pharmaceutical expenditure in OECD countries was about $250The average annual increase in life expectancy of the entire population resulting from NCE launches is .056 yearsHence pharmaceutical expenditure per person per year divided by the increase in life-years per person per year attributable to NCE launches is about $4500This is far lower than most estimates of the value of a life-yearMoreover, since the numerator includes expenditure on old drugs as well as on recently-launched NCEs, it probably grossly overstates the cost per life-year gained from the launch of NCEs
31 The effect of drug vintage on survival rates: individual-level evidence from Puerto Rico’s Medicaid program
32 DataAll medical and pharmacy claims of ASES beneficiaries during the period January 1-June 30, 2000Almost 800,000 people; 540,000 had pharmacy claimsAbout 12.2 million claimsList of all Puerto Rican residents who died during the period
34 DIEDi = b1970 POST1970i + b1980 POST1980i + b1990 POST1990i + g Zi + ei where:DIEDi= 1 if individual i died during the period= 0 otherwisePOST1970i= the fraction of individual i’s prescribed medicines whose active ingredients were approved by the FDA after 1970POST1980i= the fraction of individual i’s prescribed medicines whose active ingredients were approved by the FDA after 1980POST1990i= the fraction of individual i’s prescribed medicines whose active ingredients were approved by the FDA after 1990Zi= a vector of covariatesei= a disturbance
35 Covariates Demographic information (age, sex, region) Person’s utilization of services (number of physician encounters, pharmacy claims, hospital admissions during Jan.-June 2000)Nature of person’s illnesses (diagnosis codes grouped into 15 broad disease groups)
36 Mortality rate declines as drug vintage increases
38 The effect of using newer drugs on admissions of elderly Americans to hospitals and nursing homes: state-level evidence from
39 The effect of using newer drugs on admissions of elderly Americans to hospitals and nursing homes: state-level evidence fromExamine the effect of pharmaceutical innovation on admissions of elderly Americans to hospitals and nursing homes during , using longitudinal state-level data on 12 states.Hospital and nursing home admissions data derived from the State Inpatient Databases, which contain the universe of inpatient discharge abstracts in participating StatesState-level drug utilization information for outpatient drugs purchased by State Medicaid agencies.Very precise information about the vintage (FDA approval year) distribution of over 43,000 products utilized by 24 million people, by state and calendar quarter, from 1991 to the present.The extent of utilization of new drugs in the Medicaid program is strongly correlated with the extent of utilization of new drugs in general.
40 Other factors controlled for state and year fixed effectsper capita incomepercent of state residents below the poverty linepercent of state residents with no public or private health insurancepercent of state residents who completed high schoolpercent of state residents who completed 4 years of collegemean body mass index (BMI) of state residents
41 FindingsMean vintage of Medicaid Rx’s increased by 6.2 years between 1997 and 2003Mean vintage of 1997 Rx’s wasMean vintage of 2003 Rx’s wasStates that had larger increases in drug vintage had smaller increases in the number of hospital and nursing-home admissions per elderly person.Use of newer drugs (increase in mean vintage) increased drug expenditure per person by $284-$778 in 2003Use of newer drugs reduced the number of hospital admissions by 6.1 per hundred people in 2003; this was worth $785 per personUse of newer drugs reduced the number of nursing home admissions by 2.7 per hundred people in 2003; this was worth $1166 per personAlthough use of newer drugs increases life expectancy, it reduces lifetime admissions to hospitals and nursing homes
44 Availability of new drugs and Americans’ ability to work
45 % of People Unable to Work, by Age Illness-induced early retirement ofolder workers: human-capital losses
46 Research objectivesInvestigate the extent to which the introduction of new drugs has increased society’s ability to produce goods and services, by increasing the number of hours worked per member of the working-age population.Attempt to determine whether the value of the increase in goods and services resulting from new drugs exceeds the cost of the drugs.
47 Previous evidence re. the impact of new drugs on ability to work Numerous case studies of specific drugsTerbutaline (approved by the FDA in 1974) for asthmaGlipizide (1984) for diabetesSumatriptan and rizatriptan (1992 and 1998, respectively) for migraines.However, it is difficult to estimate from case studies the average or aggregate effect of new drugs on ability to work
48 National Health Interview Survey Principal source of information on the health of the population of the United StatesSurvey remained the same during the periodDuring that period, it collected information from 1,017,164 working-age Americans on 133 chronic conditions and impairments
49 Condition-specific data NHIS collected information about:whether each person was unable to work, mainly due to one of the chronic conditions, andthe number of work-days missed in the two weeks preceding the interview due to each chronic condition (for currently employed persons)Each respondent to the survey was asked about 1/6 of the 133 conditions
51 Probability of being unable to work in 1996 due to 47 major chronic conditions
52 Benefits vs. costs of new drugs Benefit: increase in expected earnings due to increased probability of being able to workCost: average expenditure on new drugs for these conditions
53 Biomedical innovation, longevity, and quality of life Health is improvingLongevity“Quality of life”/functional statusBiomedical innovation is responsible for a significant part of improvements in health
54 SummaryPublic health depends on the quality as well as the quantity of pharmaceuticals consumedThere is an easily measured characteristic of drugs that is strongly correlated with quality: vintageThe vintage of a drug is the year in which the drug’s active ingredient was first marketedMean vintage (or the % of new drugs) varies across individuals, regions, and diseasesBoth micro and macro evidence indicate that drug vintage has important effects on mortality, hospital and nursing home utilization, and other health outcomes
55 Some of my published articles “Pharmaceutical Knowledge-Capital Accumulation and Longevity,” in Measuring Capital in the New Economy, ed. by Carol Corrado, John Haltiwanger, and Dan Sichel, pp (University of Chicago Press, 2005)."Availability of new drugs and Americans' ability to work," Journal of Occupational and Environmental Medicine 47 (4), April 2005,“The Effect of Access Restrictions on the Vintage of Drugs Used by Medicaid Enrollees,” American Journal of Managed Care 11, Special Issue, 2005, SP7-SP13."The impact of new drug launches on longevity: evidence from longitudinal disease-level data from 52 countries, ," International Journal of Health Care Finance and Economics 5, 2005, pp“Sources of U.S. Longevity Increase, ,” Quarterly Review of Economics and Finance 44(3), pp (July 2004).“The Effect of New Drugs on HIV Mortality in the U.S., ,” Economics and Human Biology 1 (2003)“Pharmaceutical Innovation, Mortality Reduction, and Economic Growth,” in Measuring the Gains from Medical Research: An Economic Approach, ed. by Kevin M. Murphy and Robert H. Topel (Chicago: University of Chicago Press, 2003), pp“Are the Benefits of Newer Drugs Worth Their Cost? Evidence from the 1996 MEPS,” Health Affairs 20(5), September/October 2001,