IDEAS home Printed from https://ideas.repec.org/a/kap/ijhcfe/v24y2024i1d10.1007_s10754-023-09363-y.html
   My bibliography  Save this article

Has pharmaceutical innovation reduced the average cost of U.S. health care episodes?

Author

Listed:
  • Frank R. Lichtenberg

    (Columbia University
    National Bureau of Economic Research
    CESifo)

Abstract

A number of authors have argued that technological innovation has increased U.S. health care spending. We investigate the impact that pharmaceutical innovation had on the average cost of U.S. health care episodes during the period 2000–2014, using data from the Bureau of Economic Analysis’ Health Care Satellite Account and other sources. We analyze the relationship across approximately 200 diseases between the growth in the number of drugs that have been approved to treat the disease and the subsequent growth in the mean amount spent per episode of care, controlling for the growth in the number of episodes and other factors. Our estimates indicate that mean episode cost is not significantly related to the number of drugs ever approved 0–4 years before, but it is significantly inversely related to the number of drugs ever approved 5–20 years before. This delay is consistent with the fact (which we document) that utilization of a drug is relatively low during the first few years after it was approved, and that some drugs may have to be consumed for several years to have their maximum impact on treatment cost. Our estimates of the effect of pharmaceutical innovation on the average cost of health care episodes are quite insensitive to the weights used and to whether we control for 3 covariates. Our most conservative estimates imply that the drugs approved during 1986–1999 reduced mean episode cost by 4.7%, and that the drugs approved during 1996–2009 reduced mean episode cost by 2.1%. If drug approvals did not affect the number of episodes, the drugs approved during 1986–1999 would have reduced 2014 medical expenditure by about $93 billion. However, drug approvals may have affected the number, as well as the average cost, of episodes. We also estimate models of hospital utilization. The number of hospital days is significantly inversely related to the number of drugs ever approved 10–19 years before, controlling for the number of disease episodes. Our estimates imply that the drugs approved during 1984–1997 reduced the number of hospital days by 10.5%. The hospital cost reduction was larger than expenditure on the drugs.

Suggested Citation

  • Frank R. Lichtenberg, 2024. "Has pharmaceutical innovation reduced the average cost of U.S. health care episodes?," International Journal of Health Economics and Management, Springer, vol. 24(1), pages 1-31, March.
    • Handle: RePEc:kap:ijhcfe:v:24:y:2024:i:1:d:10.1007_s10754-023-09363-y
    DOI: 10.1007/s10754-023-09363-y
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10754-023-09363-y
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10754-023-09363-y?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lichtenberg, Frank R., 2022. "The effect of pharmaceutical innovation on longevity: Evidence from the U.S. and 26 high-income countries," Economics & Human Biology, Elsevier, vol. 46(C).
    2. Lichtenberg Frank R., 2018. "The Impact of New Drug Launches on Hospitalization in 2015 for 67 Medical Conditions in 15 OECD Countries: A Two-Way Fixed-Effects Analysis," Forum for Health Economics & Policy, De Gruyter, vol. 21(2), pages 1-20, December.
    3. Congressional Budget Office, 2012. "Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services," Reports 43741, Congressional Budget Office.
    4. Congressional Budget Office, 2012. "Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services," Reports 43741, Congressional Budget Office.
    5. Frank R. Lichtenberg, 2022. "The effects of dynamic and static competition on prescription drug prices in Denmark, 1997–2017," Journal of Evolutionary Economics, Springer, vol. 32(4), pages 1155-1173, September.
    6. Frank R. Lichtenberg, 2014. "The Impact of Pharmaceutical Innovation on Disability Days and the Use of Medical Services in the United States, 1997-2010," Journal of Human Capital, University of Chicago Press, vol. 8(4), pages 432-480.
    7. Congressional Budget Office, 2012. "Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services," Reports 43741, Congressional Budget Office.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lichtenberg Frank R., 2018. "The Impact of New Drug Launches on Hospitalization in 2015 for 67 Medical Conditions in 15 OECD Countries: A Two-Way Fixed-Effects Analysis," Forum for Health Economics & Policy, De Gruyter, vol. 21(2), pages 1-20, December.
    2. Kyoungrae Jung & Roger Feldman & A. McBean, 2014. "Demand for prescription drugs under non-linear pricing in Medicare Part D," International Journal of Health Economics and Management, Springer, vol. 14(1), pages 19-40, March.
    3. Xiaotong Niu & Melinda Buntin & Joyce Manchester, 2015. "Changes in Medicare Spending per Beneficiary by Age: Working Paper 2015-08," Working Papers 51027, Congressional Budget Office.
    4. Buntin Melinda & Hayford Tamara, 2016. "Evidence of Inefficiencies in Practice Patterns: Regional Variation in Medicare Medical and Drug Spending," Forum for Health Economics & Policy, De Gruyter, vol. 19(2), pages 299-331, December.
    5. Robert Kaestner & Cuping Schiman & G. Caleb Alexander, 2019. "Effects of Prescription Drug Insurance on Hospitalization and Mortality: Evidence from Medicare Part D," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 86(3), pages 595-628, September.
    6. Frank R. LICHTENBERG, 2018. "The Impact of New Drug Launch on Life-Years Lost in 2015 from 19 Types of Cancer in 36 Countries," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 84(3), pages 309-354, September.
    7. Frank R. Lichtenberg, 2019. "How Many Life-Years Have New Drugs Saved? A 3-Way Fixed-Effects Analysis of 66 Diseases in 27 Countries, 2000-2013," NBER Working Papers 25483, National Bureau of Economic Research, Inc.
    8. Blankart, Katharina & Lichtenberg, Frank R., 2022. "The effects of off-label drug use on disability and medical expenditure," Ruhr Economic Papers 969, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    9. Lichtenberg, Frank R., 2022. "The effect of pharmaceutical innovation on longevity: Evidence from the U.S. and 26 high-income countries," Economics & Human Biology, Elsevier, vol. 46(C).
    10. Frank R. Lichtenberg, 2021. "Are drug prices subject to creative destruction? Evidence from the US, 1997–2017," Health Economics, John Wiley & Sons, Ltd., vol. 30(8), pages 1910-1932, August.
    11. Katharina E. Blankart & Frank R. Lichtenberg, 2020. "Are patients more adherent to newer drugs?," Health Care Management Science, Springer, vol. 23(4), pages 605-618, December.
    12. Anna Chorniy & James Bailey & Abdulkadir Civan & Michael Maloney, 2021. "Regulatory review time and pharmaceutical research and development," Health Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 113-128, January.
    13. Frank R. Lichtenberg, 2022. "The effects of dynamic and static competition on prescription drug prices in Denmark, 1997–2017," Journal of Evolutionary Economics, Springer, vol. 32(4), pages 1155-1173, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:ijhcfe:v:24:y:2024:i:1:d:10.1007_s10754-023-09363-y. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.