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Estimating the Impact of Medical Innovation: A Case Study of HIV Antiretroviral Treatments

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  • Duggan Mark G

    (University of Maryland, College Park)

  • Evans William N

    (University of Notre Dame)

Abstract

As health care consumes a growing share of GDP, the demand for better evidence regarding the effects of health care treatments and how these vary across individuals is increasing. Estimating this with observational data is difficult given the endogeneity of treatment decisions. But because the random assignment clinical trials (RACTs) used in the FDA approval process only estimate average health effects and do not consider spending, there is no good alternative. In this study we use administrative data from California's Medicaid program to estimate the impact of HIV antiretroviral treatments (ARVs). We use data on health care utilization to proxy for health status and exploit the rapid takeup of ARVs following their FDA approval. Our estimate of a 68 percent average mortality rate reduction is in line with the results from RACTs. We also find that the ARVs lowered short-term health care spending by reducing expenditures on other categories of medical care. Combining these two effects we estimate the cost per life year saved at $19,000. Our results suggest an alternative method for estimating the real-world effects of new treatments that is especially well-suited to those treatments that diffuse rapidly following their approval.

Suggested Citation

  • Duggan Mark G & Evans William N, 2008. "Estimating the Impact of Medical Innovation: A Case Study of HIV Antiretroviral Treatments," Forum for Health Economics & Policy, De Gruyter, vol. 11(2), pages 1-39, January.
    • Handle: RePEc:bpj:fhecpo:v:11:y:2008:i:2:n:1
    DOI: 10.2202/1558-9544.1102
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    Cited by:

    1. Benjamin D. Sommers, 2017. "State Medicaid Expansions and Mortality, Revisited: A Cost-Benefit Analysis," American Journal of Health Economics, MIT Press, vol. 3(3), pages 392-421, Summer.
    2. Onwujekwe, Obinna & Dike, Nkem & Chukwuka, Chinwe & Uzochukwu, Benjamin & Onyedum, Cajetan & Onoka, Chima & Ichoku, Hyacinth, 2009. "Examining catastrophic costs and benefit incidence of subsidized antiretroviral treatment (ART) programme in south-east Nigeria," Health Policy, Elsevier, vol. 90(2-3), pages 223-229, May.
    3. James Habyarimana & Bekezela Mbakile & Cristian Pop-Eleches, 2010. "The Impact of HIV/AIDS and ARV Treatment on Worker Absenteeism: Implications for African Firms," Journal of Human Resources, University of Wisconsin Press, vol. 45(4), pages 809-839.
    4. William N. Evans & Craig Garthwaite, 2012. "Estimating Heterogeneity in the Benefits of Medical Treatment Intensity," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 635-649, August.
    5. Margaret K. Kyle, 2019. "The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals," NBER Chapters, in: Innovation Policy and the Economy, Volume 20, pages 95-123, National Bureau of Economic Research, Inc.
    6. Pedro Pita Barros & Xavier Martínez-Giralt, 2009. "Technological adoption in health care," Working Papers 413, Barcelona School of Economics.
    7. Frank Lichtenberg, 2011. "The quality of medical care, behavioral risk factors, and longevity growth," International Journal of Health Economics and Management, Springer, vol. 11(1), pages 1-34, March.
    8. Amitabh Chandra & Jonathan Skinner, 2012. "Technology Growth and Expenditure Growth in Health Care," Journal of Economic Literature, American Economic Association, vol. 50(3), pages 645-680, September.
    9. Norman Bannenberg & Oddvar Førland & Tor Iversen & Martin Karlsson & Henning Øien, 2021. "Preventive Home Visits," American Journal of Health Economics, University of Chicago Press, vol. 7(4), pages 457-496.
    10. Rebecca M. Henderson & Richard G. Newell, 2011. "Accelerating Energy Innovation: Insights from Multiple Sectors," NBER Books, National Bureau of Economic Research, Inc, number hend09-1.
    11. Abdülkadi̇r Ci̇van & Bülent Köksal, 2010. "The effect of newer drugs on health spending: do they really increase the costs?," Health Economics, John Wiley & Sons, Ltd., vol. 19(5), pages 581-595, May.
    12. Amitabh Chandra & Jonathan S. Skinner, 2011. "Technology Growth and Expenditure Growth in Health Care," NBER Working Papers 16953, National Bureau of Economic Research, Inc.
    13. Daysal, N. Meltem & Trandafir, Mircea & van Ewijk, Reyn, 2016. "Heterogeneous Effects of Medical Interventions on the Health of Low-Risk Newborns," IZA Discussion Papers 9810, Institute of Labor Economics (IZA).
    14. Lichtenberg Frank R., 2013. "The Effect of Pharmaceutical Innovation on Longevity: Patient Level Evidence from the 1996–2002 Medical Expenditure Panel Survey and Linked Mortality Public-use Files," Forum for Health Economics & Policy, De Gruyter, vol. 16(1), pages 1-33, January.
    15. Rebecca M. Henderson & Richard G. Newell, 2011. "Introduction and Summary to "Accelerating Energy Innovation: Insights from Multiple Sectors"," NBER Chapters, in: Accelerating Energy Innovation: Insights from Multiple Sectors, pages 1-23, National Bureau of Economic Research, Inc.
    16. Cockburn Iain M. & Stern Scott, 2010. "Finding the Endless Frontier: Lessons from the Life Sciences Innovation System for Technology Policy," Capitalism and Society, De Gruyter, vol. 5(1), pages 1-50, July.
    17. John Hornberger & Mark Holodniy & Katherine Robertus & Michael Winnike & Erin Gibson & Eric Verhulst, 2007. "A Systematic Review of Cost-Utility Analyses in HIV/AIDS: Implications for Public Policy," Medical Decision Making, , vol. 27(6), pages 789-821, November.
    18. Daysal, N. Meltem & Trandafir, Mircea & van Ewijk, Reyn, 2019. "Low-risk isn’t no-risk: Perinatal treatments and the health of low-income newborns," Journal of Health Economics, Elsevier, vol. 64(C), pages 55-67.
    19. Frank Lichtenberg, 2006. "The Effect of Using Newer Drugs on Admissions of Elderly Americans to Hospitals and Nursing Homes: State-level Evidence from 1997 to 2003," PharmacoEconomics, Springer, vol. 24(3), pages 5-25, December.
    20. Frank R. Lichtenberg, 2006. "The Impact of Increased Utilization of HIV Drugs on Longevity and Medical Expenditures: An Assessment Based on Aggregate U.S. Time-Series Data," NBER Working Papers 12406, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    HIV; AIDS; antiretrovirals; innovation; Medicaid;
    All these keywords.

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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