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Is newer always better? Re-evaluating the benefits of newer pharmaceuticals

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  • Law, Michael R.
  • Grépin, Karen A.

Abstract

Whether newer pharmaceuticals justify their higher costs by reducing other health expenditures has generated significant debate. We replicate a frequently cited paper by Lichtenberg on drug "offsets" and find the results disappear using a more appropriate model or updated dataset. Further, we test the suitability of similar methods using newer hypertension drugs. We find our observational results run counter to well-established clinical evidence on comparative efficacy and conclude that our model, as well as other studies that do not adequately control for unobserved characteristics that jointly determine drug choice and health expenditures, are likely subject to significant bias.

Suggested Citation

  • Law, Michael R. & Grépin, Karen A., 2010. "Is newer always better? Re-evaluating the benefits of newer pharmaceuticals," Journal of Health Economics, Elsevier, vol. 29(5), pages 743-750, September.
    • Handle: RePEc:eee:jhecon:v:29:y:2010:i:5:p:743-750
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    References listed on IDEAS

    as
    1. Duggan, Mark, 2005. "Do new prescription drugs pay for themselves?: The case of second-generation antipsychotics," Journal of Health Economics, Elsevier, vol. 24(1), pages 1-31, January.
    2. Frank R. Lichtenberg, 2007. "Benefits and costs of newer drugs: an update," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 485-490.
    3. Richard G. Frank & Thomas G. McGuire & Sharon-Lise Normand, 2006. "Cost-Offsets of New Medications for Treatment of Schizophrenia," NBER Working Papers 12643, National Bureau of Economic Research, Inc.
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    5. Gaynor Martin & Li Jian & Vogt William B, 2007. "Substitution, Spending Offsets, and Prescription Drug Benefit Design," Forum for Health Economics & Policy, De Gruyter, vol. 10(2), pages 1-33, July.
    6. Amitabh Chandra & Jonathan Gruber & Robin McKnight, 2007. "Patient Cost-Sharing, Hospitalization Offsets, and the Design of Optimal Health Insurance for the Elderly," NBER Working Papers 12972, National Bureau of Economic Research, Inc.
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    9. Frank R. Lichtenberg, 2007. "The Impact of New Drugs on US Longevity and Medical Expenditure, 1990–2003: Evidence from Longitudinal, Disease-Level Data," American Economic Review, American Economic Association, vol. 97(2), pages 438-443, May.
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