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The effect of newer drugs on health spending: do they really increase the costs?

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  • Abdülkadi̇r Ci̇van
  • Bülent Köksal

Abstract

We analyze the influence of technological progress on pharmaceuticals on rising health expenditures using US State level panel data. Improvements in medical technology are believed to be partly responsible for rapidly rising health expenditures. Even if the technological progress in medicine improves health outcomes and life quality, it can also increase the expenditure on health care. Our findings suggest that newer drugs increase the spending on prescription drugs since they are usually more expensive than their predecessors. However, they lower the demand for other types of medical services, which causes the total spending to decline. We estimate that a 1‐year decrease in the average age of prescribed drugs causes per capita health expenditures to decrease by $45.43. The biggest decline occurs in spending on hospital care due to newer drugs. Copyright © 2009 John Wiley & Sons, Ltd.

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  • 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.
    • Handle: RePEc:wly:hlthec:v:19:y:2010:i:5:p:581-595
    DOI: 10.1002/hec.1494
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    Cited by:

    1. Abdulkadir Civan & Michael Maloney, 2017. "Launch Decisions of Pharmaceutical Companies," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 1(1), pages 35-58.
    2. Karine Lamiraud & Stephane Lhuillery, 2016. "Endogenous Technology Adoption and Medical Costs," Health Economics, John Wiley & Sons, Ltd., vol. 25(9), pages 1123-1147, September.
    3. Karine Lamiraud & Stéphane Lhuillery, 2015. "Endogenous Technology Adoption and Medical Costs," Working Papers hal-01218064, HAL.

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • I10 - Health, Education, and Welfare - - Health - - - General

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