Study shows benefits of new drugs

December 1, 2002

Pharmaceutical Representative

A new study, found that using newer medicines in the place of older medicines reduces overall healthcare spending and that the savings are greatest among the Medicare population.

A new study, "Benefits and Costs of Newer Drugs: An Update," by Columbia University economist Frank R. Lichtenberg, found that using newer medicines in the place of older medicines reduces overall healthcare spending and that the savings are greatest among the Medicare population.

The study, which was released as a National Bureau of Economic Research Working Paper, examined the effect of drug age – the number of years since the Food and Drug Administration approved the drug – on total medical expenditures and mortality. Lichtenberg found that replacing older medicines with newer medicines reduced non-drug health expenditures more than seven times as much as they increased drug spending.

Medicare population savings

In the Medicare population, replacing older medicines with newer medicines reduced other health expenditures more than eight times as much as it added to drug spending. For example, if you use a 5-year-old drug instead of a 15-year-old drug to treat a condition, the estimated increase in the cost of the drug will be $18, while the reduction in other medical spending will be $129, for a net savings of $111 for the general population and $155 for the Medicare population. The savings would come mainly from reductions in hospital expenditures and physician office visits.

"This new study adds to the already impressive body of evidence that answers the question 'Are newer drugs worth the cost?' with a resounding 'yes,'" said Richard Smith, senior vice president of policy and research at the Washington-based Pharmaceutical Research and Manufacturers of America. "The findings have important implications for Congress as it crafts a drug coverage benefit for seniors. It shows that providing seniors with the newest, most innovative medicines can save Medicare dollars as well as improve health outcomes and quality of life. It also indicates that seniors with private-sector prescription drug coverage tend to use newer drugs than those without coverage." PR

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