1. Biomedical innovation, longevity, and quality of life
Frank R. Lichtenberg
Columbia University and
National Bureau of Economic Research

2. Health is improving
Longevity
“Quality of life”/functional status
Biomedical innovation is responsible for a significant part of improvements in health

3. Life expectancy at birth, world, 1950-2000

4. Life expectancy at birth, by region
Unlike GDP, longevity is converging

5. Nursing home residents 65 years and over per 1,000 population, age adjusted, 1973-1999

6. New drugs cost more, but are they worth more?
New drugs tend to cost more—sometimes a great deal more—than older drugs
Much of the increase in per capita drug expenditure is due to the replacement of older (often generic) drugs by newer, more expensive branded drugs
New drugs cost more, but are they worth more?
There are two main ways in which they could be worth more
They could result in better outcomes (longer life, higher quality of life, higher productivity)
They could reduce utilization of other medical care (e.g. hospitals and nursing homes)

7. Cost of breast cancer treatment
Drug
FDA Approval year
Cost of treatment per month
Anastrozole
1995
$227.23
(Breast Cancer; Arimidex; 1 mg; 1 tablet/day; 30 day supply)
Letrozole
1997
$232.96
(Breast Cancer; Femara; 2.5 mg; 1 tablet/day; 30 day supply)
Methyltestosterone
1971
$205.99
(Metastatic Breast Cancer (female); Android; 25 mg; 2 tablets/day; 30 day supply)
$6.18
(Metastatic Breast Cancer (female); Generic Tablets; 25 mg; 2 tablets/day; 30 day supply)

8. Potential benefits of newer drugs
Longer life
Improved quality of life/functional status
Reduced utilization of other medical services
Hospitals
Nursing homes
Increased productivity/ability to work
Lower probability of being out of labor force (completely unable to work)
Fewer days of work missed by people with jobs

9. Role of new goods in economic growth
Solow, Technical Progress, Capital Formation, and Economic Growth: “technological progress needs to be ‘embodied’ in newly produced…goods before there can be any effect on output.”
Grossman and Helpman, Innovation and Growth in the Global Economy: “innovative goods are better than older products simply because they provide more ‘product services’ in relation to their cost of production.”
Bresnahan and Gordon, The Economics of New Goods: “New goods are at the heart of economic progress”
Bils: Measuring the Growth from Better and Better Goods, “Much of economic growth occurs through growth in quality as new models of consumer goods replace older, sometimes inferior, models.”

10. General research approach
Compare the health outcomes or expenditure of individuals, or groups of individuals (where group is defined by region, disease, or both) using newer vs. older drugs, controlling for other factors
Key explanatory variable is the mean vintage of drugs used by an individual or group
The vintage of a drug is the year in which the drug’s active ingredient was first marketed
Example: Anastrozole is a 1995-vintage drug

11. Mean vintage of Medicaid Rx's, by year

12. % of U.S. prescriptions that contained ingredients approved after 1985

13. Mean vintage of 2002 Medicaid Rx’s, by state

14. Several types of evidence
Individual level
Aggregate level
By disease and year
By region and year
By disease, region, and year
Each approach has advantages and disadvantages

15. Impact of new drugs on longevity
Aggregate evidence: HIV/AIDS patients in the U.S.
Aggregate evidence: Entire populations of 52 countries
Individual-level evidence: Puerto Rico Medicaid program

16. HIV/AIDS Survival functions: 1993 vs. 2000

17. No. of HIV/AIDS Rx's per person with HIV/AIDS
Between 1995 and 1997, seven new molecules and
two new drug classes for treating HIV were introduced

18. Change in average HIV/AIDS drug utilization and % change in mortality rate

19. Drug utilization and hospital utilization

20. Estimates of a mortality model imply that actual life expectancy in 2001 was 13.4 years higher than it would have been if the drug utilization rate had not increased from its 1993 level. About 60% of the total 22.6-year increase in life expectancy during is attributable to the increase in drug utilization.
Estimates of a model of hospital discharges imply that increased utilization of HIV drugs caused hospital utilization to decline by .25 to .29 discharges per person per year. About one-third of the total decline in hospital utilization during is attributable to the increase in drug utilization; 56% of the increase in HIV drug expenditure appears to have been offset by a reduction in hospital expenditure.

21. The impact of new drug launches on longevity: evidence from longitudinal, disease-level data from 52 countries,

22. Econometric approach Link two major databases:
World Health Organization data on the age distribution of deaths, by country, disease, and year
IMS Health data on drug launches, by country, disease (therapeutic class), and year
Estimate relationship between cumulative number of drugs launched 3 years earlier and prob. of dying after age 65
Include extensive controls for potentially confounding variables

23. IMS Health Drug Launches database
Has tracked new product introductions worldwide since 1982
In August 2001 the database contained over 165,000 records of individual product introductions between 1982 and 2001
Allows measurement, for each country and therapeutic area, of the total number of ingredients launched, and the number of new chemical entities launched

24. Countries with most and fewest drug launches

25. Example: tenecteplase
Launch date Country
6/00 USA
3/01 Finland
5/01 UK
9/01 Norway
10/01 Canada
10/01 South Africa
11/01 Ireland
Tenecteplase is used to dissolve blood clots that have formed in the blood vessels of the heart and seriously lessen the flow of blood in the heart. This medicine is used to improve survival after a heart attack.

26. Drug launch probability profiles: U.S. vs. Canada

27. Findings
Launches of New Chemical Entities (NCEs) have a strong positive impact on the probability of survival
Launches of (older) drugs that are not NCEs—many of which may already have been on the market—do not increase longevity

28. Contribution of NCE launches to longevity increase
Between 1986 and 2000, average life expectancy of the entire population of sample countries increased by almost two (1.96) years.
The estimates imply that NCE launches accounted for 0.79 years (40%) of the increase in longevity.
The average annual increase in life expectancy of the entire population resulting from NCE launches is .056 years, or 2.93 weeks.

29. Contribution of NCE launches to increase in average life expectancy of the population since 1986

30. Cost per life-year gained from the launch of NCEs
In 1997, average per capita pharmaceutical expenditure in OECD countries was about $250
The average annual increase in life expectancy of the entire population resulting from NCE launches is .056 years
Hence pharmaceutical expenditure per person per year divided by the increase in life-years per person per year attributable to NCE launches is about $4500
This is far lower than most estimates of the value of a life-year
Moreover, since the numerator includes expenditure on old drugs as well as on recently-launched NCEs, it probably grossly overstates the cost per life-year gained from the launch of NCEs

31. The effect of drug vintage on survival rates: individual-level evidence from Puerto Rico’s Medicaid program

32. Data
All medical and pharmacy claims of ASES beneficiaries during the period January 1-June 30, 2000
Almost 800,000 people; 540,000 had pharmacy claims
About 12.2 million claims
List of all Puerto Rican residents who died during the period

33. Low utilization of post-1980 drugs in ASES

34. DIEDi = b1970 POST1970i + b1980 POST1980i + b1990 POST1990i + g Zi + ei
where:
DIEDi
= 1 if individual i died during the period
= 0 otherwise
POST1970i
= the fraction of individual i’s prescribed medicines whose active ingredients were approved by the FDA after 1970
POST1980i
= the fraction of individual i’s prescribed medicines whose active ingredients were approved by the FDA after 1980
POST1990i
= the fraction of individual i’s prescribed medicines whose active ingredients were approved by the FDA after 1990 Zi
= a vector of covariates ei
= a disturbance

35. Covariates Demographic information (age, sex, region)
Person’s utilization of services (number of physician encounters, pharmacy claims, hospital admissions during Jan.-June 2000)
Nature of person’s illnesses (diagnosis codes grouped into 15 broad disease groups)

36. Mortality rate declines as drug vintage increases

37. Analysis by disease group

38. The effect of using newer drugs on admissions of elderly Americans to hospitals and nursing homes: state-level evidence from

39. The effect of using newer drugs on admissions of elderly Americans to hospitals and nursing homes: state-level evidence from
Examine the effect of pharmaceutical innovation on admissions of elderly Americans to hospitals and nursing homes during , using longitudinal state-level data on 12 states.
Hospital and nursing home admissions data derived from the State Inpatient Databases, which contain the universe of inpatient discharge abstracts in participating States
State-level drug utilization information for outpatient drugs purchased by State Medicaid agencies.
Very precise information about the vintage (FDA approval year) distribution of over 43,000 products utilized by 24 million people, by state and calendar quarter, from 1991 to the present.
The extent of utilization of new drugs in the Medicaid program is strongly correlated with the extent of utilization of new drugs in general.

40. Other factors controlled for
state and year fixed effects
per capita income
percent of state residents below the poverty line
percent of state residents with no public or private health insurance
percent of state residents who completed high school
percent of state residents who completed 4 years of college
mean body mass index (BMI) of state residents

41. Findings
Mean vintage of Medicaid Rx’s increased by 6.2 years between 1997 and 2003
Mean vintage of 1997 Rx’s was
Mean vintage of 2003 Rx’s was
States that had larger increases in drug vintage had smaller increases in the number of hospital and nursing-home admissions per elderly person.
Use of newer drugs (increase in mean vintage) increased drug expenditure per person by $284-$778 in 2003
Use of newer drugs reduced the number of hospital admissions by 6.1 per hundred people in 2003; this was worth $785 per person
Use of newer drugs reduced the number of nursing home admissions by 2.7 per hundred people in 2003; this was worth $1166 per person
Although use of newer drugs increases life expectancy, it reduces lifetime admissions to hospitals and nursing homes

43. ADMa
LEold
LEnew
Old-drug profile
New-drug profile

44. Availability of new drugs and Americans’ ability to work

45. % of People Unable to Work, by Age
Illness-induced early retirement of
older workers: human-capital losses

46. Research objectives
Investigate the extent to which the introduction of new drugs has increased society’s ability to produce goods and services, by increasing the number of hours worked per member of the working-age population.
Attempt to determine whether the value of the increase in goods and services resulting from new drugs exceeds the cost of the drugs.

47. Previous evidence re. the impact of new drugs on ability to work
Numerous case studies of specific drugs
Terbutaline (approved by the FDA in 1974) for asthma
Glipizide (1984) for diabetes
Sumatriptan and rizatriptan (1992 and 1998, respectively) for migraines.
However, it is difficult to estimate from case studies the average or aggregate effect of new drugs on ability to work

48. National Health Interview Survey
Principal source of information on the health of the population of the United States
Survey remained the same during the period
During that period, it collected information from 1,017,164 working-age Americans on 133 chronic conditions and impairments

49. Condition-specific data
NHIS collected information about:
whether each person was unable to work, mainly due to one of the chronic conditions, and
the number of work-days missed in the two weeks preceding the interview due to each chronic condition (for currently employed persons)
Each respondent to the survey was asked about 1/6 of the 133 conditions

50. 20 most frequent conditions%
cum N
cum %
% unable to work
Sinusitis
27,457
12.6
0.1%
Arthritis
22,668
10.4
50,125
22.9
6.8%
Hypertension
22,428
10.3
72,553
33.2
3.7%
Allergic Rhinitis
18,029
8.2
90,582
41.4
Gastrointestinal Disorders - Other
14,264
6.5
104,846
47.9
1.0%
Skin Disorders - Other
11,148
5.1
115,994
53.0
0.2%
Migraines
8,726
4.0
124,720
57.0
0.8%
Bronchitis
7,884
3.6
132,604
60.6
Headaches
7,315
3.3
139,919
64.0
0.5%
Cardiovascular Disease
7,152
147,071
67.3
10.4%
Asthma
6,820
3.1
153,891
70.4
3.9%
Dermatitis
6,381
2.9
160,272
73.3
Peripheral Vascular Disease
6,200
2.8
166,472
76.1
0.7%
Diabetes
5,269
2.4
171,741
78.5
13.3%
Bursitis/Tendonitis
4,024
1.8
175,765
80.4
1.3%
Ulcers
3,855
179,620
82.1
2.7%
Acne
3,174
1.5
182,794
83.6
0.0%
Thyroid Disorders
3,005
1.4
185,799
85.0
1.7%
Anemia
2,873
1.3
188,672
86.3
1.4%
Kidney Disorders
2,704
1.2
191,376
87.5
3.5%

51. Probability of being unable to work in 1996 due to 47 major chronic conditions

52. Benefits vs. costs of new drugs
Benefit: increase in expected earnings due to increased probability of being able to work
Cost: average expenditure on new drugs for these conditions

53. Biomedical innovation, longevity, and quality of life
Health is improving
Longevity
“Quality of life”/functional status
Biomedical innovation is responsible for a significant part of improvements in health

54. Summary
Public health depends on the quality as well as the quantity of pharmaceuticals consumed
There is an easily measured characteristic of drugs that is strongly correlated with quality: vintage
The vintage of a drug is the year in which the drug’s active ingredient was first marketed
Mean vintage (or the % of new drugs) varies across individuals, regions, and diseases
Both micro and macro evidence indicate that drug vintage has important effects on mortality, hospital and nursing home utilization, and other health outcomes

55. Some of my published articles
“Pharmaceutical Knowledge-Capital Accumulation and Longevity,” in Measuring Capital in the New Economy, ed. by Carol Corrado, John Haltiwanger, and Dan Sichel, pp (University of Chicago Press, 2005).
"Availability of new drugs and Americans' ability to work," Journal of Occupational and Environmental Medicine 47 (4), April 2005,
“The Effect of Access Restrictions on the Vintage of Drugs Used by Medicaid Enrollees,” American Journal of Managed Care 11, Special Issue, 2005, SP7-SP13.
"The impact of new drug launches on longevity: evidence from longitudinal disease-level data from 52 countries, ," International Journal of Health Care Finance and Economics 5, 2005, pp
“Sources of U.S. Longevity Increase, ,” Quarterly Review of Economics and Finance 44(3), pp (July 2004).
“The Effect of New Drugs on HIV Mortality in the U.S., ,” Economics and Human Biology 1 (2003)
“Pharmaceutical Innovation, Mortality Reduction, and Economic Growth,” in Measuring the Gains from Medical Research: An Economic Approach, ed. by Kevin M. Murphy and Robert H. Topel (Chicago: University of Chicago Press, 2003), pp
“Are the Benefits of Newer Drugs Worth Their Cost? Evidence from the 1996 MEPS,” Health Affairs 20(5), September/October 2001,