Who Benefits from New Medical Technologies? Estimates of Consumer and Producer Surpluses for HIV/AIDS Drugs

The social value of an innovation is comprised of the value to consumers and the value to innovators. We estimate that for the HIV/AIDS therapies that entered the market from the late 1980's onwards, innovators appropriated only 5% of the social surplus arising from these new technologies. Despite the high annual costs of these drugs to patients, the low share of social surplus going to innovators raises concerns about advocating cost-effectiveness criteria that would further reduce this share, and hence further reduce incentives for innovation.

Health Care, Technological Change, and Altruistic Consumption Externalities

Traditional economic analysis has proposed well known remedies to deal with consumption externalities and inefficient technological change in isolation, but lacks a general framework for addressing them jointly. We argue that the joint determination of R&D and consumption externalities is central to health care industries around the world generally, and for the pharmaceutical industry in particular. This is because technological change drives the expansion of the health care sector and altruism seems to motivate many public subsidies such as Medicaid in the US. We stress that standard remedies to the two problems in isolation are inefficient — Pigouvian corrections to consumption externalities are inefficient under technological change and standard R&D stimuli are inefficient because they focus only on consumer and producer surplus, not the altruistic surplus accruing to non-consumers. We provide illustrative calculations of the dynamic inefficiency in the level of US R&D spending due to the inability of innovators to appropriate the altruistic surplus. We find that altruistic gains amount to about a quarter of consumer surplus in the baseline scenario. Our analysis implies that total R&D could be under-provided by as much as 60 percent.

Surplus Appropriation from R&D and Health Care Technology Assessment Procedures

Given the rapid growth in health care spending that is often attributed to technological change, many private and public institutions are grappling with how to best assess and adopt new health care technologies. The leading technology adoption criteria proposed in theory and used in practice involve so called "cost-effectiveness" measures. However, little is known about the dynamic efficiency implications of such criteria, in particular how they influence the R&D investments that make technologies available in the first place. We argue that such criteria implicitly concern maximizing consumer surplus, which many times is consistent with maximizing static efficiency after an innovation has been developed. Dynamic efficiency, however, concerns aligning the social costs and benefits of R&D and is therefore determined by how much of the social surplus from the new technology is appropriated as producer surplus. We analyze the relationship between cost-effectiveness measures and the degree of surplus appropriation by innovators driving dynamic efficiency. We illustrate how to estimate the two for the new HIV/AIDS therapies that entered the market after the late 1980's and find that only 5% of the social surplus is appropriated by innovators. We show how this finding can be generalized to other existing cost-effectiveness estimates by deriving how those estimates identify innovator appropriation for a set of studies of over 200 drugs. We find that these studies implicitly support a low degree of appropriation as well. Despite the high annual cost of drugs to patients, very low shares of social surplus may go to innovators, which may imply that cost-effectiveness is too high in a dynamic efficiency sense.

Endogenous Cost-Effectiveness Analysis in Health Care Technology Adoption

Increased health care spending has been argued to be largely due to technological change. Cost-effectiveness analysis is the main tool used by private and public third-party payers to prioritize adoption of the new technologies responsible for this growth. However, such analysis by payers invariably reflects prices set by producers rather than resources used to produce treatments. This implies that the “costs” in cost-effectiveness assessments depend on endogenous markups which are, in turn, influenced by demand factors of patients, doctors, and payers. Reimbursement policy based on endogenous cost-effectiveness levels may therefore bear little relationship to efficient use of scarce medical resources. Using data on technology appraisals in the United Kingdom, we test for conditions under which adoption based on endogenous cost-effectiveness may lead to adoption of more inefficient treatments in terms of resource use.

The Pragmatist’s Guide to Comparative Effectiveness Research

All developed countries have been struggling with a trend toward health care absorbing an ever-larger fraction of government and private budgets. Adopting any treatment that improves health outcomes, no matter what the cost, can worsen allocative inefficiency by paying dearly for small health gains. One potential solution is to rely more heavily on studies of the costs and effectiveness of new technologies in an effort to ensure that new spending is justified by a commensurate gain in consumer benefits. But not everyone is a fan of such studies and we discuss the merits of comparative effectiveness studies and its cousin, cost-effectiveness analysis. We argue that effectiveness research can generate some moderating effects on cost growth in healthcare if such research can be used to nudge patients away from less-effective therapies, whether through improved decision making or by encouraging beefed-up copayments for cost-ineffective procedures. More promising still for reducing growth is the use of a cost-effectiveness framework to better understand where the real savings lie—and the real savings may well lie in figuring out the complex interaction and fragmentation of healthcare systems.

Opioid prescribing by multiple providers in Medicare: retrospective observational study of insurance claims

Objectives: To estimate the frequency and characteristics of opioid prescribing by multiple providers in Medicare and the association with hospital admissions related to opioid use. Design: Retrospective cohort study. Setting: Database of prescription drugs and medical claims in 20% random sample of Medicare beneficiaries in 2010. Participants: 1 808 355 Medicare beneficiaries who filled at least one prescription for an opioid from a pharmacy in 2010. Main outcome measures Proportion of beneficiaries who filled opioid prescriptions from multiple providers; proportion of these prescriptions that were concurrently supplied; adjusted rates of hospital admissions related to opioid use associated with multiple provider prescribing. Results: Among 1 208 100 beneficiaries with an opioid prescription, 418 530 (34.6%) filled prescriptions from two providers, 171 420 (14.2%) from three providers, and 143 344 (11.9%) from four or more providers. Among beneficiaries with four or more opioid providers, 110 671 (77.2%) received concurrent opioid prescriptions from multiple providers, and the dominant provider prescribed less than half of the mean total prescriptions per beneficiary (7.9/15.2 prescriptions). Multiple provider prescribing was highest among beneficiaries who were also prescribed stimulants, non-narcotic analgesics, and central nervous system, neuromuscular, and antineoplastic drugs. Hospital admissions related to opioid use increased with multiple provider prescribing: the annual unadjusted rate of admission was 1.63% (95% confidence interval 1.58 to 1.67%) for beneficiaries with one provider, 2.08% (2.03% to 2.14%) for two providers, 2.87% (2.77% to 2.97%) for three providers, and 4.83% (4.70% to 4.96%) for four or more providers. Results were similar after covariate adjustment. Conclusions: Concurrent opioid prescribing by multiple providers is common in Medicare patients and is associated with higher rates of hospital admission related to opioid use

The Value of Life in General Equilibrium

Perhaps the most important change of the last century was the great expansion of life itself -- in the US alone, life expectancy increased from 48 to 78 years. Recent economic estimates confirm this claim, finding that the economic value of the gain in longevity was on par with the value of growth in material well-being, as measured by income per capita. However, ever since Malthus, economists have recognized that demographic changes are linked to economic behavior and vice versa. Put simply, living with others who live 78 years is different than living with others who live only 48 years, so that valuing the extra 30 years of life is not simply a matter of valuing the extra years a single individual lives. The magnitude by which such valuations differ is overstated when there are increasing returns to population and is understated under decreasing returns. Focusing on the gains in life expectancy in the United States from 1900 to 2000, we find that a significant part of the value of longer life may be affected by these general equilibrium demographic effects.

Do heads of government age more quickly? Observational study comparing mortality between elected leaders and runners-up in national elections of 17 countries

Objectives: To determine whether being elected to head of government is associated with accelerated mortality by studying survival differences between people elected to office and unelected runner-up candidates who never served. Design: Observational study. Setting: Historical survival data on elected and runner-up candidates in parliamentary or presidential elections in Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, New Zealand, Norway, Poland, Spain, Sweden, United Kingdom, and United States, from 1722 to 2015. Participants: Elected and runner-up political candidates. Main outcome measure Observed number of years alive after each candidate’s last election, relative to what would be expected for an average person of the same age and sex as the candidate during the year of the election, based on historical French and British life tables. Observed post-election life years were compared between elected candidates and runners-up, adjusting for life expectancy at time of election. A Cox proportional hazards model (adjusted for candidate’s life expectancy at the time of election) considered years until death (or years until end of study period for those not yet deceased by 9 September 2015) for elected candidates versus runners-up. Results: The sample included 540 candidates: 279 winners and 261 runners-up who never served. A total of 380 candidates were deceased by 9 September 2015. Candidates who served as a head of government lived 4.4 (95% confidence interval 2.1 to 6.6) fewer years after their last election than did candidates who never served (17.8 v 13.4 years after last election; adjusted difference 2.7 (0.6 to 4.8) years). In Cox proportional hazards analysis, which considered all candidates (alive or deceased), the mortality hazard for elected candidates relative to runners-up was 1.23 (1.00 to 1.52). Conclusions: Election to head of government is associated with a substantial increase in mortality risk compared with candidates in national elections who never served

Affirmative Action Bans and Health Risk Behaviors

College affirmative action bans were associated with higher rates of smoking and drinking in underrepresented minority 11th and 12th graders, and these students continued to smoke at higher rates into young adulthood. Policymakers should consider unintended public health consequences of proposals, such as affirmative action bans, that may limit socioeconomic opportunities