The Benefits and Costs of Newer Drugs: Evidence from the 1996 Medical Expenditure Panel Survey

The nation's spending for prescription drugs has grown dramatically in recent years. Previous studies have shown that the replacement of older drugs by newer, more expensive, drugs is the single most important reason for this increase, but they did not measure how much of the difference between new and old drug prices reflects changes in quality as better, newer drugs replace older, less effective medications. In this paper we analyzed prescribed medicine event-level data (linked to person- and condition-level data) from the 1996 Medical Expenditure Panel Survey (MEPS) to provide evidence about the effect of drug age on mortality morbidity, and total medical expenditure, controlling for a number of characteristics of the individual and the event. (Previous researchers have hypothesized that differences in treatment patterns across individuals and areas may occur because of physicians' uncertainty and ignorance over the best medical practice.) The MEPS data enable us to control for many important attributes of the individual, condition, and prescription that influence outcomes and non-drug expenditures and that may be correlated with drug age. These include sex, age, education, race, income, insurance status, who paid for the drug, the condition for which the drug was prescribed, how long the person has had the condition, and the number of medical conditions reported by the person. Indeed, the fact that many individuals in the sample have both multiple medical conditions and multiple prescriptions means that we can control for all individual characteristics both observed and unobserved by including individual effects'. The results provide strong support for the hypothesis that the replacement of older by newer drugs results in reductions in mortality morbidity, and total medical expenditure. Although the mortality rate in this sample is quite low making it difficult to detect any...

The Effect of Drug Vintage on Survival: Micro Evidence from Puerto Rico's Medicaid Program

Using micro data on virtually all of the drugs and diseases of over 500,000 people enrolled in Puerto Rico's Medicaid program, we examine the impact of the vintage (original FDA approval year) of drugs used to treat a patient on the patient's 3-year probability of survival, controlling for demographic characteristics (age, sex, and region), utilization of medical services, and the nature and complexity of illness. We find that people using newer drugs during January-June 2000 were less likely to die by the end of 2002, conditional on the covariates. The estimated mortality rates are strictly declining with respect to drug vintage. For pre-1970 drugs, the estimated mortality rate is 4.4%. The mortality rates for 1970s, 1980s, and 1990s drugs are 3.6%, 3.0%, and 2.5%, respectively. The actual mortality rate is about 16% (3.7% vs. 4.4%) lower than it would have been if all of the drugs utilized in 2000 had been pre-1970 drugs. Estimates for subgroups of people with specific diseases display the same general pattern.

"Industrial De-Diversification and Its Consequences for Productivity"

Due in large part to intense takeover activity during the 1980s, the extent of American firms' industrial diversification declined significantly during the second half of the decade. The mean number of industries in which firms operated declined 14 percent, and the fraction of single-industry firms increased 54 percent. Firms that were "born" during the period were much less diversified than those that "died", and "continuing" firms reduced the number of industries in which they operated. Using plant-level Census Bureau data, we show that productivity is inversely related to the degree of diversification: holding constant the number of the parent firm's plants, the greater the number of industries in which the parent operates, the lower the productivity of its plants. Hence de-diversification is one of the means by which recent takeovers have contributed to U.S. productivity growth. We also find that the effectiveness of regulations governing disclosure by companies of financial information for their industry segments was low when they were introduced in the 1970s and has been declining ever since.

The Effect of Pharmaceutical Innovation on the Functional Limitations of Elderly Americans Evidence from the 2004 National Nursing Home Survey

I examine the effect of pharmaceutical innovation on the functional status of nursing home residents using cross-sectional, patient-level data from the 2004 National Nursing Home Survey. This was the first public-use survey of nursing homes that contains detailed information about medication use, and it contains better data on functional status than previous surveys. Residents using newer medications and a higher proportion of priority-review medications were more able to perform all five activities of daily living (ADLs), controlling for age, sex, race, marital status, veteran status, where the resident lived prior to admission, primary diagnosis at the time of admission, up to 16 diagnoses at the time of the interview, sources of payment, and facility fixed effects. The ability of nursing home residents to perform activities of daily living is positively related to the number of “new” (post-1990) medications they consume, but unrelated to the number of old medications they consume. If 2004 nursing home residents had used only old medications, the fraction of residents with all five ADL dependencies would have been 58%, instead of 50%. During the period 1990-2004, pharmaceutical innovation reduced the functional limitations of nursing home residents by between 1.2% and 2.1% per year.

Private Investment in R&D to Signal Ability to Perform Government Contracts

Official government statistics on the "mission-distribution" of U.S. R&D investment are based on the assumption that only the government sponsors military R&D. In this paper we advance and test the alternative hypothesis, that a significant share of privately-financed industrial R&D is military in orientation. We argue that in addition to (prior to) contracting with firms to perform military R&D, the government deliberately encourages firms to sponsor defense research at their own expense, to enable the government to identify the firms most capable of performing certain government contracts, particularly those for major weapons systems. To test the hypothesis of, and estimate the quantity of, private investment in 'signaling' R&D, we estimate variants of a model of company R&D expenditure on longitudinal, firm-level data, including detailed data on federal contracts. Our estimates imply that about 30 percent of U.S. private industrial R&D expenditure in 1984 was procurement- (largely defense-) related, and that almost half of the increase in private R&D between 1979 and 1984 was stimulated by the increase in Federal demand.

IR&D Project Data and Theories of R&D Investment

This paper analyzes data on a large sample of research and development (R&D) projects documented in the Defense Department's Independent R&O Data Bank, both to provide some stylized facts about R&O investment at the project level and to test the implications of a control-theoretical model developed by Grossman and Shapiro. We calculate moments of the marginal distributions and elasticities of cost with respect to time, by type of project (e.g. basic research, development), and discriminate between alternative hypothesis concerning the shape of the hazard function of R&D investment. Consistent with the major implication of the Grossman-Shapiro model, the rate of investment in a project tends to increase as the project approaches completion.

The Output Contributions of Computer Equipment and Personnel: A Firm- Level Analysis

This paper examines the output contributions of capital and labor deployed in information systems (IS) at the firm level during the period 1988-91 throughout the business sector, using two different sources of data on these inputs. Our production function estimates suggest that there are substantial excess returns to both IS capital and IS labor, although the size and significance of the excess returns to IS capital is larger. Computer capital and labor jointly contribute, or account for, about 21 percent of output, although only about 10% of both capital and labor income accrue to IS factors. Although IS employees accounted for a very small share of total employment by 1986, IS employment growth is estimated to have made a larger contribution to 1976-86 output growth than non-IS employment, due to the very rapid growth (16% per annum) of IS employment. The estimated marginal rate of substitution (MRS) between IS and non-IS employees, evaluated at the sample mean, is 6: one IS employee can be substituted for six non-IS employees without affecting output.