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.

Importation and Innovation

Importation of drugs into the U.S. would result in a decline in U.S. drug prices. The purpose of this paper is to assess the consequences of importation for new drug development. A simple theoretical model of drug development suggests that the elasticity of innovation with respect to the expected price of drugs should be at least as great as the elasticity of innovation with respect to expected market size (disease incidence). I examine the cross-sectional relationship between pharmaceutical innovation and market size among a set of diseases (different types of cancer) exhibiting substantial exogenous variation in expected market size. I analyze two different measures of pharmaceutical innovation: the number of distinct chemotherapy regimens for treating a cancer site, and the number of articles published in scientific journals pertaining to drug therapy for that cancer site. Both analyses indicate that the amount of pharmaceutical innovation increases with disease incidence. The elasticity of the number of chemotherapy regimens with respect to the number of cases is 0.53. The elasticity of MEDLINE drug cites with respect to cancer incidence throughout the world is 0.60. In the long run, a 10% decline in drug prices would therefore be likely to cause at least a 5-6% decline in pharmaceutical innovation.

The Effect of New Political Administration on Federal Government Productivity and Employment

There have been a number of econometric studies of the effect of changes in management and control on the productivity and employment of private,but not but not of public, enterprises. This paper examines the impact of changes in political administration on the productivity and employment of the entire executive branch of the U.S. government using data compiled under the Bureau of Labor Statistics' Federal Productivity Measurement Program. The estimates Measurement Program. The estimates indicate that the mean rate of productivity growth in the first year of administrations is 2.6 times as high as the mean growth in subsequent years. Also, employment growth is strictly increasing with respect to the administration's tenure: 95% of federal employment growth during the period 1967-94 occurred in the fourth or later years of political administrations, although administrations were that old only 36% of the time. These findings are broadly consistent with evidence about the private sector. They suggest that the inauguration of a new administration initially purges the executive branch, but as an administration's tenure increases, fat and inefficiency tend to accumulate.