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PHARMA: Do Newer Drugs Really Pay For Themselves?

May 30th, 2007

Widely cited research suggesting that newer drugs “pay for themselves” is unreliable and should not guide policymakers until more valid research is undertaken, say Yuting Zhang and Stephen Soumerai of Harvard Medical School in a paper in the current issue of Health Affairs.

In Health Affairs [free access] and elsewhere, Frank Lichtenberg of Columbia University has claimed that in the aggregate, using newer medications reduces spending on other health care items, such as hospitalizations, by much more than it increases prescription drug spending. However, Zhang and Soumerai say that Lichtenberg failed to eliminate “potential selection biases, especially whether the use of a given medication precedes, is contemporaneous with, or follows nondrug health care costs in a given year.” Zhang and Soumerai say that no aggregate-level analysis of new versus old drugs can yield valid estimates of cost offsets. What is needed, they say, is rigorous research looking at how specific drugs or drug classes influence costs and outcomes for patients over time.

Lichtenberg responds:

“Zhang and Soumerai have done everything they can think of to make the new drug cost offset effect disappear, or appear to disappear. Some features of their analysis make very little sense; others are clearly incorrect. (I provided extensive assistance to them but am not responsible for the deficiencies in their analysis.) Nevertheless, my key finding—that, in general, using newer drugs has reduced nondrug costs more than it has increased drug costs—survives their assault.”

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1 Response to “PHARMA: Do Newer Drugs Really Pay For Themselves?”

  1. Michael D. Miller, MD Says:

    There clearly are wide cost effectiveness differences among types of drugs depending upon the disease they treat, what treatment options they “replace”, and of course their actual cost. As such, aggregate analyses are problematic because of the changing nature of new treatment development, i.e. the types of new treatments developed in the 1980s was different than the 1990s, and will be different than this or the next decade. From a policy perspective, what should not be forgotten is that the financial incentives for new drug development are based upon current reimbursement amounts and practices for the specific disease area. Bio-Pharma companies realize that payers are getting more focused on the cost effectiveness within specific disease areas, and this reality is increasingly incorporated into industry R&D calculations. However, if debate about the overall cost effectiveness of new drugs leads to general policies that depresses the overall incentives for biomedical R&D, then society and patients will suffer.

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