No abstract

This work extends prior research that finds drug development is driven by demand factors such as mortality rates of the diseases new drugs are aimed at. Here we find that the number of drugs in the development pipeline is strongly positively related to the price of existing drugs treating those diseases. This gives us a direct price elasticity measure from which we can draw some inference about the effect on new drug development that might occur if the pricing regime in the United States were to change.

Abstract. We analyze the influence of technological progress on pharmaceuticals on rising health expenditures using US State level panel data. Improvements in medical technology are believed to be partly responsible for rapidly rising health expenditures. Even if the technological progress in medicine improves health outcomes and life quality, it can also increase the expenditure on health care. Our findings suggest that newer drugs increase the spending on prescription drugs since they are usually more expensive than their predecessors. However, they lower the demand for other types of medical services, which causes the total spending to decline. A one-year decrease in the average age of prescribed drugs causes per capita health expenditures to decrease by $31.92. The biggest decline occurs in spending on hospital and home health care due to newer drugs.

Abstract. We analyze the influence of technological progress on pharmaceuticals on rising health expenditures using US State level panel data. Improvements in medical technology are believed to be partly responsible for rapidly rising health expenditures. Even if the technological progress in medicine improves health outcomes and life quality, it can also increase the expenditure on health care. Our findings suggest that newer drugs increase the spending on prescription drugs since they are usually more expensive than their predecessors. However, they lower the demand for other types of medical services, which causes the total spending to decline. A one-year decrease in the average age of prescribed drugs causes per capita health expenditures to decrease by $31.92. The biggest decline occurs in spending on hospital and home health care due to newer drugs.

Our maintained hypothesis is that drug development responds to the intensity of consumer demand. We look at the distribution of drug development by disease and link this to the economic harm caused by disease as measured by mortality. Mortality data represent the net effect of human frailty and the efficacy of the existing drugs on the market. If people continue to die from a given condition then existing drugs are not perfect and there are potential profits from developing a more effective compound. We aggregate economic harm worldwide and into three broad regions: the United States, other developed countries, and underdeveloped countries. We find that economic harm motivates the distribution of drug development across diseases, but it is economic harm in the United States alone that matters.