New drugs are (typically) more expensive than old drugs. If a hospital decides to use the latest drug technology, this will increase costs…right?
This may not always be the case. If new drugs are more effective than old drugs, then giving patients the new expensive drug may cuts costs in other areas (such as decreased hospitalizations). Lichtenberg (2009) examines whether utilizing new cardiovascular drugs has cut costs for 20 OECD countries between 1995 and 2003.
Lichtenberg uses a diference in difference framework as follows:
- ln Yit = β(RxVintageit) + γZit + αi + δt + εit
The dependent variable, Yit, measures either hospital use or mortality due to cardiovascular disease. The vector Z represents a host of variables which could explain cardiovascular related morality or hospital admission. The variables αi, δt are country and year dummy variables effects.
The variable of interest is the RxVintage. This variable is the weighted average of the launch year of the cardiovascular drugs used. For instance, let us assume that drug A was launched in 1996 and drug B was launched in 2002. If the U.S. used 2/3 drug B and 1/3 drug A, then RxVintage =1998. If on the other hand, they used 1/3 drug A and 2/3 drug B, then RxVintage=2000. [Lichtenberg actually uses a simpler technique where a drug gets a value of 1 if it was launched after 1995 and a value of 0 otherwise.]
In essence, this specification compares changes in hospitalization rates among countries that increased RxVintage over time with those who did not.
Of all the countries, Australia, Canada and Norway were mostly likely to use newer vintage drugs. The U.S. placed 5th. The Czech Republic, Poland, Hungary, and the Slovak Republic were lease likely to use newer drugs among OECD countries.
“Countries with larger increases in the share of cardiovascular drug SUs [standard units] that were post-1995 SUs had smaller increases in the cardiovascular disease hospital discharge rate, controlling for the quantity of cardiovascular medications consumed per person, the use of other medical innovations (CT scanners and MRI units), consumption of calories, tobacco, and alcohol, and demographic variables (population size and age structure, income, and educational attainment)...The estimates indicate that if drug vintage had not increased during 1995–2004, hospitalization and mortality would have been higher in 2004. We estimate that per capita expenditure on cardiovascular hospital stays would have been 70% ($89) higher in 2004 had the drug vintage not increased during 1995–2004.“
For cardiovascular drugs, it looks like new drugs win the day.
- Lichtenberg, Frank R (2009) “Have newer cardiovascular drugs reduced hospitalization? Evidence from longitudinal country-level data on 20 OECD countries, 1995-2003” Health Economics, Volume 18 Issue 5, Pages 519 – 534