Abstract
This study uses patient-level data to analyze the effect of technological change embodied in pharmaceuticals on the longevity of elderly Americans. Previous patient-level studies could not control for important patient attributes such as education, income, and race; they did not provide estimates of the effect of using newer drugs on life expectancy, or of the overall cost-effectiveness of new drugs relative to old drugs; and they were not based on nationally representative samples of individuals. Our data, primarily derived from the Medical Expenditure Panel Survey and the Linked Mortality Public-use Files, enable us to overcome those limitations.
We investigate the effect of the vintage (year of U.S. Food and Drug Administration approval) of the prescription drugs used by an individual on his or her survival and medical expenditure, controlling for a number of demographic characteristics and indicators and determinants of health status. When we control only for age, sex, and interview year, we estimate that a 1-year increase in drug vintage increases life expectancy by 0.52%. Controlling for a much more extensive set of other attributes (the mean year the person started taking his or her medications, and dummy variables for activity limitations, race, education, family income as a percent of the poverty line, insurance coverage, Census region, body mass index, smoking, and more than 100 medical conditions) has virtually no effect on the estimate of the effect of drug vintage on life expectancy. Between 1996 and 2003, the mean vintage of prescription drugs increased by 6.6 years. This is estimated to have increased the life expectancy of elderly Americans by 0.41–0.47 years. This suggests that not less than two-thirds of the 0.6-year increase in the life expectancy of elderly Americans during 1996–2003 was due to the increase in drug vintage. The 1996–2003 increase in drug vintage is also estimated to have increased annual drug expenditure per elderly American by $207, and annual total medical expenditure per elderly American by $218. This implies that the incremental cost-effectiveness ratio (cost per life-year gained) of pharmaceutical innovation was about $12,900. This estimate of the cost per life-year gained from the use of newer drugs is a small fraction of leading economists’ estimates of the value of (willingness to pay for) an additional year of life. It is also consistent with estimates from clinical trials.