The costs of new drugs are the subject of frequent criticism in public debate. Concerns about these costs are behind calls for government intervention in the pharmaceutical sector, up to and including demands for a national pharmacare monopoly to help get prescription drug spending under control.
Of course, looking at costs in isolation tells us very little about whether pharmaceutical innovation is worthwhile. When we take into account the benefits new drugs bring, they are most certainly worth the cost—and then some.
Between 1995 and 2012, life expectancy at birth in Canada rose by more than three years. While such an increase naturally has multiple sources, a substantial and growing number of studies have demonstrated that pharmaceutical innovation is responsible for a large part of long-term improvements in health and longevity.
Time and again, studies have demonstrated the positive impact of pharmaceutical innovation, using different methodologies. In Switzerland, for example, one study using patient-level data concluded that cardiovascular drug innovation accounted for at least a quarter of the increase in longevity among elderly residents from 2003-2012, and that it increased their longevity by 3-6 months.
Another study, this one using disease-level data for Canada, found that the cancer sites (breast, lung, colon, etc.) that experienced more pharmaceutical innovation had larger declines in the premature mortality rate.
Health status and productivity are also positively affected by pharmaceutical innovation. Work days lost and school days missed per year because of illness or injury in the U.S. declined more rapidly from 1997 to 2010 for medical conditions with larger increases in the mean number of newer prescription drugs consumed. The use of newer drugs also reduced the ratio of the number of workers receiving Social Security Disability Insurance benefits to the working-age population.
Although new drugs can appear expensive when considered in isolation, pharmaceutical innovation leads to cost savings elsewhere in the system through the reduced use of health services like hospitals and nursing homes. I recently investigated the impact that pharmaceutical innovation had on utilization of hospital care by cancer patients in Canada from 1995 to 2012.
During this period, the number of cancer patient hospital days declined by 23%, even though the number of new cancer cases diagnosed increased by 46%. My research shows that the cancer sites (breast, prostate, lung, etc.) that experienced more pharmaceutical innovation had larger declines in the use of hospital care. If no new drugs had been registered during the 1980-1997 period, there would have been 1.72 million additional cancer patient hospital days in 2012—almost twice as many as there actually were.
These extra hospital days would have come at an additional cost of C$4.7 billion. In contrast, total spending on cancer drugs (old and new) in 2012 was an estimated C$3.8 billion. These pharmaceutical innovations therefore certainly led to substantial savings.
Studies have also shown financial incentives are a prerequisite for the industry to sustain a robust rate of pharmaceutical innovation. It’s important for drugs to be appropriately priced in order for manufacturers to invest in the development of new molecules, a very risky process that can be very expensive for the innovating company.
Simply put, the right financial incentives are both necessary and desirable. The federal government should think twice before doing anything that might interfere with the continuing development of cost-effective drugs that allow Canadians to live longer, healthier lives.
Frank R. Lichtenberg is an Associate Researcher at the MEI and the author of "The Benefits of Pharmaceutical Innovation: Health, Longevity, and Savings." The views reflected in this op-ed are his own.